It’s not easy to get by as a small-business owner these days. Smaller businesses are dealing with overwhelmingly powerful competitors from the world of massive corporations. Amazon recently became a trillion-dollar company, and it brings resources to the table that small businesses just can’t match.
But you should never underestimate the ingenuity of the American entrepreneur. Modern small-business owners are finding ways to carve out niches and survive despite the arrival of these unprecedented megacorporations — and some clever American small-business owners have even found ways to profit off the behemoths themselves.
How companies like Amazon undercut smaller competitors
E-commerce giants such as Amazon and big box stores like Walmart and Target have advantages that small businesses do not.
E-commerce giants such as Amazon and big box stores like Walmart and Target have advantages that small businesses do not. In addition to having plenty of cash to throw around, these sorts of companies derive advantages from their sheer size. Lots of cost efficiencies can be found when you’re dealing with huge amounts of products. These efficiencies are called economies of scale.
It is expensive to design and produce a single item from scratch, but to produce a second one is much easier — the hard work has been done. So when a company like Amazon orders products in bulk, it saves more. Similar cost efficiencies exist in the worlds of shipping — for instance, Amazon’s huge size helped it negotiate a sweetheart deal with the United States Postal Service.
All of these things allow companies such as Amazon and Target to sell products for less — but they also create interesting habits surrounding returns and liquidations. And, precisely because of these large-scale decisions, an opening exists for clever small-business leaders.
Returns, liquidations, and opportunities for small businesses
When a small business receives a product return, it may evaluate the condition of the product and then, if appropriate, put that product back out for sale (perhaps at a discount). That just makes sense — to not get the full remaining value out of the product would be wasteful. Similarly, when a small business needs to make room for new products, its liquidation prices on old stock won’t be quite rock-bottom — crowded shelves are better than big losses.
But when a company is operating on a scale as large as that of Amazon, Walmart, or Target, things look different. When dealing with individual returns, the economies of scale start to disappear. When you’re as big as Amazon, returns aren’t really worth restocking and reselling. Similarly, liquidation prices can be very low — space on shelves and warehouses might be worth more to a huge company than old products are.
So companies like Amazon, Walmart, and Target do something interesting with their returns and liquidations stock: They sell it at a steep discount. Generally, things like Amazon returns and Target liquidation pallets head to online auction sites, where they are purchased on the cheap — by small-business owners.
Yep, that’s right. These returns and liquidations pallets might not be worth the trouble to a company like Amazon or Target, but they can be big moneymakers to those operating at a smaller scale. That’s why so many Americans have begun bidding on these pallets and then evaluating and reselling the products individually online. Depending on what turns up in the pallets, the profits can be significant.
It’s an ingenious way to make money by actually exploiting the size of the overwhelming competition. The brilliance of returns and liquidations businesses show us that the small-business space is still alive and well in the United States of America.