Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Improving Store Liquidation
    24 May 2013Working Paper Summaries

    Improving Store Liquidation

    by Nathan Craig and Ananth Raman
    Store liquidation, defined as the time-constrained divestment of retail stores through an in-store sale of inventory, is a critical aspect of the retail industry for both defunct and going concerns. Store liquidation is important for firms and investors, affecting everything from retailer performance to how retailers are financed and how investors are compensated. Further, store liquidation is fundamental to innovation in the retail sector, since extracting value from defunct stores and firms is a key step in the process of creative destruction. In this paper, the authors introduce methods for increasing the efficiency of store liquidations operated by retail asset disposition firms, and they thus extend management science techniques to a consequential problem that has not yet been addressed by the literature. These methods were developed through a collaboration with GBG, a prominent liquidator, during the liquidation of over $3B of inventory. Key concepts include:
    • This paper introduces a method for improving the efficiency of store liquidations, i.e., for increasing the net orderly liquidation value (NOLV) of retail stores, with a focus on liquidations conducted by asset disposition firms.
    • The method comprises a dynamic program that informs markdown, inventory, and store closing decisions as well as a demand forecasting model.
    • In each of three recent applications, the authors show that their method provided a significant improvement over prior practice.
    LinkedIn
    Email

    Author Abstract

    Store liquidation is the time-constrained divestment of retail outlets through an in-store sale of inventory. The retail industry depends extensively on store liquidation, not only as a means for investors to recover capital from failed ventures, but also to allow managers of going concerns to divest stores in efforts to enhance performance and to change strategy. Recent examples of entire chains being liquidated include Borders Group in 2012, Circuit City in 2009, and Linens `n Things in 2008; the value of inventory sold during these liquidations alone is $3B. The store liquidation problem is related to but also differs substantially from the markdown optimization problem that has been studied extensively in the literature. This paper introduces the store liquidation problem to the literature and presents a technique for optimizing key decision variables, such as markdown, inventory, and store closing decisions during liquidations. We show that our approach could improve net recovery on cost (i.e., the profit obtained during liquidations stated as a percentage of the cost value of liquidated assets) by 2 to 7 percentage points in the cases we examined. The paper also identifies ways in which current practice in store liquidation differs from the optimal decisions identified in the paper and traces the consequences of these differences.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: May 2013
    • HBS Working Paper Number: 13-096
    • Faculty Unit(s): Technology and Operations Management
      Trending
        • 02 Feb 2023
        • Research & Ideas

        Why We Still Need Twitter: How Social Media Holds Companies Accountable

        • 27 Jan 2023
        • Op-Ed

        Have We Lost Sight of Integrity?

        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 20 May 2019
        • Research & Ideas

        Activist CEOs Are Rising Up—and Their Customers Are Listening

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

    Ananth Raman
    Ananth Raman
    UPS Foundation Professor of Business Logistics
    Chair, OPM
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Organizations
    • Finance
    • Retail

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College