April 30, 2002, 12:00 AM

A dose of reality: Not all online liquidation auctions are created equal

Online liquidation auctions return more to retailers, but they only work in certain areas: high-priced goods, says the experience of Genco Distribution System.

The numbers are in on the economics of online auctions for retailers seeking to unload returned goods. They’ll potentially get as much as three times what they’d recoup by selling the goods to bulk liquidators, and receive 78% of their original cost of goods on average, according to Tim Konrad, vice president of research and development at Genco Distribution System. But after decades of handling retailers’ returns in the offline world, Genco’s year in the online auction business for returned goods has taught it something new: those returns-higher than what retailers get when selling returned goods for salvage-apply only to certain product categories.

Genco has accelerated its online auctions for returned goods through a new partnership with auction software provider Slingshot Solutions, in which it has a 35% stake. Its retail and manufacturer client base for the online service has increased fourfold since last year as a result, says Konrad. A key part of its success in getting higher return value online for those clients stems from a decision to stick to only four categories; consumer electronics, sporting goods, power tools and small household electrical appliances sell best at auction online.

“We’ve also set a threshold on doing auctions only for items that cost the retailer a minimum of $70,” he says. “If you sell an item that costs less than that, it’s not that great of a bargain for the consumer by the time you add shipping, handling and auction fees.”

Online auctions still constitute only a small percentage of what Genco handles in returned goods for retailers, as it uses other liquidation means for the rest. “We still sell to about 3,000 bulk liquidators worldwide. About 10 of them for instance, specialize in shoes, another 15 buy just soft lines like apparel.” What goes online to auction is a much smaller percentage. One of Genco’s clients, for example, handles as many as 1 million returned items per month, but only about 2,000 to 4,000 of them are designated for online auction.

With one year of experience behind it, Genco is already looking for ways to build out its online auction business. For the future, it’s exploring how it could feed the data it collects from what sells in the various secondary marketplaces including online auctions back to retailers to help them make better decisions about when to pull an item off the sales floor. “If I can get them the same price at auction or at a B2B exchange today that they’d get on their third markdown, why wait for the fourth markdown on the floor,” says Konrad.

The company also is evaluating ways to increase the amount of goods it can auction online within its favored categories, reviewing possible tactics such as bundling less expensive items to meet the minimum cost threshold. But such an initiative would have to be handled carefully, Konrad adds, lest Genco wind up in the same boat as the retailers it serves. “Bundling puts us in the merchandising business. If we bundle the wrong items together and it doesn’t sell guess what-we have a liquidation problem.”

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