Winter 2006 Markdown Magic
Many retailers spot an empty big-box store and think failure. Dan Olson spots the same thing and sees opportunity.
Olson leases vacant stores on a short-term basis for his company, The Mega Liquidation Club, populates them with a mix of independent specialty retailers, and attracts local customers looking for—and finding—bargains.
If you’ve ever attended a weekend sale at the local convention center, where retailers, wholesalers and excess-inventory dealers set up shop to sell everything from electronics to jewelry, clothing to tools, then you have a sense of how The Mega Liquidation Club works. At one of Olson’s pop-up bargain stores, you might find digital cameras for $29, designer perfume for $5, leather jackets for $49, flip-down car TVs for $99, cordless drills for $10, top-brand sneakers for $5, and so much more. There’s something for everyone at these weekend sell-a-thons, all at irresistible prices.
The Mega Liquidation Club has held these temporary retail events at convention centers in major markets nationwide since 2001. Then in 2003, Olson began to notice more empty discount stores for lease, and that gave him an idea. Instead of paying top dollar for two or three days of prime convention-center space, he could move his operation to a vacant Kmart, Wal-Mart, Service Merchandise or Ames, and be able to stay put for 30 to 60 days. And so The Mega Liquidation Club expanded into these vacant “neighborhood” venues, ranging from 40,000-100,000 s/f, for a longer term—in addition to the company’s weekend events.
Putting empty retail space back into use was of interest to Olson not just for his own business, but for surrounding businesses. His hope was that revitalizing one store might also brighten the future of others. His instincts were right, and his efforts began to pay off almost immediately.
In 2003, Mega Liquidation’s first big-box space rental was a former Ames in Willoughby Hills, Ohio, near Cleveland. He wasn’t sure how his three-day retail event would be received, so he was thrilled to see 15,000 people show up and shop during that Thursday, Friday and Saturday.
And as he had hoped, other stores in the center benefit from the increased traffic. “A grocery [store] and dollar store next to us [saw] sales double on each weekend that we’ve been there,” Olson says. “This success has drawn a great deal of attention,” and now other merchants “want to look at what we’re doing to generate such a large amount of traffic in a previously vacant building.”
In addition to 70 weekend sales at convention centers, the company runs 26 sales a year in various locations across the country. During the fall of 2005, cities included Augusta, Georgia; San Antonio, El Paso and Austin; Denver; Madison and Milwaukee; Des Moines; and Sacramento and Stockton. Early 2006 locations will include Miami, Fort Lauderdale, Chicago, Atlanta, San Francisco, San José, Dallas and San Diego. While sufficient market size is an important criterion for selecting locations, a local population that’s urban and diverse is of particular interest: events in cities with a strong Hispanic community, for instance, do particularly well, says Olson.
Depending on the availability of storefronts, the company will set up either for a weekend or several weeks. “In some markets, such as Austin, Texas, the vacancy rate is so low that it’s hard to find facilities” to do longer sales, says Olson, so they stick with weekend venues. Olson doesn’t set up all alone, of course: a set-up team consists of as many as 25 company employees. The company also hires temporary help as needed. Creating local jobs is another element in Olson’s revitalization mission.
Although the sales events are all indoors, they have the feel of a flea market: retailers display their wares on tables and in display booths. Temporary pipe and drape dividers help delineate the retail spaces, and colorful banners and streamers hang from the ceiling. Some of the vacant store spaces have been vacant for some time, and it takes plenty of elbow grease to bring them up to par. The stale smell associated with discount stores like Kmart and Ames is gone, thanks to a thorough cleaning by Olson and his crew, and the space is well-lit, so that buyers can easily spot the terrific bargains. When it’s all over, Olson’s company leaves the space in even better shape than they found it—also in keeping with his revitalization philosophy.
In exchange for floor space, the 20 to 40 independent participating retailers pay either a flat rate or a per-shopper charge of 10¢-50¢, the exact amount varying by market: the more shoppers who come to the Mega Liquidation sale, the higher the fee. For example, at the weekend event in Bakersfield, CA, in October, which 4,400 people attended, each of the 27 retailers would have paid between $440 to $2,200. Olson points out that 4,400 attendees is “poor”: attendance is typically much higher. The economy, the weather and the proximity to payday all play a role in how many locals will come out and shop. October through April is the busy season, but in any month, “generally, the first and fifteenth are the best [sales days], and the last weekend is worst,” he says, because shoppers await their next paycheck. But that, too, varies by market.
Interestingly, the attendance level doesn’t necessarily impact sales: sometimes relatively low turnout doesn’t equate to low sales revenues. For instance, an electronics vendor in Washington, DC, took in an impressive $125,000 during a weekend event with only about 8,000 shoppers—not one of the busiest events, Olson notes. More typical is the gold jewelry retailer who sells around $15,000 in a weekend. But even a vendor specializing in dog-tag jewelry—a much more specialized product and market—sells as much as $3,500 in that same timeframe.
For specialty retailers, the advantage of participating is that they’re part of an event (which tends to generate a certain energy), rather than a stand-alone cart or kiosk. And rarely do the retailers at Olson’s events have competitors in their product category—he makes sure of it. So that each Mega Liquidators Club event has a mix of retailers and virtually no competition, Olson limits the number in certain categories. He negotiates exclusive agreements with an electronics dealer, one or two clothing retailers (each with different styles and products), a gold jewelry retailer, and a DVD/video vendor. On the other hand, he has no quotas for retailers selling purses, belts, wallets and other small accessories, primarily because there is tremendous product diversity in those categories.
In addition to bringing in independent retailers, Mega Liquidation Club also sells its own inventory of imported merchandise, which accounts for 25-30 percent of the products at the sale. The company stores this merchandise in a 50,000-s/f warehouse in Newark, Ohio, and transports it from this central location to the next sale.
Retail prices vary by retailer but discounts are generally at least 35 percent of a product’s full retail price, and sometimes the discount is even better. Some DVDs, for instance, which usually retail for close to $20 each, are sold at 10 for $10. Davidoff’s Cool Water Cologne, which sells for $40 to $50 in department stores, is $19 at a Mega Liquidation Club event. While prices are low across the board, it’s frequently the electronics specials that are the draw. In fact, the key to pulling in buyers is strong advertised specials, such as $19 DVD players.
To get the word out about an upcoming long-term event, Olson “saturates the local market in a short amount of time.” Radio, TV and some print ads start running two days before an opening. The Wednesday before a weekend event (which opens on Friday), ads blanket the airwaves, mentioning some of the great deals shippers will find there, such as MP3 players for $29, and car CD players for $39.
Shoppers pay a one-time admission charge of $5 to get into a Mega Liquidation Club sale; the ticket is good for the length of the event, whether it runs for two days or four weeks. For the longer events (not the weekend events), shoppers can earn back the price of admission and then some: Buyers are offered a $5 rebate when they spend at least $20 with participating retailers. By spending more than $20 with more than one retailer, shoppers earn multiple rebates.
One-time shoppers are the norm at weekend events, but Olson aims for repeat visits for long-term events. Grand-opening specials bring shoppers in for special deals at both, and month-long events also have store-closing specials to sell off the remaining merchandise. As the event winds down, prices will drop to $5 one weekend: everything in the place is just $5. The next weekend, prices drop again: everything is $2. Finally, the event wraps up with a store-closing blow-out. These price reductions motivate shoppers to return to the sale several times, becoming event regulars.
Putting it together
Developing strong relationships with leasing agents, retailers and local customers is part of Olson’s strategy for growth, and the number of events slated for 2006 has increased by 25 percent. But the success of Mega Liquidation Club lies in Olson seeing an entrepreneurial opportunity and a solution for retailers, putting the pieces together, and making a straightforward idea work—like magic.
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