Some Canadians who rushed into Sears Canada when the final round of liquidation sales started on Oct. 19 were quick to turn to social media to complain about a dearth of deals. Others, as Global News has reported, allege that prices on several items are actually higher than before the sale period.
READ MORE: Customers report higher prices during Sears Canada liquidation sales
When Target Canada emptied out its stores in 2015, similar customer reports swirled.
READ MORE: Shoppers complain Target Canada jacked prices ahead of sales
But consumers’ disappointment is hardly surprising to experts. That’s because liquidation sales aren’t really about offering customers incredible deals. They’re about trying to make money for the insolvent company’s creditors.
“People should be very wary of liquidation sales,” said Geoffrey Dabbs, founding partner at Vancouver-based Gehlen Dabbs.
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In a bankruptcy, creditors will never get 100 per cent of their money back, but the goal of a liquidation sale is to get as close to 100 per cent as possible, said Maureen Atkinson, senior partner at J.C. Williams Group, a Toronto-based retail adviser.
And while there is a “whole ton of rules” on the payout end — determining which creditors should be paid through liquidation sale proceeds and in what order — there isn’t much to regulate what retailers can do when it comes to pricing, Dabbs told Global News.
For example, there is little to stop retailers from hiking up prices during a liquidation sale. The only thing stores and liquidators would have to be careful about is avoiding false advertising, Dabbs said.
In other words, if you advertise 50-per-cent discounts, you have to ensure that at least some items in the store are, in fact, 50 per cent off. But that doesn’t mean other items could have a markup, according to Dabbs.
In fact, retailers may be able to raise prices on certain items by exploiting the surge in demand that often follows the advertising of a liquidation sale, he added. In some cases, a liquidation sale is just an aggressive marketing tactic by retailers that aren’t actually going out of business, he told Global News.
WATCH: Calgarians call Sears liquidation sales ‘not that great’
Still, what’s likely to happen is that discounts will be small, especially at the onset of a liquidation sale.
While liquidators, which manage the sales on behalf of the insolvent retailer, must try to make as much money as possible for creditors, they also need to get rid of inventory, noted Atkinson.
Those two competing priorities generally result in a decision to roll cut prices — but only a bit.
But even those moderate initial discounts might not look like discounts at all to consumers, said Atkison.
That’s because liquidators generally take a “blanket approach” to discounting, where they implement price reductions across entire categories of items. That can result in higher prices than what customers noted shortly before the onset of the liquidation sale.
Let’s say, for example, that a home appliances store ran a summer promotion where a blender originally priced at $100 sold for $80. Now imagine that store goes bankrupt and has to start a liquidation sale in the fall. The liquidator might decide to price all items at 10 per cent off, which would mean the blender would now have a $90 price tag.
It’s easy to see how many consumers would think that was a price hike, said Atkinson.
Fortunately, the discounts generally get deeper further into the liquidation period, as the pressure mounts to empty out the stores, she added.
When it comes to Sears Canada, consumers will likely find better deals closer to Christmas, which is the real deadline facing the company’s liquidators, Atkison suggested.
“By the time they hit December, you will start seeing product really discounted.”
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That’s because the holiday shopping season is Sear’s best bet to offload most of its merchandise, according to Atkinson.
If you are determined to get dirt cheap prices, she added, shop in January. By then, though, inventory will likely be limited.
Asked to comment on reports of hike-up prices during the ongoing liquidation sale, Sears Canada said the intent of the sale is to lower prices and move inventory as quickly as possible. Any cases of prices going up would be an “odd exception.”
Sears Canada received court approval to begin completing liquidation of all its stores on Oct. 13, marking the end of an era for the 65-year-old chain.
A joint-venture group — which includes Hilco Global, Gordon Brothers Canada, Tiger Capital Group and Great American Group — is running the sales at 74 remaining department stores and eight Sears at Home stores, a step toward Sears Canada closing its doors for good.
Sears Canada will not profit from the liquidation sale, noted Dabbs. The retailer will only retain what it needs to fund ongoing operating costs, with the rest going to creditors.
Notably, the fund will not benefit most of Sears Canada’s retirees, who are so-called unsecured creditors, meaning they are at the back of a long list of other creditors.
– With files from Rebecca Joseph, Global News
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