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Liquidation Sale Caution Flags

Many retailers are going out of business in the recession-laden economy, and holding liquidation sales on their way to oblivion.

You can certainly find good deals at such sales, but you can also lose your shirt, observers Early Show financial contributor Vera Gibbons:

The International Council of Shopping Centers says 148,000 stores closed last year, and 73,000 are expected to close in the first half of this year alone.

Malls in general are also in trouble; many are turning into office buildings; others are closing for good.

One immediate impact on customers: There are liquidation sales everywhere you look!

And let's be honest: When you see that sign in the window that says "Going Out of Business, Everything Must Go!" you're tempted to go in a poke around for a deal. You automatically assume there are bargains galore inside.

But buyer beware -- these sales are often not as great as they initially appear.

To understand why, it helps to know how these sales work.

Many large chains will bring in liquidation specialists -- companies appointed to help sell off a struggling retailer's assets. Often, liquidators do the job for a percentage of profits from the sales, giving them incentive to get the highest prices possible. In other words, while they want to move inventory out the door, their main goal is to earn as much money as possible to pay creditors == banks, manufacturers and others -- to whom the company going out of business owes money, as well as to turn a profit themselves.

Here, specifically, are five things to keep in mind when shopping at liquidation sales:

1. Initial Sale Prices No Steal

Liquidation sales can last for weeks, even months. Circuit City's, for instance, is scheduled to last through March. Stores know that, the minute they announce a liquidation sale, they will get a flood of customers. So, in the early days of the sale, they typically only discount items a token 10 percent or so. Even worse, many stores will raise prices back to full retail (from sales that might have been happening when stores were trying to avoid going belly-up). Gibbons visited a Circuit City right down the street from The Early Show studio and noted the prices of 13 different items. We then headed online and to the phones to compare those prices to those at other major retailers. While Circuit City did have lower prices on many items, they were not significantly lower; in many cases, they were just a few dollars less than what we found at Best Buy or on Amazon. However, we did find some products there were MORE expensive at the liquidation sale. For example:

Circuity City $2159.99
Best Buy $1599

Circuit City $479.99 $266.48

Circuit City $161
Office Depot $139.99

The message here: Comparison shop! If you have an iPhone, there's an application that will actually do this for you, and of course several Web sites do it, as well.

2. Watch for Bogus Bargains

Sometimes, liquidators bring in outside goods or additional inventory to supplement what the retailer has in stock, the idea being to sell as much as possible. These are items that never had a "regular" price because they were never in the store, so you're getting 50, 60 percent off a price they never charged! This is deceptive, and even illegal in some states, but that doesn't stop anyone from doing it.

How do you know if an item is part of this additional inventory? Check the price tag to see if it looks like the majority of the other tags in the store. If there's a different typeface, format, color, etc, you're probably looking at excess inventory that's been brought in for the sale. This kind of thing is more likely to happen at electronic, jewelry and carpet stores. Something else to keep in mind: Electronics that are brought in as part of this excess inventory are often reconditioned, but sold as brand-new items.

3. Remember That Sales Are Final

When shopping liquidation sales, realize that they're almost always final. Make sure all the necessary parts and accessories are in the box before you leave the store; don't just assume that all is in order. Also, if buying electronics, look for products that come with a manufacturer's warranty. If something breaks down the road. the retailer won't be of any help to you, but the manufacturer itself will have you covered.

4. Pay with a Credit Card

Again, because you can't return something bought at a liquidation sale, try to pay with your credit card when possible. If you wind up wanting your money back and your card issuer agrees that you deserve it, the charge will be removed from your bill and the credit card company will fight the charge itself. Also, be aware that, in the final days of their liquidation sales, some stores won't allow you to pay with anything but cash.

5. No Knowledgeable Sales Help

If you're shopping for a sweater, chances are you don't need too much help. But if you're trying to buy a piece of jewelry or electronics, you might want to speak with a salesperson who can tell you more about the product. Unfortunately, the liquidation specialists who come in to run these sales typically don't know much about the items they're selling. If you're looking for some insight, you're better off shopping elsewhere.

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