Updated: Jan 5
Adam Smith may be rolling over in his grave given the recent reporting that customers are disappointed in the markdowns at Toys R Us. No matter how often large retail store closings occur, consumers never wholly grasp that liquidations are pure economics mixed with a dose of art, science and psychology.
The liquidation process represents a value vs. price dynamic - commensurate with the markdown strategy, items with value sell in fewer quantities at higher prices early in the sale and then transition into items selling at lower prices with velocity and oftentimes in bulk. In theory, deeper markdowns are triggered only after the last item sells at an exhausted current markdown price; however, because time is always a factor, controlled variation of this underlying strategy is what ultimately leads to a strong net recovery and preservation of capital.
Retailers don't need to hire recovery-driven liquidators to effectively give merchandise away to customers looking for a deal. However, if they do want to give it away, it is prudent to recognize that when the stores close for good, there is literally and proverbially no going back.