The truth about buying department store closeouts

I thought long and hard before writing this. I'm an honest person. I'm also a fair person. I run an honest business. There are a lot of people who are brokering closeout apparel. While only a few are blatantly dishonest, most just quite frankly don't know their merchandise and don't know what they are doing. This is a very, very long article, but hopefully you will learn a lot from this.

First of all, everything I speak of will pertain to the apparel industry exclusively because this is all we deal in.

Closeouts basically fall into two categories: salvage and job-outs. Salvage merchandise consists of customer returns, floor damages and samples. With a salvage load there is usually a percentage of merchandise that is damaged, irreparable or just not cost-effective to repair. This can range from 10-50% sometimes higher. What's left may be saleable, depending on what you can sell. Some people can invest the time or money into repairing ripped seams or missing buttons, some cannot.

Job out merchandise is pretty much merchandise that was marked down and did not sell. When it's time to stock the floors with new merchandise, the old merchandise is "pulled" from the shelves or racks. Job out merchandise is often called closeout, floor overstock, or shelf pulls. The amount of damage in a job out is minimal, but make no mistake, there will be damages, typically ranging from 5-10%.

It takes a considerable amount of money to purchase trailers of merchandise. This can range from $26,000 for a mixed Federated load (Macy's, Burdines, Bloomingdales, Rich's, etc.) to well over $100,000 for a high end department store like Saks Fifth Avenue. Because of this, the actual number of companies that buy and own trailers of merchandise are few and most of the people you will deal with are brokers.

Most of the brokers you will deal with broker anything. They will sell electronics, housewares, clothes, toys, anything that can be resold for a profit. As a result, they have very little knowledge of any specific category. They would not know the difference between Hilfiger and Hermes.

If you are a clothing retailer and you specialize in clothing, it is best to deal with a supplier who specializes in clothing as knowledge of brands is extremely important.

And also, most of the brokers have never, ever, ever seen the merchandise they broker.

As you can see, this can create a lot of problems. Let's go over a few scenarios. These scenarios are 100% real.

Buyer #1

Buyer #1 purchased 200 pieces of mixed men's apparel from Macy's department store from a closeout dealer for $5 a unit. This company owned their merchandise. Buyer was told that the lot would contain no more than 5% accessories and included Polo, Hilfiger, Ralph Lauren, Nautica, Fubu and others. When the merchandise arrived, there were approximately 20 pair of socks, 15 neckties, and 15 other miscellaneous accessories. Out of the remaining 150 pieces, only 40 were desirable designer brands. The remainder was Charter Club, Alfani and miscellaneous surfboarder and skateboarder-style brands. Buyer barely broke even on the lot.

Buyer #2

Buyer #2 purchased 100 pieces of women's mixed Federated apparel from a closeout dealer and was assured a good load. Buyer paid $7 a unit. When the merchandise arrived, there were 40 pair of bras and panties in the load. Buyer lost money on this deal.

Buyer #3
Buyer #3 was referred to a company by a good friend. The company sent a manifest of a trailer of "Bloomingdales" store stock at $3.50 a unit. Buyer was told that the trailer contained men's, women's, children's and some accessories and domestics. Buyer asked me if this was a good deal. I informed him that there was not a chance he would get Bloomingdales at $3.50 and that their trailers were not sold as mixed lots, they were sold as one category only (for example, women's ready to wear) and that if he asked a few more questions, I was sure he would find out that this was no a Bloomingdales only load, but rather a mixed federated load. Buyer asked more questions and found out that it was, in fact, a mixed Federated load. Buyer didn't buy the trailer.

Buyer #4
Buyer #4 purchased merchandise from a "broker" that was a little to slick with their presentation. This broker literally took ads from other websites, pre-sold the merchandise, used the proceeds to buy the merchandise and shipped it out. Problem was this broker was not that savvy and spent thousands of dollars on unsaleable garbage and counterfeit merchandise. Buyer #4 may have to sue to recover his money.

These are real people and these are real problems.

Let's go over some of the problems:

Some brokers/ jobbers are not honest about damages
While it is true that no person can guarantee a certain minimum or absence of damage, most should have an idea of how damaged their loads are, based on experience. If someone cannot give you a decent estimated percentage of damage, move on.

Most brokers have limited knowledge of brands
For the most part, the brands you see named in ads represent a small percentage of what's in that load. I know one buyer who purchased 250 pieces of Macy's and was expecting a reasonable percentage of designer brands (like Ralph Lauren/ Polo, Tommy Hilfiger, Elie Tahara, Theory, BCBG and others) and received 90% Charter Club. Now here, I am going to be 100% honest with you. If you want to know what a load will look like, walk into the store and look at what they have on the racks. Now, consider that what sells really well in the stores doesn't get closed out and go from there. Macy's sells Hilfiger, Nautica, Polo, DKNY, Calvin Klein and others. But they also sell Charter Club, Alfani, Sag Harbor, Norton McNaughton, Carole Little, Jennifer Moore and others. Around 30-40% of a Macy's load will have "desirable designer brands"—if it hasn't been cherry picked (or creamed as some call it). Bloomingdales merchandise is much, much better as they don't carry as many marginal brands. The higher up you go, the better the store, the better the brands.

Most jobbers mix in accessories and lingerie to keep their costs low
When you buy a mixed trailer from Federated, for the most part you get the whole kit and caboodle, accessories, hosiery, clothes, etc. Most people don't want the accessories, but the jobber has to get rid of them. So, sometimes, when you are paying $5 a unit, you are getting cheapie accessories, bras and panties because these things cost basically nothing and the jobber has to get rid of them. By adding in this inexpensive merchandise and still charging you a flat price whether it's clothes or accessories, they make a better profit. Most people think their biggest concern is that the jobber cherry picks, no your biggest concern is paying for apparel and getting accessories and lingerie mixed in.

Some brokers slightly misrepresent the stores
Some brokers sell a mixed Federated load as Bloomingdales, and even worse, some sell a Saks Inc load as Saks Fifth Avenue. Not long ago, Saks Inc. was working with Tradeout (which is now Retail Exchange) to offer their salvage merchandise for sale via the internet. Saks Incorporated owns many department stores, regional stores like Younkers and Profitts. These stores are very similar to Macy's in their selection. Saks Fifth Avenue is a divsion of Saks and is operated separately. Saks Inc is based in Birmingham and Saks Fifth Avenue is based in New York.

When Saks Inc started selling off their salvage, they sold it dirt cheap. Somewhere around $2 a unit or less. Well lots of brokers were selling this as Saks Fifth Avenue at $4 a unit (and up) and even claiming that it included Armani and Versace. Well if it did, you probably had one Armani glove! Now you get a buyer coming along, who wants top brands for next to nothing, who thinks they hit the jackpot, spends thousands on this merchandise only to receive box after box of disappointments.

Saks Fifth Avenue does not sell off a lot of merchandise. A few times a year they sell their closeouts and salvage. Saks Fifth Avenue is a very high-end store; their average retail price is around $250-300. Most jobbers won't touch it because it costs too much—they deal in inexpensive merchandise they can sell quickly. As a result, there are very, very few jobbers buying Saks Fifth Avenue (Bergdorf, Neiman Marcus, fill in the blank) merchandise. And let me be honest with you—even though Saks Fifth Avenue sells Chanel, Gucci, Prada and Armani, you won't get much of it in their closeout loads because they can mark it down in the store and sell it like crazy or sell it in their Off-Fifth stores or at employee sales.

You may have better luck with their salvage merchandise, but you won't get a lot of it. If you want to know what you will get, you will get a lot of DKNY, CK, Ellen Tracy, Eileen Fisher, Dana Buchman, Laundry, ABS, and a few other brands, and a LOT of their private label brands which includes Real Clothes, Folio and others. The better stores are better. Neiman can be heavy in damages (just walk into a Last Call and imagine getting what didn't sell there) and so forth.

Some brokers don't care about authenticity
If you are buying store closeouts, this is less of a concern. But there are a lot of brokers selling stocklots of designer apparel. Some at fire-sale prices. One of the biggest problems is that these brokers don't know and don't care if you receive counterfeit merchandise. This is particularly the case with high end Italian designer apparel and urban brands. I get email after email from people who are considering a deal and I just can't believe how blatantly fake some of this stuff is. Some people assume that if it's well made, it can't be fake. Whatever. Some people assume that just having a tag or an authenticity card (Certificate of Authenticity) is enough. Like you can't make those as well. Buyer beware.

So what does this mean to you?
Buyer beware. If a deal sounds too good to be true, it probably is. We get email after email from people wanting top tier brands for pennies on the dollar. They are ripe to get scammed. Let's be real. If you were a jobber, and by some miracle, you were able to buy Chanel suits for $10, how much would you sell it for? Would you sell them for the $20 that a lot of these prospective buyers think they are going to pay? No, you would want top dollar, and so does everyone else.

If at all possible, try to go to the nearest warehouse of a closeout dealer and see the merchandise before you buy.

If what I am are saying is true, then how do people get all the good stuff?
Some people are very well connected and have an "in" with a store or a jobber. Some people import directly from overseas. And to be honest, many people look like dinky little sellers on the surface, but in fact are huge corporations with tremendous buying power. Money talks, if you go to Saks and have a quarter of a million dollars to spend, then you can see how you will have an easier time than someone who is only looking to spend a few thousand.

And let's keep it real. $5,000 may be a lot to many people, but to these large national retailers, it's nothing. You have to spend major money to really get your foot in the door. And in many instances, you have to be prepared to take everything on that trailer.