The Pitfalls of Shopping the Liquidation Sales

Updated on April 23, 2008.

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 in February 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 Company filed for Chapter 11 bankruptcy protection. Three months later, electronics retailer CompUSA announced it was being acquired by an investment firm 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 highest number of closings 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 firm Apollo Management bought out the Clifton, N.J.-based retailer in 2006.)

For consumers, these closures are a mixed blessing: While they may be losing a favorite shopping destination, they can also stock up on some great deals at their going-out-of-business sale. Being able to finally afford that full body 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, 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:

"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," he says. And it's illegal in some states, but that doesn't stop some companies from doing it.

To make sure that 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, says Dworsky.

To protect yourself, make sure the item you purchase comes with a manufacturer's warranty, says Dworsky, and pay with a credit card. As long as your product is still covered by the manufacturer's warranty you can probably get it replaced or repaired by them. If you'd prefer to get your money back and the store refuses a refund, you can try to charge back the purchase with your credit card company. In this case, consumers write their card issuer, indicating how the product is defective and requesting that the item be taken off their bill. The card company will then contact the merchant to get their side, says Dworsky. If the card issuer agrees with your position, they will permanently take the charge off your bill.

If you spent $170 to get a one-year extended warranty on that Sony laptop computer from CompUSA, you aren't entirely out of luck. CompUSA arranged with a third-party to take over its service agreements. But that may not always be the case. And it goes without saying that you shouldn't buy any extended warranties or service agreements from a retailer in the process of going out of business. California's Department of Consumer Affairs advises consumers to look for a warranty on the product independent of the retail store.