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The Atlantic
With a couple hundred dollars and a few minutes, you could go to a liquidation website right now and buy a pallet full of stuff that people have returned to Amazon. It will have, perhaps, been lightly sorted by product category\u2014home decor, outdoor, apparel\u2014but this is mostly aspirational. For example, in one pallet labeled \u201chome decor,\u201d available for sale on liquidation.com, you could find hiking crampons, shimmer fabric paint, a High Visibility Thermal Winter Trapper Hat, a Mr. Ellie Pooh Natural White Paper List Pad, a St. Patrick\u2019s Pot O\u2019 Gold Cupcake Decorating Kit, a Spoontiques Golf Thermometer, a Feliz Cumpleanos Candle Packaged Balloon, and five Caterpillar Hoodies for Pets.
Every box is a core sample drilled through the digital crust of platform capitalism. On Amazon\u2019s website, sophisticated sorting algorithms relentlessly rank and organize these products before they go out into the world, but once the goods return to the warehouse, they shake free of the database and become random objects thrown together into a box by fate. Most likely, never will this precise box of shit ever exist again in the world. On liquidation.com, each pallet\u2019s manifest comes with suggested prices for each product in a pristine state. If you add them up, the \u201cvalue\u201d of the box might be $4,000, while the auction price might only come to $200.
While Amazon doesn\u2019t publicly talk about how it chooses which returned products go back up for sale and which go to the liquidators, it does sell some products through Amazon Warehouse at a discount. If it sounds crazy to sell products at massive discounts, consider that goods sitting in a warehouse are a cost. So is the labor necessary to repackage something for resale. If Amazon and other retailers let another company pay them something, they avoid those costs and add some revenue.
So, Liquidity Services, the operator of liquidation.com, became a major (though not exclusive) handler of Amazon\u2019s American liquidations. The company calls dealing with returns \u201cthe reverse supply chain\u201d\u2014a part of the retail business that has been growing in importance as online shopping becomes more popular. Liquidity Services now has 3,357,000 registered buyers on its various liquidation websites. In the past fiscal year, it sold $626.4 million worth of stuff.
Amazon represents a growing chunk of Liquidity\u2019s business. In its most recent SEC filing, the company disclosed that it spent approximately $33.7 million on Amazon liquidation inventory, which it then turns around and sells for maybe 5 percent of the supposed retail value. And, assuming the company is trying to turn a profit, it must buy the inventory for a fraction of that. Doing the rough math, we\u2019re talking about inventory that once had a collective value reaching into the billions, before it landed in some box on a doorstep.
Of course, once people do buy all these unwanted goods, they rearrange them into more profitable configurations. It seems so easy: Sort the still-good stuff from the broken objects, the trash, the worthless, and then post that stuff to Amazon or eBay. Who couldn\u2019t sell $4,000 worth of stuff for more than $200?
My colleague Alana Semuels demonstrated in her story on the proselytizers selling get-rich-quick classes about retailing products on Amazon that the lure of the high-margin, online business is nearly irresistible. This is a variation on that hustle: Buy liquidation, sell high. This idea has won serious viewership for some YouTubers. It\u2019s become a micro-genre on the video service, where different personalities unbox dozens of things and oooh and ahhh at how much money they are worth relative to what they paid for the box of stuff.
YouTuber Safiya Nygaard got 12.6 million views for her unboxing of a liquidation pallet. YouTuber Kristofer Yee racked up 2.7 million views with a similar video. Another YouTuber, Randomfrankp, got 1.8 million. There\u2019s an undeniable appeal to watching someone go through a whole bunch of strange stuff on camera. And these videos appear to have driven a noticeable spike of interest in liquidation on YouTube.
The implication in most of the videos is that the value of what\u2019s in the box far exceeds the cost. Of course, two Yahoo reporters did it for themselves and got soaked. There\u2019s a difference between something having a suggested retail price of $40 and actually getting someone to pay you $40 for it. The exchange value of most of these items is incredibly low outside the retail context in which they were purchased.
A level-headed Flint, Michigan, liquidation reseller named Walter Blake Knoblock offered a more realistic assessment in a live video he posted last year. He proffered five rules for Amazon pallets. The first? \u201cDon\u2019t expect it all to be good.\u201d \u201c Don\u2019t get discouraged if you\u2019re halfway through your pallet and it\u2019s all trash,\u201d he said. In his business, it\u2019s typical to throw away a third to half of everything.
After other rules about electronics (\u201cboom or bust\u201d), shipping (\u201cUnderstand freight cost\u201d), and sales strategy (\u201cSpeed through your inventory; don\u2019t squeeze it for every dollar\u201d), he gave his final lesson: \u201cDon\u2019t invest money that you absolutely need. It isn\u2019t like a savings account at your bank. You\u2019re taking a risk.\u201d
Staring into his camera from his warehouse in Michigan, the young entrepreneur implored his viewers to consider the bad things that could happen, not merely the potential profits.
\u201cI don\u2019t want to let anyone believe the fallacy that pallets are a guaranteed way to make money. They\u2019re absolutely not. You\u2019re going to see a bunch of videos of people making a bunch of money on pallets,\u201d Knoblock said. \u201cBut just keep in mind that, just like everything else in social media, you\u2019re probably only seeing the top 10, 5 percent of what they do.\u201d
\u201cI\u2019m just pulling this number out of my ass; I don\u2019t know,\u201d he added. \u201cBut just like everything else in social media, always take people\u2019s benefits and their profits with a grain of salt.\u201d
But who wants to hear that? That video has just over 30,000 views, orders of magnitude fewer than the hype videos.
The people who seem to have decent success have to work hard and stay disciplined with their purchases and sales. Which is, more or less, the opposite of getting rich quick, or as Knoblock put it in the title of one video, \u201cThere Is No Such Thing as Passive Income.\u201d