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Closeout Retailing Takes on the Web

BY Dan Berthiaume

It has been a rough start to the holiday season for the closeout retail sector. Building #19, a New England-based closeout chain that became something of a local institution, recently closed its doors after 50 years in business (though it plans to reopen a few locations as specialty rug stores). A few days later, national closeout powerhouse Big Lots reported disappointing financial results for the third quarter.

Competition from online retailers such as Amazon.com and eBay, as well as online product directories like those offered by Google and Yahoo, is not the only reason closeout retailers have been having a tough time as of late, but is certainly a contributing factor. Closeout retailers have traditionally offered consumers the advantages of wide and deep assortments with low prices. Even the most spacious physical closeout store cannot contain the virtually limitless assortment of an online marketplace like Amazon, and directories like Google Shopping allow consumers to easily hunt across dozens of retailers to find the lowest possible price for a desired item.

However, closeout retailers still have plenty of opportunity to survive and even thrive in this new competitive environment. Following are a few suggestions for closeout retailers seeking to succeed in the face of e-commerce.

Jump into E-commerce
Due to factors such as a relatively unpredictable assortment and wide variety of supply chain partners, closeout retailers often do not engage in actual e-commerce, but instead use their websites for promotions and driving store traffic. Although the store is still the main profit center for multi-channel retailers, closeout specialists should consider directly selling at least a limited assortment of goods online. An increasing number of off-price retailers, who face similar back-end challenges, have been launching full e-commerce sites, so it may be difficult, but probably not impossible.

Play to Your Strengths
Building #19’s plans to open specialty rug stores under the “Rug Dept.” banner is a perfect example of how closeout retailers can stay competitive with online rivals. Many customers will want to physically inspect a rug before purchase, and closeout retailers can offer a substantial discount on high-priced rugs with imperceptible design flaws and still earn a tidy profit. Smaller closeout retailers in particular may have to consider restricting their in-store assortments to items that either do not easily translate to online sales and/or are strong in-store impulse buys.

Get Social
Closeout retailing by its nature is a somewhat quirky proposition that offers a sense of adventure to consumers. Social media provides a perfect opportunity for closeout retailers to create a sense of online community among their shoppers based on these factors. Customers can tweet about their biggest bargains and oddest finds, social games can reward shoppers who purchase unusual or limited-availability items, and customers can make suggestions about products they’d like to see via a variety of social forums.

Building #19 was well-known for humorous newspaper flyers featuring caricatures of their founder (who was still running the business in his 80s). Social media gives closeout retailers the chance to take the wacky fun to a whole new level.


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