Everything Must Go To The Liquidators

Retailing's vultures are getting fat as stores drop like flies

With store chains dropping dead left and right, the past year in retailing has been as dismal as any in recent memory. Except, that is, for the industry's undertakers: the small and all-but-invisible clutch of companies that come in and liquidate leftover merchandise when a retailer shuts down or shrinks. Liquidators purchase the inventory, run the going-out-of-business (GOB) sale, and make a living on the difference. And retailing's plague year has been very good to them: In 1995, they disposed of an estimated $3 billion to $5 billion worth of goods, about double 1994 levels.

Now, as the financial consequences of the latest Christmas bust take hold, another rash of bankruptcy filings is almost certain. "The outlook for the liquidators in the next few years is pretty good, given that we still have several more years of consolidation ahead of us," says Thomas R. Rauh, national director of retail consulting at Ernst & Young.

BIG UNKNOWNS. A handful of major players, all privately held and scattered from New England to the West Coast, may be the biggest retailers no one has ever heard of. Gordon Brothers Partners, a Boston outfit, is operating 800 stores around the country, from Jamesway to Fayva. Schottenstein Professional Asset Management in Columbus, Ohio, will help close 362 outlets of Edison Brothers Stores and 198 of Petrie Stores by the end of the month. Even healthy retailers--or at least viable ones--have started calling in the liquidators to close selected stores as they cut back.

Why don't retailers just hang out their own sales banners and pocket the proceeds? For starters, liquidators pay cash for the inventory--a plus for strapped operators and their creditors--and take on all the risk. "We know what we're going to get going into the deal," says Kevin J. Kulinowski, vice-president for store operations at Jamesway Corp., who expects Gordon Brothers to close the last of the chain's outlets by mid-January. And for chains that are merely cutting back, bringing in an outside company to close stores frees management to focus on continuing operations.

Besides, running a GOB sale isn't as easy as just marking down prices. Liquidators have to have a shrewd eye for pricing merchandise. And since they take over operations during a GOB sale, they have to estimate expenses accurately--everything from payroll to phone bills to the big ad budgets needed to lure bargain hunters. A typical sale lasts 6 to 10 weeks, with markdowns starting at 20% and climbing as high as 90% in the final days. Gordon Brothers President Robert C. Sager calls his team the Green Berets of retail. "You drop them in somewhere, you give them a compass and a knife, and they have to survive," he says.

INCENTIVES. Indeed, these are not ideal selling conditions. To deal with store employees who will be out of a job when the sale ends, liquidators have to craft incentive plans to make it more profitable for staff to stay and work rather than quit or walk off with armloads of merchandise. Or worse. When W.T. Grant closed two decades ago, employees tried to block the GOB sale by emptying the cash registers. The money went into the bank, but the stores were unable to make change. And any miscalculation on what the merchandise is worth or how much traffic ads will generate can be fatal. Says David M. Bernstein, CEO of Bernstein Financial Group: "It's like having a party and worrying that nobody shows up." Or too many, for that matter. So great was the throng on the first day of the B. Altman sale in 1989 that Bernstein was forced to close the doors at 3 p.m.

Although the current retail climate has brought more opportunity, there's also more competition. That means liquidators are paying more to win jobs. And consumers, who can find half-price sales any day of the week in their local department stores, are growing inured to screaming GOB sale signs. "GOBs are losing their touch," says James L. Schaye, executive vice-president of Schottenstein. "We'll have to find something new." It may be getting harder to attract mourners, but the funerals won't be stopping any time soon.

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