Overstocked, returned and outdated products have long been thorns in the sides of retailers. They take up valuable warehouse or shelf space that could be better used to stockpile current inventory. And, perhaps more importantly, they represent lost revenue.
In the past, retailers would call local liquidators to bid on excess, returned and out-of-date products, a method that leaves a lot to be desired, says Bill Angrick, CEO of Liquidity Services Inc., operator of online auction site Liquidation.com. “You’re not maximizing the competition for the assets, and so you’re not getting the best value for the assets,” he says. “And you’re taking on the direct burden of identifying the liquidator, negotiating a transaction, documenting the process, making sure you get the money, etc. It pulls your management away from your core business.”
Creating a market
But that’s changing as more liquidation operations are going online. Web-based liquidation services offer a nationwide pool of potential buyers, opening new markets for retailers’ and manufacturers’ excess inventory. “With 400,000 professional buyers, we’re able to create a market for virtually any quantity or condition of returned merchandise,” Angrick says. “Liquidation.com’s buyer base is growing about 50% per year.”
“Internet-based liquidation sites also give manufacturers new retail outlets—mom-and-pop stores—for their surplus goods,” says Ivan Ramirez, Vice President of Bulk Goods, Buys and Business Supplies at Overstock.com. “Imagine having to send sales reps to contact 100 small mom-and-pops that are going to buy a case pack of each product. It’s just not economical. […] There’s not a company out there that has the ability to reach millions of small mom-and-pops.”
The ability to reach a larger group of buyers is one reason that NewCorp.com switched to […] Liquidation.com after using a traditional liquidator for most of its 22-year history, says Steven Miller, Senior Director of Service Operations. NewCorp.com, operated by N.E.W. Customer Service Cos. Inc., runs extended warranty programs for major retailers, including Best Buy, Lowe’s, Walmart, Sam’s Club and Kmart. Over the course of a year, it accumulates about 200,000 products returned by consumers under the warranty plans. “The traditional salvagers have partners and buyers they go to over and over again,” Miller says. “Internet salvagers touch an audience you can’t even put your hands around. Anybody can shop on the Internet.”
For example, a buyer who might want to purchase 30 laptop computers to salvage the parts would never buy from a traditional salvager, but that buyer has access to an online liquidation site. “The bottom line is my return is 14 times higher through LSI than through our previous traditional liquidator,” Miller says.
Online liquidation also benefits buyers, particularly small, independent retailers, by giving them access to a wider variety of products at lower prices. Instead of traveling to trade shows or liquidators’ warehouses in search of inventory, these retailers simply go online.
Randall Pinson, owner of Rocket Auctions Inc., an eBay Power Seller, started buying merchandise from Overstock.com in 2001. “I hadn’t had much experience when I started selling,” he says. “I didn’t know that many liquidators. For me, Overstock.com was the first resource I stumbled onto.”
Rocket Auctions sells a wide variety of products, although Pinson recently began focusing on fashion and accessories. Pinson says he researches products on eBay before going to Overstock.com to purchase merchandise. He buys on average $10,000 of merchandise per month from the site.
“It’s worked out pretty well,” he says. “Their system is just as easy as buying from their retail site. The only thing I had to do differently was submit sales tax forms.”
“In today’s fast-paced and highly competitive market, retailers need to be able to unload excess or out-of-date inventory quickly and efficiently,” Angrick says. That’s particularly important in areas, such as consumer electronics, where a product can become obsolete shortly after landing on the retailer’s shelf. “Whether they’re MP3 players or iPods—all of those things in the consumer electronics realm are constantly turning over,” he says. “Products have a three- to six-month cycle now. It’s very important that the retailer have a strategy for what to do once the item is less than current technology.”
The increasingly liberal return policies of retailers also have contributed to the demand for liquidation services. Liquidation.com estimates the return-merchandise business alone totals about $60 billion. “Most customers have been trained to expect a no-questions-asked return policy,” Angrick says. “That’s allowed all the big-box guys to build market share. But one of the costs of that strategy is they have got to handle the returned merchandise.”
For online merchants, return rates can be as high as 25% because customers can’t try on apparel or examine merchandise before making a purchase, he adds.
This increasing demand for online liquidation is reflected in Liquidation.com’s growth. When Liquidity Services Inc. launched the online auction platform in 2000, it primarily sold goods for small commercial sellers and government agencies. Six years later, Liquidation.com sells everything from general merchandise and apparel to consumer electronics and technology hardware. The site holds about 200,000 auctions annually and sold about $100 million in merchandise last year. Over the past three years, it has auctioned merchandise with the gross value of $264 million.
“Because of the efficiency of the Internet-based model, we’ve been able to attract the right buyers for all these categories,” Angrick says.
The amount of inventory being sold varies among the online liquidation sites. Liquidation.com typically sells large quantities of products—for example, 10,000 items for a retailer eliminating a SKU.
Other liquidation sites deal in smaller quantities. Wholesaler DollarDays—which specializes in manufacturers’ closeout items—typically will sell a truckload or less of products. “A true closeout is not a lot of product,” says Marc Joseph, CEO.
About one-third of [the] 30,000 goods listed on DollarDays.com are closeout goods. DollarDays, whose customer base primarily is independent merchants, also sells basic goods such as batteries and candles, and seasonal goods, such as holiday greeting cards.
The model for selling surplus goods changes from site to site. Liquidation.com uses an auction format. “Auctions last about two to three days, attracting on average six bidders,” Angrick says. Liquidation.com handles the logistics, including customer support, and shipping from the retailer’s distribution center to the Liquidation.com facility.
In addition, Liquidation.com captures the information on the items and takes photos and writes descriptions to be posted for the auction. The site uses software developed in-house to pull information from retailers’ asset- or inventory-management systems. Retailers need no special software.
Liquidation.com also confirms the item count and measures and weighs the lots so buyers can obtain real-time shipping quotes. “We give the buyers more certainty about what they’re buying so they’ll pay the most for those items,” Angrick says. “On returned items, Liquidation.com has consistently doubled and tripled the rate of return to the retailer.”
The online liquidation site also can cut shipping costs for sellers by nearly 50% due to economies of scales, Angrick says. Liquidation.com ships two million products each month through carriers nationwide. The site also handles the collection of funds from the buyer, answers any questions buyers have about the merchandise, and sends the seller the net proceeds.
Because the service is Internet-based, sellers and buyers can integrate their financial system with Liquidation’s back end, enabling them to check the progress of each in-process transaction. “They can get a full dashboard of all the items they are selling, what the status of the bids are, the prices of items, where items that have been closed have been shipped to, and the status of the money that is due to them all in one place,” Angrick says.
Liquidation.com charges sellers 15% to 25% of the completed transaction, depending upon the level of value-added services provided, Angrick says. “The way we price our services is to align our interests with the seller. If we don’t complete the sale, we don’t get paid. And we get paid on the gross sale value so our incentive is to maximize the value.”
Search engines play a major role in Liquidation.com’s operation, because 62% of wholesale buyers use a search engine before any other media to find products, Angrick says. “We have a very active keyword advertising strategy and a very active level of organic search tied to our marketplace, because we’ve indexed all of the auction content to the keywords that are searched on,” he says. “We get 4 million searches a month on our marketplaces from people looking to buy products.”
Buyers who log onto Liquidation.com can search for items based on product category, condition type, geographic location, purchase price per unit and other features. Liquidation also will send out e-mail alerts to buyers who want to know when specific items are being auctioned.
At Overstock.com, B2B-liquidated items are sold at fixed prices. “Overstock is leveraging its B2C site by setting up a ‘Bulk Buys and Business Supplies’ tab on the home page navigation bar,” Ramirez says. In some cases, Overstock approaches its existing fulfillment partners and manufacturers seeking products in case-pack quantities. Overstock then buys the products outright and sells items individually to consumers or in bulk quantities to businesses, Ramirez says.
“In other instances, Overstock will give manufacturers an interface to a commerce platform that enables them to load products and drop-ship them directly to Overstock business customers. For that access, Overstock negotiates a fee that typically ranges between 10% and 15% of the transaction,” he says.
Overstock also sells directly to discount retailers such as Costco and Big Lots, Ramirez says. This approach gives manufacturers three market segments through a single site. […] “We tell manufacturers we can sell their product directly to the consumer, in case-pack quantities directly to small mom-and-pop shops, and in truckload quantities to brick-and-mortar discount retailers,” he says. Buyers can navigate the site using either the search box or category tabs.
Overstock focuses on housewares, small appliances, and apparel and accessories in the B2B area but plans to add electronics, jewelry and watches, Ramirez says.
At DollarDays, buyers also pay a fixed price on liquidated items. The wholesaler sets the price by adding a margin to the bottom line price set by the manufacturer, Joseph says. “Everybody who works here is an ex-retailer. We look at each individual item, we know what the true retail value is, and we know what the closeout price needs to be based on that.”
Case packs with between 60 and 72 pieces generally sell for under $1 per item, while cases with between six and 12 pieces may sell for $5 or $10 per item, Joseph says. Some [pallets] have assorted items numbering in the thousands.
Buyers search the site by category, brand, price, closeouts, hot sellers and other characteristics. DollarDays’ customer base includes independent gift shops, drugstores, convenience stores, dollar stores, discount stores and apparel stores.
The number of retailers, manufacturers and distributors using online liquidation sites is likely to grow because it allows retailers to try out new products with minimal risk, Angrick says. Retailers have to continually take risks and anticipate consumers’ tastes and preferences. “We’re a solution that gives retailers comfort that even if they do make mistakes—and everyone will—we can handle those mistakes.”
The higher returns promised by online liquidators also attract retailers. “If a traditional liquidator is buying things from me for 10 cents on the cost dollar, and then (an online liquidator) will either buy it for more or in some way enable me to sell it for more, that’s pretty appealing,” says Scott Wingo, CEO of ChannelAdvisor Corp., which sells technology and services to retailers selling through third-party platforms. “That’s found money that drops right to the bottom line.”
“Online liquidators also create a level playing field for retailers and manufacturers looking to sell overstock and discontinued items,” says Michael Blumberg, CEO of D.F. Blumberg & Associates Inc., a research and consulting firm. “With the traditional liquidation model, the liquidator is in control.”
Changing the value proposition
They had insight into who was buying the stuff from them and where the sellers were, Blumberg says. But with the online liquidator, it takes the mystery out of it.
Many online liquidation sites—like Liquidation.com—also provide professional services, such as branding and marketing, that aren’t offered by most traditional liquidators. “Some of them are getting into reverse logistics, like handling warranty and repair,” Blumberg says. “Traditional liquidators are basically brokers.”
The additional services offered by Liquidation.com was a major reason N.E.W. switched to the company, Miller says. “Our traditional partners collected the salvage and then sold it off. In contrast, Liquidity Services grouped like items together before auctioning them off. That changed the value proposition for the buyer. Now a buyer is buying a [pallet] or two [pallets] of similar products—boomboxes, TVs or laptop computers—versus a mixed bag.”
Just which method of liquidation a retailer chooses depends on many factors. “Everyone has a different need to solve the same problem—the problem being excess inventory,” Wingo says. “What really changes how they operate is channel conflict, how fast they want to sell things, and other complexities around the logistics.”
ChannelAdvisor operates Direct2Wholesale, a network of business-to-business auction sites that connect manufacturers and retailers with qualified buyers of surplus. “We help retailers and manufacturers figure out what the right fit is for them,” Wingo says. “Should they be doing eBay? Should they be doing a private marketplace? Is Liquidation.com, where you’re moving it to smaller people, the way to go?”
Retailers who can’t ship single units might turn to online liquidators such as Liquidation.com or Overstock, while those who can ship individual units might use eBay to sell off excess stock, he says. “If they’re only going to sell a truckload, that limits what they can do. You’re not going to put a truckload on eBay.”
Despite the advantages offered by online liquidation sites, it’s unlikely that they will replace traditional liquidators any time soon, observers say. “They represent only about $1 billion of what is estimated to be an $80 billion market,” Wingo says.
Liquidators selling to liquidators
Most traditional liquidators have a depth of knowledge and long-term relationships—for example, contacts for selling out-of-stock and discontinued items outside the [United States]—that online liquidation sites don’t have, Blumberg says.
“Surplus Sourcing [Group Inc., a traditional liquidator based in Chatsworth, California,] has been buying excess inventory from large companies we have had contracts with for many, many years,” says Frank Jadhavji, President of Surplus Sourcing.
Because SSGI deals in what Jadhavji terms “mega-volumes of merchandise”—tens of thousands of a single item—-he doesn’t consider online liquidation sites a threat. “We can’t go online ourselves and sell at that kind of volume,” he says. “As a matter of fact, most of these guys are our customers.”
Surplus Sourcing also refurbishes non-working items and sells them in bulk to retailers and distributors, a service that most online liquidation sites don’t offer, he says.
But while traditional liquidators will continue to dominate the liquidation industry, online operations will play an increasingly important role, observers say. “These online liquidators make a very efficient marketplace,” Blumberg says.
Original article here: https://www.digitalcommerce360.com/2006/04/28/the-new-liquidators/