Wholesaling 2.0

For retailers, it’s never been easier or cheaper to find products to sell.

Retailers used to have to go to one trade show after another to find merchandise, [o]r they’d schedule countless appointments with salespeople hawking a wholesaler’s wares. Now all they have to do is go online to shop around for the best deal.

A retailer selling school supplies, for instance, can type “wholesale school supplies” on Google or Bing to bring up millions of results, as well as targeted paid search ads, [o]r they can visit e-commerce marketplaces like Liquidation.com, where they bid on products in an auction format.

For wholesalers, too, it’s never been easier to make a sale. “In the past, you had to find customers,” says Marc Joseph, President of DollarDays and America’s Suppliers. “On the Internet, customers find you. There’s efficiency there.”

Acting like retailers

In order to be found, wholesalers have begun acting like retailers, focusing on marketing strategies like search engine optimization, paid search ads and using social networks like Twitter to promote their products. For instance, DollarDays has put a lot of effort into making sure that when a retailer searches for “wholesale school supplies,” it is at the top of the search results page.

But just as quickly as a retailer can find one wholesaler, that retailer can find another wholesaler, perhaps one offering cheaper products, better terms or more favorable conditions. That transparency brought by the Web means tighter profit margins for wholesalers. To cut costs, many wholesalers are forgoing the personal touch that was long a hallmark of the industry. As a result, some retailers find it harder to get the information they seek about quality or price.

Some wholesalers have gone a step further to create their own retail websites, selling merchandise, often the most attractive goods they have in stock, directly to consumers. In doing so, they’re walking a fine line, says Frank Hurtte, founder of River Heights Consulting, which specializes in wholesale sales and distribution. “There’s a clear tension when your supplier becomes your competition,” he says.

There are also new partnerships emerging. Peter Gonzalez, owner of retail sites PoolBoy.com and RelaxingDecor.com, provides customer service for his [wholesaler] clients and gains new business as a result. Each company does what it does best.

“It allows the wholesaler to bring in products, fight to keep prices steady and deal with inventory,” Gonzalez says, “and it allows me to do the things I’m good at—customer service and selling.”

Finding the best deal

For retailers less tied to particular wholesalers, comparison shopping is the name of the game. As long as a retailer enters its business license and tax identification number on most wholesalers’ sites, it can find prices, [b]ut as wholesalers increasingly turn to marketing strategies popularized by retailers, they’re aiming to make it so retailers don’t have to jump from site to site to compare prices.

Instead, they can turn to Twitter. There, businesses like closeout computer and electronics wholesaler Evertek offer up sales, special events or a particularly large shipment. “It’s a way to reinforce our marketing campaigns and also to try to prospect new customers,” says Peter Green, Director of Marketing and Operations for Evertek, which also sends out promotional e-mails.

Those deals feature baseline pricing for retailers looking to buy small quantities, rather than looking to negotiate prices. Highlighting those offers on Evertek’s website, which also features a constantly updating inventory list and lets visitors place and track orders, aims at helping customers be more self-sufficient, says Green.

Hands off

DollarDays similarly tries to automate its service in order to cut out the traditional retailer-wholesaler negotiation and contain costs, says Joseph.

“We want to make everything as electronically sound as possible so there is as little involvement with people as possible,” he says. “Everything is done through the Internet. Retailers place the orders they want, [and] in a week to 10 days, it shows up. It’s like buying on Amazon. If everything runs smoothly, nobody needs to touch it.”

The process works, he says, because DollarDays tries to keep its prices consistent with its competition.

“From a retailer’s perspective, the good thing about the Internet is it’s so transparent,” he says. “For instance, if a retailer has a Universal Product Code, which identifies a particular item, it can quickly find the best rate, but we know that retailers are doing that, and we don’t want to be embarrassed if the guy down the virtual street is 10¢ cheaper, so we look it up, too, so that we’re competitive.”

For small retailers like Island Video Games, which sells new and used video games and accessories on eBay and on its own e-commerce site, wholesale auctions provide the best means to find inventory, says owner Michael Dimone. “I don’t have the capital to buy large loads,” he says. “With an auction, I can buy smaller lots.”

He primarily shops for products at Liquidation.com because of the site’s wide range of inventory. The site has more than 1.3 million registered buyers, and, in its 2009 fiscal year, the value of goods sold through its online marketplace totaled $365 million. The site features various-sized lots ranging from a single Washburn acoustic guitar to 13,357 assorted pieces of out-of-season swimwear.

Before making a bid, Dimone does a thorough analysis. First, he looks at his historical sales data to see what price particular games or accessories sold at and how long they took to sell. He then estimates his costs for shipping, credit card fees and the wholesaler’s fees—Liquidation.com charges buyers 5% of the value of a purchase. Finally, he comparison shops at sites like Half.com and Amazon.com to see how the games are priced.

“Before I bid, I want to know that I have to sell an item at this price or higher to make a profit,” he says.

Dimone also searches for particular sellers he has bought from in the past. Liquidation.com lets retailers filter each category by sellers, as well as by condition, lot size and other criteria. Although retailers can search the site by seller name, Liquidation.com works to give buyers confidence in all sellers by physically inspecting the products that flow through its marketplace, says Bill Angrick, Liquidation Services’ CEO. The company analyzes those items, including the condition of the merchandise, in an auction manifest that describes the natures and type of goods.

The site also provides buyers a range of information about its sellers. “We want everything to be as transparent as possible,” says Angrick. “So in our auction view, we have a rating of how that seller has performed. The site shows buyers the average days to ship, the buyer dispute rate, repeat buyer rate and seller cancellation rate for 30-, 60-, 90- and 365-day periods.”

Those data points are essential to quickly determine whether to make a bid, says Dimone. “I like to know who I’m buying from,” he says.

Partners, not competitors

Others came to online wholesaling through their experiences as retailers.

When John Olson founded pond-and-water-garden online retailer GrayStone Creations in 2000, he found it hard to find wholesalers selling supplies. He quickly realized that few wholesalers sold those products—and the ones that he could find weren’t presenting them effectively online. So he had to seek out and develop relationships with a wide range of manufacturers and wholesalers.

He soon found that other pond-and-water-garden retailers, like PondBoy.com, were contacting him to see if they could buy supplies from him. That led Olson to add a wholesaling channel. “We realized that if we bought in bulk, we’d get better pricing,” he says.

Rather than compete with the retailers he sells to, Olson works with client retailers to develop search engine optimization and paid search marketing tactics. For instance, he cultivates and passes on thousands of long-tail keywords for his customers’ pay-per-click campaigns. His thinking is the more they sell, the more he sells.

“With more than 30,000 terms applicable to our business, it would be inefficient and tedious for us to compete on every single one,” he says. “This way, if some sellers concentrate on terms applicable to their business and others to a segment applicable to their business, everyone sees better results.”

With some of GrayStone’s bigger customers, he forms deeper partnerships. For instance, PondBoy.com’s Gonzalez answers GrayStone’s customer service and technical calls. In return, Gonzalez, rather than Olson, receives the proceeds from any sales that result from those calls.

“I realize I might lose a little profit,” says Olson, “but I’m gaining it back because I sell to him at wholesale, so it is not a complete loss. And, since I’m not on the phone all day, every day, I can work on things like SEO that bring money to all of us.”

Gonzalez says the partnership boosts his sales 20% to 25%. It also keeps him from shopping around for cheaper supplies.

Competing with the supplier

But not all retailers are as content with the way their suppliers have adapted to the Web.

Take Ann Garrity, president of online organic cosmetics retailer Organic Divas LLC. When she launched her company in 2008, she aimed for the site to be one of the few places on the Web to find natural and organic cosmetics free of cancer-causing or hormone-disrupting ingredients.

But, since then, each of the wholesalers she buys from has opened up a direct-to-consumer online store.

“They realized they could make more money selling direct to consumers rather than selling to us,” she says. “Some of the suppliers even put stickers advertising their online sites on the products they ship to Organic Divas. To use my distribution network to undercut me bothers me.”

Garrity says it is hard to gauge exactly how much wholesalers’ direct sales have impacted her business, [b]ut she has had several customers ask if her site can meet a wholesaler’s prices. Often, she cannot. To compete with those deals, Garrity has had to expand her offers of percentage discounts and free shipping.

The competition has also led her to seek new suppliers. “We want to work with people who are working with us and have our best interests in mind,” she says.

Where does she find those suppliers? The Internet, of course.

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