December 26, 2000, 9:55 AM

RetailExchange tries to re-create the excess-inventory market on the Internet

As retailing moves online, having an easy method to stock stores and liquidate overstock is just as important as the buying and selling of the goods.

With input from major retailers, RetailExchange.com, which specializes in overstock consumer goods, has developed a niche that it believes it can sustain even among the larger exchanges now storming the b2b front. With such user-friendly features as goods requests and channel control, RetailExchange.com is not planning to be just another exchange. In particular, its negotiation feature allows buyers and sellers to do business through the exchange the same way they do in the real world. By comparison, other retail exchanges offer only auction and/or barter functions.

While many dot-com companies today are facing stony-faced investors, RetailExchange.com recently got a warm reception from the people with money. Just in October, the company received a $25 million round of financing, following two previous rounds that had raised $19 million in only 10 months. ICG, which invested in all three rounds, says, RetailExchange is the best player in a very attractive market. “They grew up with retail surplus expertise,” says Mark Lotke, managing director. “They understand the points of pain in the market and how you can solve it. They launched early and under budget, and exceeded inventory and transaction targets.”

The company started as a spin-off in July 1999 from Gordon Brothers Group, a nearly 100-year-old retail asset deployment firm which specializes in taking over out-of-business retail operations and liquidating merchandise through those companies’ stores. That business is highly fragmented because it is difficult to sell to and buy goods from a great selection of parties. While Gordon Brothers did not buy and sell goods itself, the company believed that its retail contacts and real world experience with buyers and sellers could be the basis for an Internet-based buying and selling organization that would transcend geography. “We wanted to set up a new value proposition so that using our online exchange was faster, easier and less costly for buyers and sellers compared to what they do now offline,” says Kenneth S. Frieze, CEO and a former Gordon Brothers executive.

RetailExchange.com’s unique offerings are tools for buyers and sellers to get and give exactly what they want. For example, sellers can use channel controls to block sales to certain buyers to protect a high-end clothing brand, for instance, from being sold to a discount retailer. Sellers and buyers also can veil their identities if they don’t want the other parties knowing who they are for strategic purposes. The site features click-on tabs for different categories and searches for items can be refined to find exactly what the buyer wants based on price point, product, brand or other details. Sellers can check message boards with requests from buyers for certain items so they will know what is in demand.

A key feature that sets RetailExchange.com apart from competitors is its managed negotiation format, in which buyers and sellers interact via email, phone or fax about the parameters of their transaction. Unlike auction sites, the prices can be negotiated before a sale takes place, says Jason Kissell, director of marketing. “We’re not an auction site,” he says, noting that when the company researched the business plan, retailers made it clear that buyers negotiate for products rather than bid on them. Competitors Rebound.com and Redtagbiz.com both use auction and/or barter options.

RetailExchange.com is set up on a membership access basis, in which buyers and sellers log on, check information and send emails within the exchange to buy and sell goods. This speeds up the way they do business; a buyer does not necessarily have to go to a seller to view the goods-the buyer can see the merchandise online. The exchange also expands the amount of goods buyers can view and gives sellers a much broader audience than in the real world.

A charter member of RetailExchange.com, Ames Department Stores advised the development of the exchange service and has been using it for seven months. “RetailExchange.com has significantly changed the way we do business,” says Rolando D’Aguilar, senior vice president. “Using the exchange has shortened the time between when goods come on the market and when our buyers can get them. And our buyers are seeing more products than they could before. If buyers went to New York from Connecticut, it could be a week before we got the goods. Electronically, they can buy and order at the same time.” D’Aguilar says Ames buyers use the exchange to fill the Special Buy section of its 479 stores.

Shortening time

Overall, the RetailExchange.com experience for buyers and sellers is more proactive than in the real world and in other online exchanges, says Kissell. “As far as we know, we’re the only ones who offer this level of control,” he says, noting that in the real world, buyers and sellers may not be able to have so much control over who they sell to or buy from simply because the options may be limited by the current network of intermediaries, buyers and sellers. Using RetailExchange.com tools gives users the ability to approve each sell or buy as negotiations are made.

And the site is less expensive to use than other means of buying and selling, says Frieze. Buyers pay nothing to use the service while sellers pay 5% commission. In the traditional way of doing business, the seller typically pays an intermediary a 10-15% commission. “We’re below the current price of intermediaries and we’re also a more streamlined way of doing business. We’re connecting new buyers and sellers all the time. Sellers can sell more goods and buyers can proactively get into the market,” says Frieze. The site has posted more than $600 million in product value since it launched and has $250 million worth of goods online today. RetailExchange.com has 5,000 members and has listed more than 10,000 products, making it one of the largest among the general consumer goods exchanges. Of course, the exchange is still in its infancy and the volume pales in comparison to Gordon Brothers’, which managed more than 2,100 store closings and sold more than $5 billion worth of inventory last year.

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