What Happens to Excess Walmart Inventory?

Desireé Duffy  |

If you’ve ever bought groceries in bulk from warehouses like Costco or Sams, you know how satisfying it can be to save time and money. But what if you could make a profit from the items you never use? That’s exactly what multinational corporations do on a regular basis.

Let’s take Walmart as an example. This company employs 1% of America and serves millions of customers. In order to sustain hundreds of billions of dollars of revenue, it currently offers 35 million products between the physical and online stores. Every day many of these items leave the store with the average consumer. Other products are delivered from Walmart warehouses to online buyers. But there’s another consumer you don’t know about – other retail businesses.

Since Walmart is so big, it deals with enormous quantities of products. Sometimes it orders more than it needs, and when it does, it just sells those items off to other retailers on the cheap. Sometimes customers return items, but in many cases, unopened items returned to this behemoth aren't returned in quantities large enough to keep. The best solution?

Walmart sells entire pallets of returned items to savvy retailers, too.

Why Walmart Liquidation and Low Prices Matter

If Walmart sells something at cost (which means it makes no profit), then the company buying stuff from Walmart is just paying whatever Walmart paid its supplier. Why don’t these retailers go straight to the supplier?

Well, that’s because these retailers are significantly smaller than Walmart. The supplier won't give those same prices to companies less gigantic than Walmart. Walmart buys so much stuff that it can get major discounts. Thanks to economies of scale, products get cheaper with a bigger product order. These suppliers are willing to make less profit on a per-item basis when they sell to Walmart because Walmart is buying so much stuff that the overall profit is still attractive.

So in order to get a better detail, smaller retailers turn to Walmart’s extra stock.

When other businesses are able to get their hands on Walmart liquidation and return pallets, something special happens: Walmart’s “economy of scale” advantages are passed on to companies that might not otherwise be able to enjoy them. That makes Walmart liquidation and return pallets very valuable to businesses of all sizes. And it’s not just companies that benefit. This value is passed on to their everyday customers, who may find big savings on everyday items.

It's Not Just Walmart

As you can imagine, Walmart isn't the only company out there taking advantage of this tactic. Big box stores like Best Buy, department stores like Sears, and online retailers like Amazon all buy in bulk. Most of them end up with situations just like the ones we described above which affect Walmart. And who can blame them? Everyone profits.

Just like Walmart, Amazon ends up with items it has to liquidate or pallets full of returned items that it doesn't plan to restock. And, just like Walmart, Amazon will sell these items at extremely low prices in order to keep its business moving quickly and efficiently. Any small business looking to attract more sales with lower prices should follow which corporations are currently liquidating and what items they’re selling.

Certain companies out there specialize in connecting buyers with products that multinational companies are unloading at hyper-competitive prices. They know firsthand just how big the savings can be, and they pass those savings on to their own customers. This kind of economy of scale advantage that is normally off-limits to us non-corporate mortals is possible for small businesses and individuals. These massive retailers allow for every player in the system to profit – from supplier to the everyday consumer like you and me.

In the case of companies and buying in bulk, it’s true what they say: Size does matter.

DISCLOSURE: There is no business relationship between the author of this article and the companies mentioned.

The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer



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