March 31, 2010, 12:00 AM

Wholesaling 2.0

Full disclosure replaces ‘I know a guy’ as the Internet brings transparency to wholesaling.

For retailers, it’s never been easier or cheaper to find products to sell.

Retailers used to have to go to one trade show after another to find merchandise. Or they’d schedule countless appointments with salespeople hawking a wholesaler’s wares. Now all they have to do is go online to shop around for the best deal.

A retailer selling school supplies, for instance, can type “wholesale school supplies” on Google or Bing to bring up millions of results, as well as targeted paid search ads. Or they can visit e-commerce marketplaces like Liquidation.com where they bid on products in an auction format.

For wholesalers, too, it’s never been easier to make a sale. “In the past you had to find customers,” says Marc Joseph, president of DollarDays International Inc. and America’s Suppliers Inc. “On the Internet, customers find you. There’s efficiency there.”

Acting like retailers

In order to be found, wholesalers have begun acting like retailers, focusing on marketing strategies like search engine optimization, paid search ads and using social networks like Twitter to promote their products. For instance, DollarDays has put a lot of effort into making sure that when a retailer searches for “wholesale school supplies” it is at the top of the search results page.

But just as quickly as a retailer can find one wholesaler, that retailer can find another wholesaler, perhaps one offering cheaper products, better terms or more favorable conditions. That transparency brought by the web means tighter profit margins for wholesalers. To cut costs, many wholesalers are forgoing the personal touch that was long a hallmark of the industry. As a result, some retailers find it harder to get the information they seek about quality or price.

Some wholesalers have gone a step further to create their own retail web sites, selling merchandise, often the most attractive goods they have in stock, directly to consumers. In doing so, they’re walking a fine line, says Frank Hurtte, founder of River Heights Consulting, which specializes in wholesale sales and distribution. “There’s a clear tension when your supplier becomes your competition,” he says.

There are also new partnerships emerging. Peter Gonzalez, owner of retail sites PoolBoy.com and RelaxingDecor.com, provides customer service for his wholesaler’s clients, and gains new business as a result. Each company does what it does best.

“It allows the wholesaler to bring in products, fight to keep prices steady and deal with inventory,” Gonzalez says, “and it allows me to do the things I’m good at-customer service and selling.”

Finding the best deal

For retailers less tied to particular wholesalers, comparison shopping is the name of the game. As long as a retailer enters its business license and tax identification number on most wholesalers’ sites, it can find prices. But as wholesalers increasingly turn to marketing strategies popularized by retailers, they’re aiming to make it so retailers don’t have to jump from site to site to compare prices.

Instead they can turn to Twitter. There, businesses like closeout computer and electronics wholesaler Evertek offer up sales, special events or a particularly large shipment. “It’s a way to reinforce our marketing campaigns and also to try to prospect new customers,” says Peter Green, director of marketing and operations for Evertek, which also sends out promotional e-mails.

Those deals feature baseline pricing for retailers looking to buy small quantities, rather than looking to negotiate prices. Highlighting those offers on Evertek’s web site, which also features a constantly updating inventory list and lets visitors place and track orders, aims at helping customers be more self-sufficient, says Green.

Hands off

DollarDays similarly tries to automate its service in order to cut out the traditional retailer-wholesaler negotiation and contain costs, says Joseph.

“We want to make everything as electronically sound as possible so there is as little involvement with people as possible,” he says. “Everything is done through the Internet. Retailers place the orders they want, in a week to 10 days it shows up. It’s like buying on Amazon. If everything runs smoothly nobody needs to touch it.”

The process works, he says, because DollarDays tries to keep its prices consistent with its competition.

“From a retailer’s perspective the good thing about the Internet is it’s so transparent,” he says. For instance, if a retailer has a Universal Product Code, which identifies a particular item, it can quickly find the best rate, he says. “But we know that retailers are doing that and we don’t want to be embarrassed if the guy down the virtual street is 10 cents cheaper. So we look it up, too, so that we’re competitive.”

For small retailers like Island Video Games, which sells new and used video games and accessories on eBay and on its own e-commerce site, wholesale auctions provide the best means to find inventory, says owner Michael Dimone. “I don’t have the capital to buy large loads,” he says. “With an auction I can buy smaller lots.”

He primarily shops for products at Liquidation Services Inc.’s Liquidation.com because of the site’s wide range of inventory. The site has more than 1.3 million registered buyers, and in its 2009 fiscal year the value of goods sold through its online marketplace totaled $365 million. The site features various sized lots, ranging from a single Washburn acoustic guitar to 13,357 assorted pieces of out-of-season swimwear.

Before making a bid, Dimone does a thorough analysis. First, he looks at his historical sales data to see what price particular games or accessories sold at and how long they took to sell. He then estimates his costs for shipping, credit card fees and the wholesaler’s fees-Liquidation.com charges buyers 5% of the value of a purchase. Finally, he comparison shops at sites like Half.com and Amazon.com to see how the games are priced.

“Before I bid I want to know that I have to sell an item at this price or higher to make a profit,” he says.

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