Today we are looking at the bargain bin discount store business. A bargain bin store offers products at steep discounts to retail, the most popular format right now is in the US with “Krazy Bins” which is a format that have sprung up in recent years (often close to Amazon fulfillment centers) where they sell shop returns and surplus and overstock items at discount prices that are reduced on a daily basis and because the stock is always different so it has that treasure hunt vibe.
We have spoken about the surplus and salvage, clearance, shop-soiled, factory reject, liquidation business too many times to remember. The problem is that is still a las (burdensome) business because you open a shop and have shop overheads meaning you can’t charge as cheap as possible you need a lot of space to store the stuff that are slow to move and the stuff ends up owing you more that its worth. And you end up having just a normal shop. Now this industry is all about clearance monetizing/getting rid of stock as soon as possible. Enter a business model that supports this: Krazy Bins.
Here’s how it works: the shop already offers steep discounts (some claim 50% of retail) with the prices falling every day until it is next to nothing this is to clear the shop out. This is done on a weekly basis.
So let’s say in the example of the US
Thursday is stock take day
Friday shops opens this is the first day where the new stock is shown, usually the early hours of the first day they have a ticketing system due to popularity.
So Saturday, the stock drops by a certain amount, let’s use a percentage rather than a dollar amount to illustrate the model:
Thursday: Closed for stock take (here is when they sort the stuff that came in and put on display).
Friday: Day one all the popular stuff for sale up to 50% off retail value.
Saturday: What is left from Friday – 20%
Sunday: What are left from previous days – 30%
Monday: What are left from previous days – 50%
Tuesday: What is left from previous days – 70%
Wednesday: What is left from previous days – 90%
Thursday: Closed for stock take
Friday: The above cycle starts over
Now I’m not just referring to individual items here, it could be packaged as a job lot as we have seen. So day there is R200 job lots, tomorrow, R180 etc.
So let’s say a Pampers New Baby Dry – Size 2 Jumbo Pack of 94 nappies retails at R200 in the main street . The first day it will cost R100, if it doesn’t sell, the next day it will be R80, the day after that R70, day after that R50, day after that R30, final day before stock take it will be R10.
Obviously that is hypothetical because South Africans love their SASSA grants and breed like rabbits to get it so its unlikely nappies will make it to final day. But that brings us to an important matter…
The psychology of this business model
Like an auction this business invokes certain emotions, take the risk to leave an already discounted item only to come the next day and its gone, the discount go so low that even unpopular items are cleared because the price has dropped so ridiculously low. Friday is the best day for cools finds but also the most expensive etc. etc. So there is lots to think about.
There is also an opportunity to adopt this model to only certain industries, in fact it might be easier, take clothing and footwear for example. We have all these “factory shops” (Choice, Going Under, Jam) in SA, some sell branded, some imported, some rejects, etc. and they are even in malls now next to “normal” shops. But this model will flip it on its head with a different model using the strategies below. Why is it easier? Because it is easy to categorise clothing: t-shirts, tops, jeans has a certain type and value. And this can be priced and discounted accordingly.
Where do the stock come from
The floor is usually cleared now what you need to understand is this shops position in the surplus/salvage/overstock industry. This is a “no questions asked” business. Your suppliers will just dump trucks/containers/pallets of stock on you, there is no sorting no categorization nothing. The goal is to clear stock. You have this problem in SA when people want to enter this trade and they want to pick and choose.
There are a few different ways to look at this business, and again you look at categories and not specifics: if you have a large supply channel like a online retailer which has a lot of returns that is one channel. Another channel is a “last resort” a retailer has items that has been discounted once, twice, thrice they want to get rid of it for next to nothing but not publicly as it might give people the wrong perception if they can sell a item for a fraction of the retail price, and they want to clear the floor as well. Now that perception is problematic for retailers that want to portray a certain image, Checkers for example wants to compete in the upper-segment (with Woolies) so if they start putting up bargain bins in their shops then they don’t look very upper class.
How to source
Large online retailers has been a big source of these types of goods in recent years for a simple reason: returns take up time and space and are often destroyed and written off by the company that is why overseas you often see these stores close to online fulfillment centers. Now its not always fortunate to have such as supply. But there are other ways:
Have lots of money, nobody will turn you away if you want to become the liquidator for a whole group of company’s. This simply is what most in SA that can’t find suppliers don’t understand.
Leverage contacts to become the liquidator of choice, either on a commission basis or with a credit line. You won’t get a credit line in salvage & surplus without connections revert back to above point (have lots of money).
Have a no questions asked mentality. As stated above, this is a another thing that prevents people from entering they want to pick and choose and only take certain popular stuff, companies want to clear their stuff not have people waste their time. I asked explained why this business does not suit this mentality. But for companies that want to clear this is the biggest irritant people that want to shop like they in OK Bazaars. People who understand this often make it in this industry. It is just bloody common sense: you don’t get a lot of market leading products because they are sold in traditional channels in a timely basis.
Here is enough info to craft a business plan from:
I Love Canada (I don’t but this person clearly does)