April 30, 2003, 12:00 AM

Retailers are learning: Auctions work for some excess goods, but not all

Liquidators are refining their notions of when auctions are right—and when it makes sense to just dump the merchandise.

Where does a retailer get more than $1,000 for a single golf club? For multi-channel retailer Golfsmith International Inc., the answer is simple: eBay. The Austin, Texas-based manufacturer and retailer of golf gear listed a Tiger Woods Master’s Commemorative putter at auction and, faced with a dwindling supply of the limited edition club, enthusiasts bid up the price. Golf clubs typically return a margin of less than 100%; the competitive marketplace at eBay returned a margin of about 300% to Golfsmith.

While Golfsmith has a catalog featuring a popular outlet section packed with overstock, in addition to 26 retail superstores, the putter was particularly suited to do well at auction online. Exactly why is the sort of intelligence e-retailers have already gathered in the relatively short time in which they’ve been liquidating surplus, returned and end-of-model-year merchandise at online auctions, mostly on eBay.

As individuals found success by scooping up surplus and reselling at auction online, retailers began to see the strategy might work for them as well. Selling excess inventory that would otherwise go to traditional liquidators at cents on the dollar direct to the consumer online could keep higher margins in-house instead of dispersing them at every turn in a longer distribution chain.

Auction management software and service providers were quick to jump in with technology to automate much of the process, paving the way for retailers to scale up online liquidations. These providers say online auctions can deliver as much as 80% on the retailer’s cost of goods versus other means of liquidation that offer lower returns, but the experience of the past few years has attached qualifiers to the promise. Among them:

- Some product categories do better in the auction format than others. These include consumer electronics, high-end sporting goods, mid-priced jewelry and some apparel.

- Beyond product category, multiple factors affect the success of auction sales, such as the price point, the retailer’s original cost, supply and demand, the age of the merchandise, even seasonality. One liquidator who couldn’t move artificial Christmas trees on eBay in February for example, sold all of them at $20 over original cost when the trees went back up on eBay in November.

- Retailers who’ve joined p2p sellers in using online auctions to scoop up potentially bigger returns on surplus now have new company, maybe even competition. Traditional liquidators to whom retailers have historically handed off surplus, and even OEMs are getting into the act and going direct to consumers with auctions.

A self-described long-time eBay fan, Golfsmith’s director of e-commerce and direct marketing Bob Hermansen knows the golf industry-enough to see that the auction dynamic and product lifecycle factors would work together to make the Tiger Woods putter a potential winner in an online auction.

New models each year

A golf club, the putter is in a product category in which manufacturers push out new models each year. That leaves plenty of quality merchandise available for clearance-just the sort of opportunity that attracts buyers to eBay in droves. And as with other hard-to-find collectible items available in only limited quantity, the auction format was likely to drive up the price.

Though it worked for the putter, Hermansen realizes it won’t work that way for all of Golfsmith’s excess inventory. Currently in a pilot online program with Auctionworks.com Inc. to find out what sells at auction and what doesn’t, Golfsmith also has tried auctions with other, more widely available products, which failed to move even when bidding was opened at $1.

“We’re a multi-channel retailer so we have a lot of places where we can liquidate merchandise,” he says. “We’re not looking at online auctions as a way to liquidate everything, we’re looking at them for specific things.” One of them is sets of used golf clubs. Traded in at Golfsmith stores or via its web site, many sets retain substantial value. While used clubs are popular on resale at the store level, Golfsmith has a large supply and is seeking more ways to sell them, says Hermansen.

A few years ago, the golf equipment retailer and manufacturer ran its own auctions online on its own site. “It was popular but labor-intensive,” says Hermansen. “We were involved in a retail store expansion at the same time and we didn’t want to devote that much time and money to auctions.” Golfsmith removed auctions from its site, and later chose Auctionworks as its software provider and systems integrator when it went back into the auction business, this time on eBay. To speed the listing process for used clubs, it’s setting up a dedicated in-house photo studio to shoot the clubs as the auctions are prepared.

Where people shop

Hermansen’s goal for the online auctions is “not to be out of pocket in a place where we know people are shopping,” he says. “There’s a shift going on in where people are going to buy less expensive golfing equipment. A large amount of it is being sold on eBay, so in some ways, we’re following people to where they want to shop.”

So are some traditional liquidators. Historically, this highly-fragmented industry consisting of hundreds of jobbers has purchased surplus inventory from large retailers and manufacturers for as little as cents on the dollar and then passed it for resale at a modest markup to outlets ranging from smaller retailers to deep discounters to bulk salvage operators. Now, some are using web auctions to go direct to consumers and boost margins.

“We’ve seen a lot more liquidators get attracted to eBay and start to sell that way than we did a couple of years ago,” says Paul Lundy, chief marketing officer at Auctionworks. “They are pretty opportunistic, they may have special relationships with different retailers, and they are starting to look at how to sell this inventory online to increase margins relative to traditional channels they were selling it in.”

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