FAQ on clearance items – influencing factors for newcomers and retailers

04.08.2020

A set of questions on the subject of clearance items, providing a brief and concise summary of everything that’s important.

What actually is a “clearance item”? What does “clearance item” mean?

In the area of retail, clearance stocks of goods are generally referred to as clearance items. These items include products that will either be phased out in the near future, or are no longer available in the product range.

Retail in clearance items is largely determined by a balance of interests. Company A fails to shift a batch of goods for some reason, so it sells the goods at favourable conditions to another company, which is able to sell the goods successfully nevertheless.

Where can I buy clearance items?

Retailers of clearance items can be found all over Germany and worldwide; they may be somewhat hidden, but they are everywhere to be found nevertheless.

Above all, a good network of retailers is a prerequisite for building contacts with retailers of clearance items. To develop a network of this kind, a sourcing platform is required. For this purpose, the IAW provides a central point of contact for deals with retailers of clearance items with the goal of: “creating a retail platform which is able to benefit everyone.”

Some points of contact are also available in the digital world, such as restposten.de and zentrada.network. These are accessible to everyone and offer a wide choice of products.

How to find the best clearance item deals?

The IAW trade fair attempts to bring the best deals together on a single platform, but when it comes to clearance items, as with almost everything else, it is important to be in the right place at the right time.
A clearance item comes into being because of various trigger factors, so it isn’t always possible to find it at a particular place. The lockdown period due to the coronavirus pandemic is an excellent example, however, with the shop closures having resulted in huge amounts of surplus stock in Easter goods, spring fashion items, etc. Therefore, have a look at the online portals or make a few phone calls, and you may well find what you are looking for.

Which industry is responsible for the greatest amount of clearance items?

Most clearance items come about in industries in which large numbers of fast-moving items (fashion, seasonal goods, fan items, items for specific events) are bought and sold. Clearance items are often caused by overproduction, a change in a fashion collection, delays to deliveries and, unfortunately, insolvencies or business closures.

What are the entry barriers for being able to do business with clearance items?

Entry barriers often arise due to the fact that access to the market and to a specific customer segment must be available first to be able to do business with large and relevant quantities of items.
The associated costs can certainly present a barrier, but your own business model is also required to operate effectively to allow for business transactions with clearance items.
Despite this, however, clearance items are an extremely cost-effective and high-margin way to achieve major sales revenue targets with your business model.

What things should I explicitly take into account when purchasing clearance items?

Clearance items and the reduced price associated with them arise from a problem – goods that are no longer fashionable, no longer seasonally appropriate, etc.
The key question is therefore: What is the problem? Is this problem relevant to me?

A brief example: customer A was hired to supply customer B with blue cups, but received turquoise cups from China instead. Customer A is therefore no longer able to sell this product to customer B.
But because I can sell all kinds of cup through my online shop, their colour isn’t important to me, so I can therefore get hold of the goods cheaply.

Are clearance items suitable for my online shop and what do I have to take into account?

As addressed in the previous question, as soon as you understand why these goods have become clearance items and that the underlying problem is irrelevant to your requirements, you can sell these goods through your online shop without any problem. You just have to make sure that your target group is interested in the product and think about how best to advertise it.

How do I secure the business transaction when I don’t know the seller?

In this respect, a number of legal frameworks are available which provide a solid degree of protection against a bad deal.
Product labels are also available for the products, which are essential for internal markets such as the EU.
If the goods are branded, you are not allowed to market them as branded goods.
However, it is probably most important to have seen the goods and therefore checked them for their quality and possible defects.

Why should I always buy the complete batch of clearance items?

If possible, you should always buy the complete batch all at once to avoid entering into a price war with other retailers for the particular batch. Otherwise, your margins will be lower and you may experience problems with sales.

How should I work out the right price for the items?

A decent orientation is provided by comparable production costs, and the sales price that I can charge in my shop.

This yields my personal pain threshold, because I want to have a margin of at least X%. I also know the original costs of the item, so that I can gradually try and negotiate the best price for me on that basis.

One tip in the area of clearance items is never to buy above the production costs. After all, as already mentioned, the items in question are problem goods that someone was unable to shift for some reason.

What do I have to consider with branded goods?

Clearance items of branded goods can pose problems, as the brand often stipulates where these goods can and can’t be sold, to prevent you from damaging the pricing policy or brand image in high-sales regions. Some deals can be very profitable, however, as long as the conditions aren’t limited too strictly.

Which items have particularly high margins?

Goods with especially high margins are often produced in especially fast-moving times or under particular circumstances, such as the lockdown period during the coronavirus pandemic.
In this case, demand for a considerable amount of different goods was halted artificially, which saw many shops build up considerable overstocks of goods with the need to urgently shift certain seasonal products, and with prices falling through the floor as a result.

As a final tip, you should aim to work with high-quality goods, as these offer superior margins. If you decide on items with low prices, it is best to use a mixed costing approach.

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