Pitfalls of out-of-business sales

By SmartMoney

Among the latest victims of the economic slowdown: high-tech gadget shop Sharper Image and catalog company Lillian Vernon.

Both big-name retailers filed for Chapter 11 bankruptcy protection earlier this year after struggling with anemic sales and a weak holiday shopping season.

These retailers are part of a growing trend in the retail industry: In September, furniture retailer Bombay filed for Chapter 11 bankruptcy protection. Three months later, electronics retailer CompUSA announced it was being acquired by an investment company that would start closing its retail operations and sell some of its assets.

And there's likely more retail bloodletting to come. The International Council of Shopping Centers projects that as many as 5,770 stores could close this year, the most since 2004.

Next on the list may be struggling home-furnishings chain Linens 'n Things, which, burned by the housing slump, is hovering near bankruptcy. (Private-equity company Apollo Management bought out the Clifton, N.J., retailer in 2006.)

For consumers, these closures are a mixed blessing: Though they may lose a favorite shopping destination, they can also stock up on some great deals at the going-out-of-business sale. Being able to finally afford that massaging recliner from Sharper Image is enough to make any bargain hunter salivate. But shoppers need to proceed with caution when dealing with stores in their death throes.

"'Going out of business' is a phrase that really draws people in," says Edgar Dworsky, the founder of ConsumerWorld.org. "You get to use it once in a lifetime of a company, and people may presume savings are better than they really are."

Here's what to watch out for when doing business with a store that's going out of business:

Bogus bargains

With signs claiming, "All items slashed by 50%," how could you resist? Going-out-of-business sales are understandably enticing. But shoppers should be extra-careful when wading through a sea of extreme markdowns, particularly when a liquidator has taken over the store and is trying to sell off the retailer's leftover products. Often, a liquidator brings in outside goods and additional inventory to supplement the retailer's own stock, Dworsky says.

"Those things never really had a regular price at that store. So to say you're getting 50% off a price they never charged is a deceptive practice," Dworsky says. And it's illegal in some states, but that doesn't stop some companies from doing it.

To make sure the store isn't the one that's really getting the deal, go online and do some comparison pricing before you buy anything in the store. Also, check the price tags of various items in the store and see if the color, typeface and format are similar. If there's a lack of uniformity on the tags, you're probably dealing with some extra inventory brought in by the liquidator, Dworsky says.

Continued: All sales final

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