Closeout companies that sell excess inventory for a living are experiencing interesting times. International and domestic freight costs are at an all time high, with shipping fees often exceeding the cost of goods. This is the first time we have seen such exorbitantly high freight charges and it is affecting all discount businesses including overstock buyers, closeout sellers and closeout websites.
Closeout websites are experiencing a double whammy because they have to deal with high freight costs when they buy, and again when they ship their orders to the end user. We have been given all kinds of reasons for costly shipping, including Covid, labor problems, fuel costs, capacity issues, weather, and more. The worst part is there seems to be no end in sight and it is possible closeout companies and other overstock buyers may be forced to deal with this all the way through the important Holiday selling season.
Containers that used to cost $3,500 from China to Chicago are now approaching $20,000. For companies that sell excess inventory it is nearly impossible to cover these increases. Overstock buyers and closeout customers aren’t willing to pay enough to make up for the additional landed cost to goods. Discounters may be willing to increase their spending a little bit in order to get goods, but if they spend too much more it changes their retail price, and if these prices get too high then customer demand will quickly decline.
Companies running closeout websites can still advertise flash sales and deal sites in an effort to drive their business, but if the consumer is asked to spend too much on goods, we may see a slowdown in consumer demand. Overstock buyers and closeout companies tend to do better during recessionary times, but what we are currently facing is actually the opposite. Demand is strong and there is a shortage of goods, this is a recipe for inflation and the need for large companies to sell excess inventory and get rid of slow moving inventory or other obsolete products.
Another thing that may happen if freight rates remain high, is the smaller customers who cannot compete may be forced out of business. Only the larger chains with multiple locations and heavy buying power can afford to pay more for shipping and cost average it over all their locations. The small accounts may need to liquidate inventory in order to generate cash and stay afloat. Closeout wholesalers and distributors may be forced to sell excess inventory so they can raise cash to pay expenses like rent, utilities and payroll.