Liquidators Thrive In Canada Capitalizing On Economic Distress, Firms Expect More Gains This Year

At least one group has found gold in Canada’s leaden economy.

Liquidators are thriving.

While the economy weakened and consumer confidence slumped, 1995 was a profitable year for liquidation companies and company executives said more gains are expected this year.

Liquidators make their money picking up unwanted inventories from distress situations, such as bankruptcies, production overruns or natural disasters, and reselling them at deep discounts.

“Our business is predicated on other people having trouble,” said Dale Gillespie, president and chief executive of Liquidation World Inc. of Calgary, Alberta. “We find deals in disaster.”

Record levels of personal and business bankruptcies during the first 10 months of 1995 make the outlook promising again this year for the self-styled auctioneers.

In some cases, liquidators play the part of lenders of last resort for struggling manufacturers and retailers, buying out-of-date merchandise at a discount.

“We make opportunity buys,” said Russ Gahan, one of the owners of Richmond Hill, Ontario-based Multi-Marketing, which specializes in finding buyers for unwanted inventory.

While companies adjusted to better match inventories with expected sales in recent years, slower-than-expected economic growth still makes planning difficult.

Future Shop Inc., the country’s largest computer and consumer electronics retailer, last week said same-store sales dropped 16 percent in December - usually the strongest month of the year for retailers.

What is happening in Canada is similar to the experience of U.S. retailers. J.C. Penney Co., for example, saw sales at stores opened at least a year drop 4.2 percent in December.

While tough times for wholesale makers of clothing and footwear lifts companies like Multi-Marketing, the closing of retail outlets makes it more difficult to find buyers, said Gahan. “It’s the old double-edged sword,” he said.

“What creates more business is a boom. That’s when people overlend and overspend,” opening the door to restructurings, said Hap Stephen, national director of corporate recovery and insolvency at accounting firm Ernst & Young.

To balance the ups and downs, Multi-Marketing has expanded into the U.S. and plans to intensify its efforts there this year, Gahan said.

Liquidation World also has tapped markets outside of Canada for merchandise and buyers. It also plans to expand its sales presence in the U.S. this year.

“We did a lot of business from the 1994 earthquake in Los Angeles. (And last year) it was St. Thomas in the Virgin Islands. After the storms abated, we were on the first plane which landed there,” Gillespie said.

Liquidation World acts as a liquidator for banks, receivers, insurance companies and others. It buys inventory and then sells it to bargain hunters at 29 stores in Canada and two in the U.S. It plans to open another U.S. outlet in Washington state in March, Gillespie said.

More small retailers could close this year, said Ernst & Young’s Stephen as consumers keep a tight grip on their wallets out of concern about their jobs and rising personal debt.

“The consumer is very, very nervous,” Stephen said.