A Circuit City store in New York City shuts down in November.
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In other cases, the company takes more risk. It will pay the liquidation firm a flat fee to clear the shelves and fixtures, and revenues from the sale will go to the creditors. But the liquidator still has plenty of motivation: if you screw up this sale, you might not get another one.
Liquidators insist they're not the bad guys, and can get quite defensive about their profession. "Someone who is inexperienced will say 'the liquidators are taking over the company, and therefore we are going out of business," says Harvey Yellen, chairman of the Great American Group. "You're going out of business because the company ran into bleak times, or was run wrong. We get hired to fix the problem. We're not the cause." Liquidators need to motivate a sales force that's about to lose their jobs. That's no easy task. "It's a depressed atmosphere," says Fried, a freelance liquidator hired by the Great American Group. He's running sales at two Circuit City locations in New York City. "When a sign goes up that the store is closing, it's an emotional day. When the sign goes up that there's only 10 days left, it's an emotional day. I need to let them vent, if necessary. I realize that I'm often the face they're putting on this situation." (See pictures of the global financial crisis.)
What are the keys to a successful liquidation? Start with the signs. At the Circuit City near Manhattan's Lincoln Center, Fried, fresh off a nine-week job running clearance for a Mervyn's store in California, has plastered the storefront window with seven somewhat garish red and yellow posters: Store Closing Sale! Nothing Held Back! Entire Store on Sale! Inside, the discount stickers (30% off for furniture, mobile phone accessories, and cables, 20% off CDs and DVDs, 10% off everything else) and sale rules (no returns, no checks) are ubiquitous. "If we look obnoxious, we're doing our jobs," says Fried, who looks like a cross between Elvis and Elvis — Presley and Costello. "You want the customers to walk in and say, my God, what's going on here?" Shove the numbers in a customer's face, Fried insists, and he'll find a good reason to stick around.
You also need to time the discounts correctly. The liquidation firms are running against the clock. They can't drop the discounts forever, and the longer the sale lasts, the more expenses it has to pay. How long will they let the $1,300 plasma TVs sit at 10% off? They won't tell the customer, of course. The Great American Group wants you to buy, now, before it's forced to move the discount down to 20%. The customer also has to make some bets. For example, Erickson, the Great American CFO, worked on the liquidation for the Montgomery Ward department stores a few years back. He gave himself a 30% off threshold for a backyard shed. Once the sale dropped that far, he would jump. But all sheds were gone from the store at 20%. "I got screwed on our own sale," he says. (See the top 10 gadgets of 2008.)
At the Lincoln Center Circuit City, Fried is prepared to clear the shelves. In a stockroom, he's got hundreds of additional discount stickers piled up — 40%, 50%, all the way through 80% off. Electronics are rarely discounted as desperately as, say, clothes, so 10-20% deals alone could move the merchandise. According to the liquidation firms, Circuit City sales are beating projections thus far. But with consumer spending so dismal, and so many stores desperate for dollars, Fried might need to shift those stickers to the sales floor. "It used to be that if you were doing a liquidation, you were the only one out there," Fried says. "Now, there's much more competition. You have to be sharper." And ready to sell a 40-inch plasma for chump change.