FBA liquidation: 6 Fatal Mistakes that will instantly kill your Amazon account
September 18, 2019
Would you like to buy name brand items for pennies on the dollar to resell on Amazon? What about $200 for 100 Star Wars Light Up BB-8 Keychains? Or 50 packages of Hanes Underwear for $100? If those don’t float your boat, how does 125 iPads for $4500 sound?
All of the aforementioned lots are actual lots that have been sold online in the past month.
These products are sold by liquidation companies. These companies purchase the items from bigger companies (like Best Buy, Walmart and Target) and sell them for pennies on the dollar. Most of the products are customer returns, although sometimes these lots contain shelf pulls (slow-moving items a store needs to get rid of to make room for more inventory).
Liquidation seems like the ultimate Amazon product sourcing strategy. It doesn’t have the financial risk of Amazon dropshipping or retail arbitrage, the profit margins are fantastic, and the availability of “pallets” is endless. In the time it takes to finish reading this article, you could have a giant truck full of toys, sports equipment, or clothing heading to your door.
If you’re thinking there’s a catch to all this, you’re absolutely right.
Read on to learn why finding liquidation products for Amazon FBA isn’t something all sellers should do.
Amazon ≠ eBay: Proceed with Caution
On eBay, you can sell just about anything as long as you specify if the product is broken, untested, for parts, etc. The same ground rules do not apply to Amazon. Anything you sell on Amazon must be complete and in good condition. Even brand new items with packaging flaws must be listed as used.
Liquidation products rarely come to a reseller without some form of cosmetic damage or use. Even if you’re looking at brand new shelf-pulls, there’s a good chance they’ll undergo some shipping damage between the warehouse and your location. In short, this means every liquidation product you receive should be listed as used.
There are a few things that can’t be sold used on Amazon:
- Beauty Products
- Baby Items
- Health Items
Unacceptable and prohibited items
- Item is not clean, including signs of mold, heavy staining, or corrosion.
- Item is damaged in a way that renders it difficult to use.
- Item is missing essential accompanying material or parts. This does not necessarily include instructions.
- Item requires repair or service.
- Item was not created by the original manufacturer or copyright holder. This includes copies, counterfeits, replicas, and imitations.
- Item was originally distributed as a promotional copy, promotional bundle, product sample, or advance reading copy. This includes uncorrected proofs of in-print or not-yet-published books.
- Item has passed the expiration date (includes "best by" and "sell by" dates), has an unacceptable portion of its shelf life remaining, or the expiration date has been tampered with or removed.
- Item is prohibited for sale on Amazon.
One major issue is rating the condition of these products. Amazon lets you classify used items as like-new, very good, good or acceptable. Just because you think a liquidation product is like-new doesn’t mean your customer on the other end of the sale will think the same way.
If a customer returns an item to Amazon with a complaint about the condition, Amazon will automatically mark it the return as “not as described on the website.” Getting more than a few of these in a short period of time can trigger an Amazon warning (or even a suspension!)
To check the reason for your customer returns, go to Reports > Fulfillment > FBA Customer Returns.
Is it still possible to sell used products on Amazon? Absolutely. It just needs to be done with a solid dose of caution and a truckload of risk tolerance. Even following Amazon’s rules to a tee still leaves you at the mercy of customers (who can ultimately decide your fate).
Here’s our guide to help you decide if liquidation sourcing is right for your business model.
Do this, not that (liquidation style)
Don’t Buy: Mystery Pallets
Never buy a pallet without a list and clear pictures of what it contains. You have no way of figuring out what condition the inventory is in, or if everything beyond the first layer of the pallet is junk. “Assorted” or “Mystery” pallets are often coded for “leftover junk we didn’t know what to do with.” You’d probably have better luck shopping at your local thrift store than buying things sight unseen.
Do Buy: Manifested Pallets
Manifested liquidation means the lot has an exact list of what you’re getting (plus or minus 5%). This helps you reconcile with your liquidator later, in case you didn’t receive every item originally listed.
A good manifest will tell you each item name, ISBN, retail price and condition. Be aware that most retail prices are inflated, so you should only plan on selling and item for 40-50% of the reported MSRP.
Don’t Buy: Customer Returns
There’s a reason the customer returned the item in the first place, most likely because of defect or damage. Even in the best-case scenario, the product has likely been opened. Customer returns are time-consuming and risky.
Do Buy: Discontinued Items
There’s an enormous amount of money to be made flipping discontinued items on Amazon. Getting them in bulk lots is even better. Because Amazon customers are creatures of habit, they’re often willing to shell out an insane amount of cash to keep their favorite lipstick, chocolate, or perfume on the shelf. There are a couple of ways to find these items. One is to simply google a brand name + discontinued (most large brands list discontinued products on their websites). Another way is to use ProfitGuru’s free Products tool. Simply type “discontinued” in the keyword field, and a list of every product with that label will come up.
A word of caution: watch out for discontinued products that were never good in the first place. This can be easily checked by looking at product reviews on the Amazon listing.
Don’t Buy: Products from Major Liquidation Websites
Buy liquidation from a person, not a website. Liquidation is much easier to navigate when you can ask questions and arrange shipping in person. Until you have a few purchases under your belt, this will prevent you from wasting your money and time.
Do Buy From Liquidators in Your Area
There’s a huge benefit to being able to see what you’re purchasing beforehand. You’ll be able to avoid bad inventory and negotiate pricing on the good stuff. You’ll also save an enormous amount of money on shipping
Don’t Sell: Health and Beauty Liquidation
It’s not just food that has expiration dates. More often than not, health products and topicals are discontinued because they’re old. Even items like tissues can have expiration dates.
Even If you don’t notice expiration dates, chances are your customers will notice when their lotion smells like rotten fruit. Always take extra precautions for items that enter the mouth or are applied to the skin.
Do Buy: Toys and Games
Customers may purposely seek out “used” toys to save money, but they’re not likely to do the same for a hairbrush. Sell to an audience that already exists.
Don’t Buy: Stuff from Amazon
Have you ever wondered what happens to all of your stuff that Amazon loses or breaks? You may think it falls into a black hole, but Amazon actually makes money off of it by selling it in liquidation lots.
Don’t buy from Amazon to sell on Amazon. This should be a given.
Do Buy: Pallets from Warehouse Stores
Some of the best liquidation lots come from stores who move inventory quickly, like Costco and Sam’s club. These warehouses almost always give their lots a letter grade, so you’ll know exactly what to expect upfront. They also sell pallets of brand new products, which is virtually unheard of in the liquidation world.
Liquidation Horror Stories
When approached with care, liquidation sourcing can be one of the profitable business ventures to undertake. However, there are bound to be a few horror stories along the way. They say to learn from other people’s mistakes, right?
Apparently, this liquidation company had a different definition of “like new.”
You thought your cracked iPhone was bad
That’s going to hurt the bank account
We pity the cop who finds this
A Few Last Words
FBA Liquidation Sourcing can be extremely profitable or downright risky. We want to hear your best liquidation stories. If you’ve got a good one, leave it in the comments below.