How liquidations work: The good stuff doesn't go cheap

On Greenbrier and Volvo parkways in Chesapeake, "sign walkers" carried placards plugging discounts of up to 30 percent at the nearby Circuit City.

At Janaf Shopping Center in Norfolk, a poster at Circuit City's door promised markdowns as high as 40 percent.

Inside the store, though, prices on many items have fallen more slowly. This week, hot categories such as computers, video games and music players cost 10 percent less than their usual retail prices. Tags on flat-panel television sets and digital cameras showed 20 percent off.

That's typical of a liquidation, according to experts in that business and in retail.

"You start out with minimal discounts and a lot of hype to get people in," said Margie Johnson, president of Shop Talk, a retail consulting firm based in Virginia Beach. "Shoppers respond to liquidation. They respond to the big signs and the value and the sense of urgency."

Those running the going-out-of-business sales try to make as much money as they can at the beginning, particularly on popular items that rarely drop from full price.

"Things such as iPods or Wiis or Sony PlayStations or Blu-ray disc players are never discounted," said Sandy Feldman, senior vice president of Great American Group, one of the four liquidation companies that won a bid to execute Circuit City's shutdown. "The least amount of discount we sell it for, the better for us."

Circuit City, based in Richmond, filed for bankruptcy in November and said Jan. 16 that it would liquidate its merchandise and close its 567 U.S. stores. The liquidators must wrap up by March 31, though Feldman said that could happen sooner, "if sales continue to increase as discounts increase."

Prices will drop further, he promised, particularly for accessories and utility-type goods such as cables and adaptors that consumers aren't clamoring to buy. "At some point, it's going to be 70 to 80 percent off."

Big sellers such as TV sets won't need markdowns of more than 30 percent to clear out, Feldman predicted. He said he expects those to move faster even at reductions of 20 to 25 percent, with the Super Bowl this weekend and college basketball tournaments in March.

In this retail climate, however, incremental discounting might not work as well. Many stores are offering bigger price cuts in the wake of the weak holiday season.

"The world is on sale, and unless you have a liquidation that rocks people's boats" they could walk away, Johnson said.

Circuit City's deals looked slim next to the markdowns at Christian Bernard Jewelers, which filed for bankruptcy Dec. 26 and began its liquidation in mid-January, around the same time as the electronics chain. At Christian Bernard in MacArthur Center in Norfolk, no jewelry carried a discount smaller than 40 percent. Wedding bands were marked 60 percent off, some watches and other items at half price.

Retail jewelry prices generally provide a wider profit margin from wholesale cost than electronics do, Johnson said, so it gives liquidators more room to discount.

On some items at Circuit City, the liquidation price was higher than the best Internet deal.

An HP notebook computer, for example, cost $989.99 at Circuit City but sold on the HP store online for $899.99. A 9.1-megapixel Panasonic digital camera was marked down to $263.99 at Circuit City but listed on Amazon.com for $259.98.

"I could go to the base and it's cheaper, or Wal-Mart," said Maria Santolupo, as she left Circuit City at Janaf with her three children.

She said the Navy Exchange store had better prices on laptop computers and the 37-inch TV she likes. A Nintendo DS video game that her daughter wanted sells for $14 at GameStop and $19.99 at Circuit City's discount, she said.

"They're not competitive," Santolupo said. "You just have to be careful."

In this economy, Feldman acknowledged, shoppers are "expecting to walk in there and steal the stuff."

On items slow to move, prices will fall until they do, Feldman said. When Great American handled the liquidation of Steve & Barry's stores last year, piles of jeans went untouched, Feldman said. In the final days, customers could buy as many pairs as they could fit in their shopping carts for $10.

"We are liquidators," he said. "We sell everything."

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com