A Survey of the Retail Industry
Coopers and Lybrand, an international professional services company, and G.A. Wright conducted a joint study of the retail industry to explore how retail stores are sold. It surveyed respondents operating approximately 12,000 stores and looked at a variety of means employed to sell the inventory and assets of retail stores, including the following:
- Store Sale — A store is sold to a purchaser who intends to operate it as a business.
- Bulk Sale — Inventory is sold in lots to business purchasers for resale.
- Auction Sale — Inventory and other assets are generally organized in lots and are then sold at auction.
- Store Closing Sale — Inventory and assets are liquidated in a sale to consumers.
The study found that “of the methods used by retailers surveyed, liquidating assets in a sale to consumers appears to be the most favored when the main objective is to optimize profitability and cash flow.”
Why a Sale to Consumers Works Best
A Store Closing Sale is conducted in the retail market, where the consumer is accustomed to paying normal retail prices. A price that is below retail, but still above wholesale, is normally attractive to the consumer.
The major asset of most retail businesses is inventory. Due to the wide spread between wholesale and retail prices, a retail business is unique in the fact that it can be sold in a sale to consumers for much more than can generally be obtained in any other way. This includes a sale of the business as a going concern.
Most methods of selling stores or their inventory and assets, involve a sale in the wholesale market to other businesses. A buyer, who intends to operate a retail store or resell the inventory purchased, has the ability to purchase new inventory at cost. That buyer will not pay wholesale prices for inventory that has been on the sales floor. In fact, negotiations with a buyer in the wholesale market normally start at half of regular wholesale prices for the best merchandise and go down from there.
“I was very apprehensive about conducting a sale versus an outright sale of my business. I had several interested individuals; however, none could obtain the capital to purchase my business. Today I know that I made the right decision to hire your company to liquidate my business.”~G.A. Wright Client - Capps Hardware
“We tried to sell our store for over a year and could not sell it. We have exceeded our expectations. In fact, we did a lot better with your sale than we would have done selling the store.”~G.A. Wright Client - The Browne House
There is another disadvantage of selling as a going concern. Obtaining a favorable selling price frequently requires the seller to finance the purchase by allowing the buyer to provide a down payment and then make payments. A buyer who requires this type of financing is either inexperienced and wants the seller to help guarantee the success of the business or lacks sufficient financial strength to make the purchase in another way. Either case results in significant risk for the seller. A Store Closing Sale will produce a cash return that eliminates this risk.