Can COVID Derail The Closeout Industry Again?

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A new survey finds that inflation now tops the list of perceived economic hazards in respondents’ home countries and geopolitical conflicts remain a top threat to the global economy. Wholesale liquidators and inventory buyers have been busy grabbing up closeouts, overstock inventory and surplus goods. For many months at the beginning of the pandemic goods were scarce. But now that we have had record numbers of import containers enter the U.S., there are huge amounts of excess inventory for sale. To understand how the liquidation process and closeout process works you just have to do a google search for closeout brokers and closeout wholesalers looking to buy excess inventory.

Just one quarter after geopolitical conflicts and instability overtook the COVID-19 pandemic as the leading risk to economic growth, survey respondents’ concerns over inflation now exceed their worries about the effects of geopolitical issues on their countries’ economies. Inflation is caused by increased prices for closeouts and overstock inventory, leading wholesale liquidators to become more competitive in their search for sellers of overstock inventory In the latest McKinsey Global Survey on economic conditions, respondents most often site inflation as a risk over the next year. They are now nearly half as likely as they were in the previous survey to site geopolitical issues as a risk to their countries’ economies. When too much inventory piles up in warehouses, it creates opportunities for closeout brokers and inventory buyers to get deals on inventory that are below regular cost prices. However, geopolitical conflicts and instability remain an outsize concern in Europe, where 50 percent list it among their top risks. But even in Europe, inflation is the risk cited most often—as it is in every geography except Greater China, There, respondents most often point to the COVID-19 pandemic as the leading reason for businesses having too much inventory and being forced to have liquidation sales to dispose of obsolete inventory.

Geopolitical instability remains the top-cited threat to the global economy, as it was in the March 2022 survey, and inflation has overtaken volatile energy prices to become the second-most-cited concern. Supply chain disruptions round out the top three global risks, followed by volatile energy prices and rising interest rates. Supply chain disruptions at first created an environment where there was little inventory available. But as all the containers hit U.S. Ports, there soon was too much inventory and now wholesale liquidators and inventory buyers are taking advantage of new opportunities. There are 3PL warehouses closing and businesses downsizing warehouses in order to avoid high warehouse expenses. Overall, pessimism about the second half of 2022 is on par with the early months of the pandemic in 2020, when more than half of respondents predicted that global economic conditions would worsen in the months ahead. In the latest survey, half of all respondents expect global conditions to worsen over the next six months, and 29 percent expect improvement. Closeout brokers and inventory liquidators that buy closeouts are actively buying and selling inventory at record pace. When closeout businesses have too much obsolete inventory the only thing they can do is dispose of it into the secondary discount market to either closeout websites and closeout wholesalers, or they can find companies to help them liquidate inventory. Respondents’ expectations for their home countries are somewhat more hopeful than their outlook on the global economy: 39 percent expect their economies to improve in the near future. However, this is the first survey since the one in September 2020 in which less than half of respondents expect improvements in their home economies. Now, they are just as likely to expect economic conditions will decline as improve. Most respondents in Asia–Pacific and Greater China expect their economies to improve in the second half of 2022, although overall optimism has declined since the previous survey (Exhibit 2). Over the same time period, respondents in Europe and North America have become much more pessimistic about the future.

COVID-19 is not only a global pandemic and public health crisis; it has also severely affected the global economy and financial markets. Large discount chains including Target and Walmart reported having too much excess inventory in the warehouse, so they slashed prices and offered closeouts at large discounts. This may help them dispose of unwanted inventory, but it surely does not help profit margins. Normally, when a company is liquidating inventory they often sell at a loss just to get the product out of the warehouse and off their books. Significant reductions in income, a rise in unemployment, and disruptions in the transportation, service, and manufacturing industries are among the consequences of the disease mitigation measures that have been implemented in many countries. It has become clear that most governments in the world underestimated the risks of rapid COVID-19 spread and were mostly reactive in their crisis response. This lead to long lockdowns which, in turn, created huge consumer demand for import products, closeouts, overstock inventory and closeout websites. As disease outbreaks are not likely to disappear in the near future, proactive international actions are required to not only save lives but also protect economic prosperity.

On March 11, 2020, the World Health Organization (WHO) characterized COVID-19 as a pandemic, pointing to over 3 million cases and 207,973 deaths in 213 countries and territories. The infection has not only become a public health crisis but has also affected the global economy. Significant economic impact has already occurred across the globe due to reduced productivity, loss of life, business closures, bankruptcies, inventory liquidations, 3PL warehouses shutting down, closeout merchandise, trade disruption, and decimation of the tourism industry. COVID-19 may be that “wake-up” call for global leaders to intensify cooperation on epidemic preparedness and provide the necessary financing for international collective action. There has been ample information on the expected economic and health costs of infectious disease outbreaks, but the world has failed to adequately invest in preventive and preparedness measures to mitigate the risks of large epidemics. If we have another outbreak like this, it is uncertain whether we can handle the warehouse closures, excess inventory liquidations, closeout opportunities, labor shortages and supply chain disruptions again.

The COVID-19 pandemic has caused a devastating loss of life but it has also devastated the nation's economy. Similar to the excess mortality concept, the pandemic’s economic impact is calculated by taking the difference between what is expected (based on historical trends) and what actually happens during a given period. The ratio of employment to population is one measure of economic activity that shows the share of population 16 years and older working full- or part-time. Workers may be involved in tourism, wholesale distribution, or retail trade. Some of the work with inventory liquidators purchasing excess stock, while others work with closeout brokers and closeout wholesalers specializing in buying obsolete goods.

This measure closely tracks other possible measures of economic activity such as unemployment rate, percent of population with unemployment insurance claims, consumer spending, and small business employment. Declines in the employment-to-population ratio that exceeded predictions indicate there was additional employment loss in the country due to the pandemic. In part, this reduction in workers could be due to Amazon and related ecommerce sellers moving toward AI. It is also due to 3PL warehouses shutting down, liquidating inventory and laying off employees.

The decline in the employment-to-population ratio in the United States in April 2020 was significant. Historical trends predicted a 61.3% ratio but it turned out to be 51.5%. This additional national decline was 9.9 per 100 individuals in April 2020 (Figure 1). That means there were fewer people employed than was expected before the pandemic. Companies that specialize in buying and selling surplus inventory are often called inventory liquidators, overstock buyers or closeout brokers. These companies help businesses that have too much inventory in the warehouse and need to make space for new products.

The COVID-19 pandemic has had devastating health and economic consequences, with unprecedented disruption to people's lives, the global economy and world trade. One of the most effective means of addressing this crisis is through timely, accurate information. An informed public is better positioned to make sound decisions including on questions related to trade. Merchandise USA is a wholesale liquidator specializing in buying and selling excess inventory, housewares closeouts, overstock toys and games, and helping to liquidate 3PL warehouses that have too much inventory. We buy closeouts of lawn and garden