The Ethics of Liquidation Sales

After my rather snarky post about companies closing stores and selling off the remaining inventory from those locations at allegedly favorable prices, several people asked me about the legality of such actions, mostly in the legislative sense of “should this be allowed?” For the most part, liquidation sales don’t violate any laws, and even selling things “as-is” or the equivalent isn’t actually a crime. The concept of “Let the buyer beware!” is quite literally millennia old, and the idea that you get what you pay for (and anything that seems too good to be true probably is) isn’t much younger. But while the question of whether such sales cross the line into deceptive business practices (which frequently IS a criminal offense) is better left to the courts and legislative bodies, the ethics of the situation is a management issue, and that brings it into this forum. So let’s take a closer look…

To begin with, hauling a bunch of inventory back to your warehouse, inspecting it for damage, sorting it into delivery packages and shipping it back out to your other locations is expensive; if your company is closing all of its locations such operations won’t even be possible. Similarly, hauling your fixtures and whatnot off to a salvage yard probably isn’t cost effective, either. In general, it’s going to make a lot more sense financially to just sell everything off right where it is. Moreover, if you offer reasonable discounts on everything it may be possible to sell enough merchandise to help pay off the company’s creditors, which in turn will have the advantage of helping you stay in business (if you’re going to) or short-change fewer creditors at the termination of the company(if you’re not). Transferring additional merchandise into these locations to take advantage of the high volume of customer traffic may seem a little dodgy, but in principle at least, there’s nothing overtly wrong with it…

Setting the prices for such sales is a bit murkier. Furniture and fixtures that have already been depreciated may not have any book value, which means that anything you can realize by selling them drops straight to whatever is left of your bottom line. Merchandise that you can return to your vendors for credit needs to sell for more than the charge-back amount you could get, but merchandise you can’t return is cost you will just have to eat if you can’t sell it. Marking everything up by 100% (or in some cases 800%) before you apply your customer-attracting “liquidation prices” may seem fraudulent, but as noted in my original post, the Internet has made it almost impossible to hide price information from the public, and for the most part there aren’t any laws against charging too much for merchandise (assuming the public can just get what they need somewhere else). As long as the product you’re selling is accurately described – and you don’t try to convince anyone that your price is, in fact, lower than the going rate when it isn’t – there’s nothing overtly wrong with this either. One could argue that billing such sales as a discount is misleading, but if making money off of the stupid, credulous, naïve or greedy is ever criminalized, it seems likely that our economy will collapse…

The real question here seems to be whether our responsibility to our stockholders (and by extension our creditors and our vendors) exceeds our responsibility to our customers. Or, to put it another way, should we defraud our creditors and bankrupt our owners so that customers (including people who have never done business with us before) can get a better deal on random purchases? Or should we take advantage of people who are too dim to operate a smart phone (or learn about the odds of getting something for nothing) in order to further the greater good of our company, our community, and eventually our economy? And, in either case, would it do any good to support legislation intended to protect the foolish and credulous from their more venal impulses, considering that we know that such people will just find another way to squander their money?

It’s worth thinking about…