Going-Out-of-Business Sales Not Always Such a Bargain

Several big chains have announced they will go out of business by the end of the year. So now come the liquidation sales. Could their bad luck be your lucky day? "Good Morning America" went shopping to find out.

The Liquidators

What many people don't realize is that outside liquidation companies run most going-out-of-business sales. Their job is to get as much money as possible for the inventory.

So, for example, the sign says Linens 'n Things, but it's really not. Six of the largest professional liquidators run the stores now: Hilco Merchant Resources, Hudson Capital, Gordon Brothers Retail Partners, Great American Group, SB Capital Group and Tiger Capital Group. For these companies, going out of business is a business.

Are You Really Getting a Deal?

Labels on Top of Labels

When we shopped at the Linens 'n Things liquidation sale, we noticed something strange.

On product after product we could peel back the surface price tags to reveal the old prices below. For example, the surface price tag on a Calphalon saucepan said $124.99. But the one underneath said $109.99. Rachael Ray cookware? $199 on the new label, $179 on the old. The tag on a curtain scarf said $39.99 on the top, but peel it back carefully and there was another price tag for $27.99 below.

Carrying a hidden camera, we asked a clerk why there were price tags on top of price tags. She said that they were instructed to cover up old Linens 'n Things prices and replace them with the liquidators' prices. Liquidators hire many of the original store clerks like her to stay on, so they are familiar with how the pricing changes.

When we pointed out that the product originally was cheaper, the clerk said, "It used to be when it was on clearance. Right now, it's not clearance, it's just a discount. Not great deals at all."

How It Works

Several clerks explained that the liquidators come in before a going-out-of-business sale and raise many prices up to the regular selling price. Then they discount from there, starting with small percentages off and deepening the discounts as the sale goes on.

"We had [the] best deals before," a clerk told us. "Now, 20 percent, 10 percent, it's nothing."

Raising prices before lowering them again can result in some odd situations. We found a curtain that the liquidator priced at $79.99 minus 40 percent, so we paid $47.99 for it, which seemed pretty good. But when Linens 'n Things had that same curtain on clearance, we could have gotten it for $19.99, according to the hidden price tag. "Contrary to popular belief, liquidation sales aren't a great deal for the consumer," said retail industry analyst Stephen Baker of the NPD Group. "The liquidator is there to make money."

Baker explained that liquidators have less leeway than regular retailers in pricing their products because they have no factory-to-dealer incentives to fall back on.

In other words, when manufacturers are trying to get their products onto store shelves and gain market share, they may discount the price they charge to retailers or provide factory rebates. Retailers can then advertise those rebates and pass the savings along to customers. Liquidators don't have options like that because their store is not going to stick around.

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