April 30, 2003, 12:00 AM

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

(Page 2 of 3)

Liquidator MJR Sales launched auction sales on eBay using Auctionworks last summer, and in February added a second eBay storefront. The company, which got its start more than 10 years ago by buying manufacturer and retailer surplus to resell to deep-discount stores such as T.J. Maxx, also operates two stores and runs periodic event sales out of temporary quarters it rents in an eight-city market area.

In August, MJR Sales began handpicking some of the best items from its inventory and offering them in its apparel storefront on eBay. Starting with about 100 items per day, it’s since grown to about 1,000 posted items per day and it added a second eBay storefront featuring home goods such as bedding.

Here come the manufacturers

Its eBay sales are all in the auction format, and director of operations Mark Mendelson says the auction dynamic works to bid up prices, and therefore, MJR’s return on its cost of goods, often to well beyond what they’ll fetch either in its stores or at an event sale. A particular swimsuit from a leading cataloger, for example, retails in the catalog for $128 but consistently brings as much as $80 or $90 on eBay.

“At an event sale, if it’s on the swimsuit rack it’ll bring $10 or $15, because all the suits at the sale are priced in that range, while at one of our stores it will bring about $30,” he says. “The stores tend to do a lower volume, and the event sales are labor-intensive to run. Over time, we’re looking for ways to increase our sales on eBay, ways to post more items more quickly, and branch out into auctions in other categories.”

Traditional liquidators aren’t the only ones joining retailers at online auctions-manufactures are moving into that marketplace as well, attracted by the same lure of a higher return. Working with auction management services provider ChannelAdvisor Corp., Motorola Inc. has auctions at Motorola Auctions on eBay, at which it’s sold surplus wireless products since last year.

“In the b2c area, we were hoping for better return on items we sell, better understanding of how value fluctuates and of consumer demand,” says Chip Yager, director of channel development, Consumer Solutions and Support, in Motorola’s personal communications sector. Yager says Motorola Auctions on eBay have met those goals, but Motorola has found the auction action even better on its two b2b sites on eBay. Motorola Wholesale auctions used, returned and end-of-life goods to registered wholesalers, in a much larger volume than through its b2c auctions. The company also has launched Motorola Auction House on eBay to sell surplus capital assts and raw materials.

Both eBay sites, says Yager, get Motorola a better return on those products and materials than traditional liquidation methods get. “We have seen through eBay wholesale about a 35% increase in the average selling price,” Yager says.

No more small lots

Motorola has found its b2b auctions a convenient way to move returned, surplus and end-of-model-year goods that it formerly sent to the distributors that it also uses to push product out to retail. “Before, we had gone back to our major distributors and worked out deals with them to take this equipment. Sometimes they didn’t want to take it because liquidation of smaller lots isn’t their core business,” says Yager.

Now, he adds, they don’t have to because the auctions have helped Motorola find buyers to whom the surplus has greater value. In fact, b2b auctions have proved so efficient at moving inventory that Motorola plans to scale back on b2c auctions. “Consumer auctions sell things one at a time,” says Yager. “As fast as you can do it, and as much demand as there might be for a particular product, it just doesn’t end up being very significant to a company of our size, so we have shifted our focus to where we can sell volume.”

Volume also plays into whether b2c auctions work for smaller sellers as well: Retailers with big expectations should understand that in the competitive auction marketplace, too much supply can dry up demand. Reverse logistics provider Genco Distribution Systems liquidates for retailers and other clients, moving surplus, among other methods, at eBay b2c auctions. It also operates a b2b auction area on its own site. Matt Lhormer, director of asset recovery/e-commerce solutions, tells of liquidating 1,000 Braun cordless men’s shavers for a client. When Genco listed three of the shavers per day in eBay b2c auctions, they sold for $35 to $40, about half the original retail price. But at three per day, and with 1,000 units to sell, it would take Genco a year to sell them all.

Stemming the flood

“We started listing 10 a day and it depressed the price,” says Lhormer. “At 10 a day, they started going for about $24. So we sold the rest on a b2b site and took in about $29 a piece. In that case, the b2b site beat the b2c site, because we had flooded eBay.”

In some cases, the auction market simply doesn’t pay very much despite retailers’ expectations or desires. “It’s very hard for retailers to come to grips with that,” says Lhormer. “We tested some merchandise on a b2b auction and were getting about 25 cents on the dollar for it. The retailer insisted that they had to have in excess of 50 cents, but it was 2-year-old computer equipment that had been sitting in the warehouse for a long time.”

Though auctions are famous for bidding up prices to inflated levels for the most desirable items, a host of variables can swing auctions the other way, too. Retailer’s initial enthusiasm for online auctions has now been tempered with knowledge gained over the past few years. The result is that increasingly, smart companies that need to move inventory talk less specifically of auctions than of optimizing asset recovery-through whatever means, with auctions just part of a successful strategy.

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