Inflation is a hot-button topic right now. All around the county, you see prices steadily rising for all consumer goods and closeouts. You see it at the grocery store. You see it at the big box retailers. And you definitely see it at the gas pump where a gallon in Chicago is almost $5.00.. Businesses selling overstock inventory will find strong demand among closeout brokers and excess inventory buyers. As the regular imports have been constrained by shipping delays, companies that sell liquidation stock and have available inventory on hand will benefit. While these universally rising costs might seem unprecedented for closeouts given the polarized climate of the times we're living in; when it comes to the logistics industry, data shows that costs have been steadily rising over the years. This rings especially true where costs of warehousing are concerned. You might consider the possibility of getting rid of old inventory rather than taking on more expense to move to a larger warehouse. This is a common problem when companies don't get rid of overstock inventory. It sits in the warehouse taking up valuable warehouse space and becomes dead stock with no value and not salable to inventory closeout liquidators.
Yearly costs adjustments come with the territory. Since 2018, the average cost per square foot of warehouse space has increased to a varying degree each year. As closeout brokers and overstock inventory buyers do more and more business, they need more warehouse space. General warehousing costs aren't the only thing that's climbing, though. Warehouse operating costs are getting more expensive year by year as well. Over the same period referenced above, pick and pack rates have risen as well. With a whopping 61% of warehouse owners expecting to further raise their prices in the coming year, price increases seem to be an industry mainstay at this point. Companies that sell liquidation stock are limited with how much they can pass along price increases. Closeout buyers and liquidators are only interested as long as pricing is below regular import costs. When closeouts increase in price, they don't sell in the same large volume they used to.
There is an implication that increased costs directly translate to corporate greed. As warehousing costs increase, so does a company's profits. While profits are important in terms of a company's long-term prosperity, that sentiment is far from a universal truth.Labor costs are up, construction costs are up, shipping costs are up, materials to make the products have gone up. Everything has gone up. Even closeout brokers and surplus liquidators have been forced to pay more money for goods. It used to be easy to liquidate overstock inventory for whatever price anybody would give. But with the increasing need for competition, it is necessary to review more closeouts and visit more 3PL warehouses closing down.
In reality, rising costs are an indication that further disruptions to the specialized supply chain that drives the 3PL industry's operational solvency have increased to an untenable level. To remain operational and solvent, 3PL providers must pass those costs down the line, otherwise, their business may very well cease to be. When 3PL warehouses shut down they are often left with abandoned merchandise and overstock inventory or excess merchandise. Closeout liquidators are capable of buying everything, but when these warehouses sell liquidation stock of this nature it is often at a big loss.
That's not to say that price increases don't always result in profits. But it's the brave and agile providers that take action, viewing these supply chain ripples as a watershed moment for their operations while embracing innovation, change, and efficiency in the process. For example, many importers have decided to build new warehouses in Southern California to help manage all their goods. This allows them to operate at a fixed cost so as land value and property value increases, they are locked in to current rates. This allows them to import more containers and sell through goods at a pre-determinced price. The problem is when containers are delayed and don't arrive ontime to the port, the inventory becomes closeouts and is sold for a fraction of original cost.
Regardless of how a company responds, rising costs affect everyone in the industry. Below are the primary factors driving the increasing costs of warehousing, especially those factors that have been exacerbated by the pandemic. Labor is one of the most significant costs that a warehouse can incur. It takes up somewhere between 40-60% of a business's operating budget, by some estimates. For closeout companies it may even be more since closeout liquidation companies buy stock that often needs to be re-packed or re-labeled. Surplus liquidators sometimes take overstock inventory that requires additional warehouse work, costing more money. By the end of 2021, many warehouse operators reported yearly wage increases of over 11%. And we probably have not reached the peak.
Labor costs are increasing significantly. The current labor shortage hit the logistics industry especially hard. Known as the Great Resignation, a historic number of Americans from all walks of life have quit their job this year in search of other passions, putting extra strain —in the form of costs— on 3PL providers that now have to toe the line. In order to liquidate excess inventory it takes people to pull orders and load trucks. As the work force has diminished, closeout buyers struggle to find enough warehouse help. Closeout merchandise can wait weeks to be picked up when it only used to take days.
No matter what you decide, warehouse expansion will probably happen as effect rather than cause. It may be that your business model changes and you need to adapt your space accordingly. A new product that needs specialized handling or equipment that doesn’t fit in your current warehouse specs may become a bestseller and require the capital input to make the change. Or you may begin buying closeouts of different categories for example home décor closeouts take up more space than apparel closeouts. Liquidation buyers for toys will have different warehouse needs than surplus inventory buyers for sporting goods.
Having a dedicated space for new processes will make it easier to test and adjust without disrupting the surrounding closeout environment. If the new processes pay off, your closeout business benefits from a better workspace and added real estate equity. While there is short term disruption due to construction as well as decreased cash flow, the long run benefits of expanding your warehouse seem to offer a strong upside to operations, with a built in hedge when viewed through the lens of in-demand real estate.
Merchandise USA is an excess inventory buyer for closeout toys, overstock sporting goods, Amazon liquidations, overstock inventory and all other obsolete stock being disposed of.