PetSmart acquired Pet360 for $130 million in cash and up to $30 million more in future performance-based payments.
The market-share grab is on among online surplus exchanges. Nearly a dozen exchanges have come online in the past three years.
The Internet is revolutionizing everything a retailer does-starting with selling to customers. And now it’s changing the way retailers buy and sell the things customers don’t want. Nearly a dozen online exchanges have popped up in the past three years for the buying and selling of excess consumer goods. Boston-based AMR Research estimates the value of those goods to be $60 billion in the United States alone and more than $100 bil-lion worldwide.
Capturing their portion of that market is on the minds of all exchanges, which typically earn a commission on sales and also charge for services to support transactions, such as fulfillment, logistics and financing. Some also charge a subscription or listing fee.
Hard to do it all
Establishing a global presence, building trust from users who are accustomed to transacting such deals offline and investing in and developing the technology to bring the transactions online all are key components for success. Although all bring buyers and sellers together in previously inaccessible markets or relationships, each has its own plan for standing out from the crowd.
But like the early part of a race, the leader is still hard to pinpoint. “It’s too early to tell who is in the lead,” says Greg Girard, vice president of retail application strategies at AMR Research, who expects the market to consolidate in time. “There’s room for maybe two or three of these exchanges, not eight or 10. They have to satisfy the market expectations, which means there’s a lot they have to get right.”
In fact, getting it all right may be the biggest problem that the surplus exchanges face. Each exchange focuses on a different strength, whether it be technology to link buyers and sellers, strong offline relationships, global expansion plans or a broad range of exchange categories. “A strength in one area will not compensate for a lack of capability in another area,” Girard says. “They know the formula; they are just trying to play the hand they’ve been dealt.”
One challenge that all face, how-ever, is so-called channel management. “The exchanges that will survive must have the ability to drive the transaction through the site, and do it securely to protect the brands,” Girard says. “Protecting the brands from being sold in the wrong places at the wrong times is a big concern with excess consumer goods.” Buyers and sellers are very aware of what goods go where because of price competition and brand integ-rity. Manufacturers and retailers, for example, would not want excess goods competing with full-priced goods being sold into the same geographic area. Finding appropriate places where these goods can be bought and sold is exactly what the exchanges set out to do.
Size doesn’t matter
For now, some industry experts believe that size does not matter to the success of exchanges; rather, they argue, success will depend on frequency of use by members. Some market observers say the vertical consumer goods exchanges may not be able to compete with the super-exchanges that sell everything from car parts to shoes to coffee pots. But AMR Research disputes the size-matters model, pointing out that a larger exchange like Valhalla, N.Y.-based TradeOut.com, which has categories including industrial equipment, commercial transportation, medical and restaurant, among others, may be spread too thin. Andy Kantor, vice president of marketing, contends that cross-category buying and selling opportunities make TradeOut.com a dynamic exchange and in fact prevent it from becoming a niche player with fortunes tied to one category.
While most retailers already have networks of trading relationships, the exchanges think they can change retailers’ behavior. Most of them employ direct sales forces with an average of a dozen salespeople to attract users to the exchanges. Most of the exchange executives and sales personnel also have retail backgrounds. The exchanges rely on that retail experience to extend relationships onto the web.
Cracking the resistance
To clear the technology barrier, most exchanges use their sales teams to encourage and train the historically tech-resistant retail buying and selling crowd to use the online exchange. Jason Kissell, chief marketing office at Retail Exchange, an exchange that features e-mail negotiation, says conducting site tours and demonstrations helps. “There are early adopters who see the technology as an immediate enhancement to the way they do business,” he says. “But some retailers who are proud of their negotiating heritage may take longer to move to an online site.” Often those retailers use assistant buyers or other associates to access the Net for doing business. To further cater to those who need more hands-on convincing, sales people will do live training if that is what the retailer really wants or needs.
While getting buyers and sellers to go online is one hurdle, getting them to use a particular exchange is the next hurdle for the online exchanges. That’s where partnerships can help, Girard says. Those partnerships involve technology as well as retail and service partners. For example, Retail Exchange is poised to capture a chunk of business in China with a partnership with Retek Inc., a company with offices in the U. S., Europe and Australia that matches excess goods suppliers with buyer demands, as well as a partnership with Mai Technologies, a Chinese vendor that provides the trading infrastructure to support a number of Chinese manufacturers and domestic retailers.
RetailExchange.com, a spin off of retail liquidator Gordon Brothers LLC, is an early top pick for AMR Research. This exchange features online negotiations-similar to the real-world experience-between buyers and sellers and draws on its former parent company’s 100 years of experience in dealing with retailers and manufacturers. The well-funded company also recently closed its third round of funding, securing an additional $5.5 million from new investor American Express Financial Corp., for a total of $30.5 million. The company has raised $50 million and says its investors, which also include 3i, Koch Ventures and Exeter Funds, trust the company’s vision because of its strong retail background.