Since the economic distress took hold this autumn, liquidators have sold off some $15 billion worth of stuff—the stuff of executives' miscalculations and failed aspirations, but for all that, just everyday stuff. Suits and sheets and college sweatshirts. Video games, GPS devices, and plasma televisions. These goods had been accumulating at troubled stores around the country, including Mervyns, Linens 'n Things, Steve & Barry's, KB Toys, and Circuit City. And liquidators think it's possible that some 12,000 other stores, stuck with several billion dollars' worth of more stuff, may go out of business this year, too.
This abundance is providing a bit of good fortune for liquidators, who are brought in to sell a bankrupt company's inventory, and sometimes the furniture and computers, too. But it is also unexpectedly complicating their business. They have so much work that the big four among them regularly join forces just to handle it all. They can hire consultants for each project from a growing number of talented, unemployed retail executives.
For the first time, though, liquidators are also competing with some of the most respected retailers around, stores that never used to lower their prices as precipitously as they now must. Because so many Americans aren't buying anymore, merchants are desperately trying to get rid of whatever they're selling. "The work is harder," says Scott K. Carpenter, the head of retail operations at the liquidation firm Great American Group. "It's harder to predict how consumers will react. It's harder to predict our sales."GET THERE FAST
Steve & Barry's, like most of these defunct retailers, came to a quick end. The chain, opened in 1985 and known for selling reasonably well-made clothes for $24.98 or less, had been in the midst of an ambitious plan to expand its stores and refashion its brand. But poor management in a suddenly unforgiving economic environment led to the inevitable. The founders filed for bankruptcy in July, and a month later private equity firms Bay Harbour Management and York Capital Management bought part of the company for $168 million. But they too had trouble getting financing for the retailer and had to shut it down. The bankruptcy court approved the liquidation of Steve & Barry's Thanksgiving week.
For the liquidators, speed is crucial. When they make a deal with a retailer, either they are paid a percentage of the final sales (the retailer and its creditors get the rest) or they take over the company entirely. In the case of the Steve & Barry's closeout, Great American Group and its partners were working for a cut of the proceeds. But whichever way it goes, no one wants to spend a dollar more than necessary on salaries or leases or advertising.
At Steve & Barry's, the liquidators gave themselves eight weeks to sell some $275 million worth of clothes that were piling up in 173 stores and a warehouse. The retailer had down coats, sweatshirts, dress shirts, jeans, children's clothes, Sarah Jessica Parker's Bitten line, and the Starbury sneaker by Stephon Marbury. But mostly it had T-shirts: 5.4 million T-shirts. Getting rid of them would prove to be a challenge.
It is the consultants who manage the day-to-day business of the stores, often working in locations they've never seen with employees they don't know. Great American Group has about 300 consultants on call, 57 of them retained in the past six months. They have to be ready to start on a project with just 48 hours' notice. Among them is someone we'll call Mike Smith. Like many on this side of retail, he is an experienced executive (20 years in the business) whose own stores were closed out—in his case by Great American Group. Four months later, he was working for the liquidator. Carpenter finds a lot of good people on the job, as it were. "The ideal candidates are those who have lived through it themselves. They bring empathy and respect," he says. Smith, sensitive to the delicacy of his situation, didn't want his real name to appear in this story. "In the stores, they just call us the liquidator," he says.