Going out of business... again.

December 21, 2011 6:20 PM

Why do furniture stores rely so heavily on the advertising gimmick of “going out of business” sales?

OK, OK, so I'm stealing this question from Slate's 2011 Explainer Bafflers. But every year I vote for that one question that I've said "Yes! That's what I want to know about," only to find that everyone's voted for some question about cats.

The full question:

Why do furniture stores rely so heavily on the advertising gimmick of “going out of business” sales? It seems obvious that they aren’t actually going out of business, but are just trying to drive traffic to their store. I can understand why they might do this, but the real question is, why is this so prevalent among furniture stores and no other industries? It seems the same principles that apply for furniture could apply elsewhere, but I only see these with furniture stores. I’m guessing the answer has to do with some furniture industry pioneer and his lasting legacy.

posted by eschatfische to Work & Money (23 answers total)

If they aren't actually going out of business, it may actually be criminal fraud! A furniture store near me got prosecuted for "going out of business" longer than the legal 90 days (60 + 30 day renewal).

(This place had been "going out of business" for seriously five years -- until they got prosecuted I couldn't remember them NOT being going out of business!)
posted by Eyebrows McGee at 6:31 PM on December 21, 2011

I live near about 5 major furniture stores. They don't have going out of business sales, but they do have inventory liquidation sales every other week. I asked a guy that used to work there once and he said it's not the stores inventory that is a problem. They are buying in bulk at steep steep discounts from some manufacturer that has excess inventory. It's that inventory that is being liquidated, and they do renew it every few weeks from whoever is overstocked and willing to deal.
posted by COD at 6:35 PM on December 21, 2011 [1 favorite]

It was an old trick even in 1897: "Any one who would be caught by such a scheme ought to have a guardian appointed over him."
posted by Knappster at 6:37 PM on December 21, 2011 [1 favorite]

I've noticed that some piano stores do this too; I used to work in an area where there were three or four that were "going out of business" for the entire time I worked there.

What they seem to share with furniture stores is that they both sell big ticket items that you don't necessarily need and could be substituted with used and/or free items on Craigslist.
posted by malapropist at 6:38 PM on December 21, 2011

In my state it's a violation of consumer protection laws for a store to falsely claim it is going out of business.

I've also noticed it's always "Truck Month."
posted by jayder at 6:48 PM on December 21, 2011

IME, a furniture store will have a 90-day "Going Out of Business" sale, then will re-open in the exact same location under a slightly different name.

So I think the question still stands, with a slight modification.
posted by muddgirl at 6:58 PM on December 21, 2011 [1 favorite]

Use to be there were about 50 stores in times square with going out of business signs. I could only conclude that since it was a tourist area, none of the potential customers had seen the stores before or would likely again so it was effective. Maybe draw in a few suckers.

I think if furniture stores do this, it is because people buy furniture so infrequently and put off purchases for so long. Maybe if you drive past a place with a going out of business sign you are more likely to drop in and replace that chair you been meaning too.
posted by Ad hominem at 7:16 PM on December 21, 2011

Furniture stores have to turn over their inventory frequently in order to bring in fresh inventory. Inventory is expensive and does nothing for the company's bottom line (or top line) by sitting in a warehouse depreciating.

Presumably, the companies that claim they're going out of business are not really going out of business but rather trying to liquidate inventory at any price, in order that they do not have to incur further depreciation expenses on it.

I mean, it may be fraudulent, per the earlier responders, but the accounting rationale behind trying to liquidate inventory is pretty clear.
posted by dfriedman at 7:28 PM on December 21, 2011

If you overpay for an orange, it's not a big deal; you can buy another, cheaper one next week. But if you overpay for a mattress or couch, you are fucked, because you won't be buying another one for years.

So the purpose of the fake going out of business sales is to reassure you that you are buying that mattress or couch for the lowest possible price, and that you are safe to buy without the fear that next week you will see them advertising a cheaper price.
posted by Forktine at 7:29 PM on December 21, 2011 [1 favorite]

I see it as no different than someone saying, "I am going to die." Sure you are. Everybody is. They are going out of business? Yes, sooner or later they will go out of business.
posted by JohnnyGunn at 7:42 PM on December 21, 2011 [2 favorites]

What evidence do you have that these places aren't going out of business? Furniture strikes me as the sort of business where you would see a lot of businesses go under: it has high capital costs, which you need to borrow rather than getting investors for (because investors don't want to buy into such capital-intensive business propositions), and staying in business depends on your customers having steady access to credit and sales staying brisk enough to keep up with your loan payments. That means that any small downturn can send you straight into liquidation. At the same time, creditors don't want to go into the furniture business, so they're happy to sell whatever's left of the business assets to a new businessman to take over and reopen under new management.
posted by deanc at 7:52 PM on December 21, 2011

Where I live, stores seem to get around the consumer protection laws by advertising LIQUIDATION SALES which sound like going out of business but, in fact, aren't.
posted by jayder at 7:55 PM on December 21, 2011

In addition to what's already been said, it allows them to stamp the receipt ALL SALES FINAL without the customer complaining too much.
posted by MesoFilter at 7:57 PM on December 21, 2011 [2 favorites]

There used to be a rug store here in the twin cities that for years had signs and painted windows announcing that they were "Going Out For Business!" with the "for" much smaller than the rest.
posted by chazlarson at 8:08 PM on December 21, 2011 [2 favorites]

Here in Sydney just about every carpet shop has a permanent closing down/liquidation sale.
posted by unliteral at 8:21 PM on December 21, 2011

"There used to be a rug store here in the twin cities that for years had signs and painted windows announcing that they were "Going Out For Business!" with the "for" much smaller than the rest."

I've seen that one, too. I've also seen the "We're losing our current lease!" (with "current" much smaller. Seriously)
posted by bz at 8:57 PM on December 21, 2011

Make sure you read the signs carefully. When I was in Myrtle Beach, SC around 2001 my friends and I noticed that several signs read "GOING OUT FOR BUSINESS!" Their signs were permanently attached, and looked like they had been there for a few years suckering tourists.
posted by Mister Fabulous at 9:26 PM on December 21, 2011

dfriedman, I'm not an accountant, but technically, isn't depreciation a write-off that subtracts from a company's profit and tax liability, rather than an expense that's incurred? Doesn't it follow that a company might liquidate furniture so that they don't incur further warehousing expenses on it, rather than further depreciation expenses?

Just a hair-splitting question about your otherwise very insightful and accurate answer.
posted by Gordion Knott at 2:53 AM on December 22, 2011

It's probably not so much about depreciation expenses or warehousing expenses as it is about the simple fact that inventory is money. Every couch the store carries represents money that the company had to pay to buy that couch from the supplier. So if the couch cost the store $50 and they have ten of them, that's $500 that they don't have to use until the couches are sold. Stores are always trying to keep the right amount of inventory, which means they have to figure out how much they can move in a given amount of time, and how much money they can afford to have tied up in product. Anything that doesn't move is dead money sitting on the books.

As for the going out of business sales, they help create a valued element for sales, which is a sense of urgency. (This is something that's made Groupon so successful.) They want to create the feeling that you need to buy now, because you won't get a better deal and those doors are gonna close anytime now, so don't miss your chance. Many of the stores that do this are competing against furniture mega-stores, so they'll use whatever tactics they can to get people in the door. The rug stores here are notorious for it as well. (I believe in our city that if you have a going out of business sale, you have to buy a permit from the city to do so.)
posted by azpenguin at 3:53 AM on December 22, 2011

There's also a business model for a separate company to buy access to the dying store's name, bring in their own inventory, hire new staff, and manage the "going out of business sale"... Liquidators. This is also why I'd see the same signs/banners for a dozen stores across hundreds of miles. It's dishonest because they jack up prices above retail and the furniture is often lower quality and was never for sale in the original store. The stores I've seen legitimately *were* closing. And they effectively did. Their staff, their policies, and most of their stock are gone.
posted by Gable Oak at 4:03 AM on December 22, 2011

When I was a teenager, there was a furniture store nearby that was "going out of business" for years and years. It became a local joke.

There are many such tropes that the retail sales world use over and over and over throughout the years. They seem to be concepts passed-down from one generation of sales people to the next, whether or not they actually work as sales techniques. See also: Car dealerships and tent sales.
posted by Thorzdad at 5:25 AM on December 22, 2011

There was a Tibetan furniture store in town that legitimately was going out of business for over a year. They probably had a million dollars plus in inventory when they started, and they just kept the store open until it sold out, gradually lowering prices and never bringing in any new stuff. So it can be real in some cases.
posted by smackfu at 7:34 AM on December 22, 2011

dfriedman, I'm not an accountant, but technically, isn't depreciation a write-off that subtracts from a company's profit and tax liability, rather than an expense that's incurred?

Depreciation is a non-cash expense. Here's a decent explanation of it.
posted by dfriedman at 12:03 PM on December 23, 2011