Shopper's Guide to Closeout Sales

It's hard to ignore the allure of a liquidation sale. And these days, there are certainly plenty of them to choose from.

Fortunoff and Ritz Camera are just two examples of retailers that have filed for Chapter 11 bankruptcy protection in recent months (the companies join such once-big names as KB Toys, Circuit City, Tweeter, Linens ‘N Things, Sharper Image and CompUSA). And they probably won't be the last.

While Chapter 11 filings are obviously bad news for retailers, for savvy shoppers they can prove to be a significant windfall. Fortunoff, for example, is offering discounts of as much as 40% off items like jewelry, furniture and luggage.

Yet these sweet deals have the potential to turn sour if shoppers don’t know exactly what to look out for. Here's SmartMoney.com's guide to navigating the closeout sales -- and protecting your purchases.

The price tags at closeout sales may not be the out-of-sight bargains they appear to be. Liquidators, which take over the sale of a defunct store’s inventory, want to squeeze as much profit as they can from that inventory. And some of the less scrupulous ones may inflate the original sticker price of an item and then mark it down. After all, 50% off looks a lot more attractive than 20% off. To avoid getting duped, shop around. Find out what the true original price is for the item to help you determine if you're really getting a deal.

“Everything must go!” “Store closing!” Savvy shoppers salivate over signs like these. However, as those discounts get deeper, the merchandise selection gets shallower. Not only will the selection be limited, but remaining items will most likely be of lesser quality.

Sure, floor samples come in an open box, but that bargain-basement price is worth it, right? Not necessarily. Keep in mind that, should that brand new flat-screen TV go on the fritz or the Blu-ray player fail to fast forward, you're stuck with it. “They’ll have signs all over the place – ‘All sales final.’ I’d be cautious about buying a floor item,” says Edgar Dworsky, founder of consumer advocacy site ConsumerWorld.org.

If you're eyeing a flat-screen TV at Ritz, ask the salesperson about the store’s return policy before handing over your credit card. If something goes wrong, you may not be able to bring it back. On the other hand, some retailers offer a window of time when returns will be accepted, so check the store’s web site or call customer service if you have a question.

If you’re thinking of buying a pricey digital camera from a closing Ritz store, just make sure it comes with a manufacturer’s warranty (as you always should). As for extended warranties, the chain’s precarious financial situation shouldn’t be cause for worry. These warranties are usually provided by outside companies. In fact, at this point, Ritz isn’t shutting all its stores and its web site, a separate operation, will remain in business. See our story on warranties.

Making a purchase with a credit card will give you extra purchase protection. You can “dispute a charge if goods are defective, or if there’s some reason [the product is] not received,” Dworsky says. Some credit-card issuers offer their own extended warranties, as well. For more information on credit card protections, see our story on credit-card protections.

In the bankruptcy court's eyes, gift card holders are considered “unsecured creditors." That means you're near the back of the line when it comes to getting paid. “Realistically, you will not get your value out of that card because you’re a creditor,” says Brian Riley, research director in the bank cards practice at Tower Group, an advisory firm. If you have a gift card at an ailing retailer, make sure to use it as soon as possible, says Tony Giorgianni, associate editor at Consumer Reports. The longer cards go unused, the more vulnerable they are to a retailer going bust.