For over 20 years, Buxbaum Group has provided asset-based lenders with a deep bench of talent and a lengthy list of retail industry contacts to facilitate the sale of closeout merchandise. To better understand how closeouts work, we asked Executive V.P. Stevan Buxbaum, a long-time veteran of the business, to share his thoughts on the top considerations impacting financial returns.

• Seasonality. “Items such as sweaters and swimwear—where we just finished a project moving millions of dollars of swimsuits—have a very short selling period and need to be sold before or right at the beginning of their respective seasons to get any sort of reasonable dollar recovery on cost. After the season, the discounts will have to be very significant to contend with the buyers’ cost of funds and the cost of storage.”

• Merchandise age. “This is an extremely important factor in the success of a closeout sale. Because of the constant change in the consumer market—particularly in fashion-related inventory—perfectly good items may not sell because the item appears unfashionable or outdated.”

• Quantity. “Large quantities are needed to entice major opportunistic retailers like T.J. Maxx. If the quantity is too small, we must go to what we call ‘alley people,’ and the prices they offer are at the bottom of the ladder.”

• Range of colors and sizes. “A successful closeout carries a range of colors and sizes. We have to keep the proportions in check, and won’t be able to sell smalls and extra larges without providing any median sizes.”

• Brand name. “Brands are very important to today’s consumer. Consequently, retailers want recognizable names and are willing to pay more for items that carry labels that will be meaningful to their customers.”

• Domestic versus import. “If you were selling in Japan, a ‘Made in the USA’ label is a selling point. In America, we’ve found that the consumer today has little interest in the domestic or imported nature of the product. They are more concerned with brands.”

• Location of the excess inventory. “In today’s high cost energy environment, freight costs will be a factor in what a buyer will be willing to pay for an item. Also, we need to monitor factors such as duties and evaluate the product with all necessary information to make sure that it is still a worthwhile deal.”

• End-dates on cosmetics. “Cosmetics must be destroyed once they reach their expiration date. Naturally, this has a large bearing on retail pricing for a closeout sale and reduces price points for our portion of the transaction. Dating is also a significant factor for batteries, film or foods. Warehouse stores that carry large volumes of items deal with ‘near-date’ merchandise quite successfully, but they are the exception to the rule.”

• Brand’s permission. “We must have documented proof of the brand’s willingness to allow its merchandise to be sold to an outlet or alley vendor. Without such proper documentation, retailers will be unlikely to proceed with a purchase. Brands sometimes are concerned by a perceived loss of status in the consumer market; they want to be seen as valuable and desirable. In the closeout market, we have to walk a very fine line with the brand.”