The Ten Tenets Of The Surplus & Salvage Industry!
One of the challenges for new businesses, as well as for those who have made it past the startup stage, is consistent and reliable product supply. There are several ways a business can purchase products: Wholesalers, Wholesale Distributors, and the surplus and salvage industry.
While you may still find some bargains in the Surplus, Salvage, & Liquidation industry, it’s important to know what’s involved. I will give you a basic overview of surplus dealers and brokers, who buy surplus, overstock, shelf-pulled, reclaimed, customer returned, or salvage products. They then resell those products to individuals and businesses, for resale.
S&S dealers purchase these products from manufacturers, retailers, distributors, reclamation centers, and just about any business that has secondary, slow-moving, outdated, or salvage merchandise for sale. S&S dealers carry various product lines in differing stages of quality. The problem, however, is that some in the industry misrepresent the quality and the value of their merchandise.
You can avoid “purchasing pitfalls” if you follow some simple rules when dealing with those involved in the business. For instance, I would suggest that before you buy from any S&S dealer, spend 21.99 for a one-year membership in an industry forum called Buyersinfo.net. Also check out any vendor, free of charge, at Ripoffreport.com.
Buyersinfo.net, is the “ombudsman” of the Surplus & Salvage industry. You can find out about S&S suppliers of “dubious distinction” in “The Good, The Bad, and The Ugly” section of their online forum. It will save you time, and more importantly, money.
If you plan to deal with Surplus Dealers on your own, start by purchasing product from those companies who sell by the piece, case, or pallet.
A good S&S dealer will take time to cultivate a new customer, and will work with that person any way he or she can. When it’s possible, ask for and pay for samples. Also, a reputable S&S dealers will represent the inventory in an honest and forthright manner. You should be assured that the merchandise that reaches your door is exactly as advertised. In addition to this advice, I developed my own “Top Ten” list of procedures and practices that you can follow before you make any surplus purchases. Read, and heed “The Ten Tenets Of The Surplus & Salvage Industry.”
1) Salvage is just a fancy name for junk. You can get “junk” in all product categories, but those with high resale value (such as electronics and computer hardware) seem to make up a good portion of “junk” products being sold to unsuspecting buyers. Unless you are an electronics technician, or small appliance repair man, stay away from “salvage electronics”.
2) Whether you are buying a pallet, or a case, always ask about the condition of the stock. Are they first quality? Second quality? Irregulars? Is it overstock, liquidated, reclaimed, shelf-pulled, or salvage goods? Stay away from Customer Returns if possible. Depending on the product, and unless the dealer tells you otherwise, some customer returns can be as bad as salvage goods.
You want to purchase first quality overstock, overrun, and liquidated items. If it’s clothing, what is the condition of the items? Ripped, stained, without buttons? Are they bundled, baled, retail ready, pre-packed in plastic? If you are buying a mixed load of clothing, how much is brand name, and how much is off-brand?
3) Ask what percentage of the items you are purchasing will be throw-away. This would be more of a question for someone who is buying a truckload, but small purchasers as well as pallet buyers should be concerned as well. When you purchase items from an S&S dealer, in most cases a certain amount of product will be useless and have to be thrown away. That is just the nature of the business. Customer returns and unsalable product is part of the product “mix.”
You can expect to toss about 10 to 20% of your investment in the dumpster unless you are told otherwise. Some might argue with me about those figures. They might say that number is too low. I would say that if you have to throw away more than that, then you should not do business with that particular dealer again. When you have to physically throw away any portion of your purchase, the impact of tossing money in the dumpster will give you a hefty case of buyer’s remorse.
4) It’s worth repeating: If you are a beginner, start out buying by the case, or, at the most, a pallet. You want to make sure that the person you are dealing with is trustworthy and can supply you with good product in “small doses” first. Don’t let anyone talk you into buying a truckload right away. There are some dealers that will tell you: “You are nobody unless you buy a truckload”. Everybody is somebody, but you would be nowhere and broke if you listen to pressure tactics like that.
Even if the person on the other end of the phone wants to be your best friend, do not get talked into truckload or multiple truckload purchases. You would be surprised how many people have been taken for thousands, just because the person on the phone “seemed honest and up front about what they were selling”. If you insist on buying truckload quantities, Number Five is a must read:
5) “Fly Before You Buy, So You Don’t Purchase And Die.” If the person or company that you are dealing with is not within your immediate geographic area, buy a plane ticket and visit the facility. Personally inspect every piece, case, bundle, or pallet. Then, either watch the truck being loaded yourself, or hire an inspection company to supervise the load.
It would be easy for any company to switch the product when you are not there. You might say: “Well, Bob, I think that is a little extreme and I really don’t have the time to do that. Also, the company I am dealing with won’t let me inspect the merchandise. Do I really have to go through all that for just a truckload of polo shirts?”
My answer is yes! You won’t be in the Surplus & Salvage business long if you decide to make blind truckload purchases. I would rather lose a few hundred dollars on a plane ticket, than spend $25,000 dollars on a few truckloads of junk! This is how people have “purchased and died” in this business. Some have spent their entire life savings on just one truckload of junk, and lost their business.
I would not deal with any S&S dealer, or company, who would not let me visit and inspect the merchandise before I buy it. Also, this goes for every large future purchase. Even if you’ve been doing business together for twenty plus years, inspect, inspect, inspect!
6) S&S dealers will sell or broker product from other dealers, reclamation centers, and distributors. Let’s say that you want to buy a product from a dealer that you found on the web, or talked to on the phone. The dealer will tell you, or you will notice from the website, that the shipment has a FOB (origination) point in Ohio even though the company is based in New Jersey.
Buy only from those S&S dealers who own what they sell. Otherwise, it could be sold, or not available anymore—and the dealer can’t guarantee the condition of the product.
7) Another S&S favorite is the wire transfer. While some legitimate S&S dealers do this as a normal course of business, I would not wire transfer one thin dime into anyone’s account. The only exception to this rule is if you are dealing with a major reclamation center like Genco or Federated Stores. If your purchase is $10,000 or better, these institutions will require you to wire transfer money into their account.
When dealing with individual S&S dealers, seek out companies that will accept credit cards if you are a beginner or intermediate buyer of surplus. Or use an escrow service or payment vehicle that will give you buyer’s protection. An escrow company that has a decent reputation is http:// www.escrow.com
Don’t let anyone tell you that they had a bad experience with escrow companies. That is a red flag. They either don’t have the product that they are advertising, or they are not very confident in the quality of the merchandise that they are selling you. What a credit card will do is buy you time. You will have about 25 days till you get your bill. Hopefully, your product should arrive before then. If someone sells you junk, you can petition your credit card company to do a charge back.
Remember, you can cancel a check. You can “charge back” on a credit card, but it is hard to pull a wire. I should know. I wired $10,000 dollars to a textile manufacturer in India. I tried to get a collection agency, the bank, the New Delhi Police, even my Congressman to help me get my money back. All failed.
The money went into the abyss, never to be seen again. The only way to get your money back from a wire transfer is to have the company you sent the money to transfer it back to your account. If that company has had other complaints, then you might be able to engage law enforcement into investigating any fraud claims.
8) Become familiar with the art of “cherry picking”. This why I suggest that you visit the location. For instance, a few years ago I went to visit a dealer that was not to far from where I use to live. I was told that I would find some great buys. When I visited the warehouse, I found that these great pallet buys were nothing but salvage and damaged merchandise.
Some dealers will “cherry pick” a load of merchandise coming into their warehouse. They will go through each pallet and pick the good items, while throwing the salvage merchandise back on another pallet. In turn, they sell these junk pallets to unsuspecting buyers.
9) Some other red flags about bad S&S dealers. No phone number -only have an e-mail address. Their address is a private mail drop, not a P.O. Box or street address. There is no address where you can go and physically inspect the items. You call different days of the week, different times of the day, and no one ever answers the phone (or returns your phone or e-mail messages).
Beware outrageous minimum purchase prices. Example: A dealer wants you to purchase, up front, $2500.00 dollars worth of merchandise based on only a description and no option to physically inspect the items.
They mention that their computer crashed and lost your information. Multiple “illnesses” in the family. While some people do have a string of bad luck and personal crises, this is usually not a good sign. These are usually an effort on the sellers part to avoid returning your money, or sending you the products that you ordered.
10) Don’t let anyone in the S&S business charge you for the right to view their product. While most S&S companies do not have catalogs, some do, and they will try to extract payment for it. I know of one company that wanted $49.95 for the right to view and order their product. While some prices for promotional materials can be justified from wholesale, and large distribution companies, rarely, if at all, are they justified in the S&S business. Inventory moves constantly so it is not cost effective, or timely, to send out printed material to customers.
Thought it was easy buying from Surplus and Liquidation Dealers? The truth can be a bitter pill to swallow. If you protect yourself, visit the facility, and make smart, well informed purchasing decisions based on the Ten Tenets, you will be ahead of most people who think that S&S dealers will supply them will brand name items for flea market prices! If you are uncomfortable with the level of risk that can be associated with buying surplus, then I would suggest that you stick with the wholesalers listed in the guide. It does require research, and “due dilligence,” and is not for the financially faint of heart!
Robert C. Potter is the author of “The Ultimate Guide To Products For Resale.” Over 300 Wholesale & Surplus Supply Sources For Ebay Auction Sellers, E-Commerce Websites, Flea Market Vendors, and Retail Store Owners! His 160 page ebook can be downloaded at: http://www.productsforresale.com