Close Out City

So did you get screwed at Circuit City?

Circuit City hired professional liquidation services to run the final days of the chain. And somewhat counterintuitively, the first thing the liquidators did was raise prices. Substantially. And it worked. Merchandise flew out of the showroom and the company made some real money in its final moments of existence.

The reasoning actually proves pretty simple: A high-profile closure brings a crush of bargain-hunters. Circuit City was mobbed. Those customers, however, were operating off of a fairly simple theory of why they would get a good deal; Circuit City was going out of business and needed to sell down its stock. But the liquidator had a lot more experience with closures than the customers and so knew full well that the consumers would think they were getting a good deal whether or not they were. And so they in fact got a bad deal.

Behavioral economists talk of predictable irrationality. But the corollary problem is what I call asymmetric rationality. Businesses have enough consumer data to detect patterns in our recurrent screw-ups. We fail predictably. They track those failures continually. And so there are many times when we think we're gaming them -- like rushing to Circuit City's final sale -- and they're actually gaming us.

I’ve actually noticed the lack of bargains at the many “close-out sales” I’ve been to over the years. I did not partake in CC’s closing for that very reason. Also, I’ve been burned on the no return policy that is unavoidable at these things. I remember once buying a sheet set at Venture as it closed out here in Springfield. When I got home, I found that there was no bottom sheet. Too bad for me. I saved 30% (or something) but really got nothing useful.