Markets for All

Tracy True Dismukes, the owner of four Collage specialty apparel shops based in Birmingham, Ala., has seen her business rise steadily over the past two years as she has expanded on her niche of selling used designer clothing and accessories. Her shops, which sell goods mostly on consignment for individual sellers, have earned statewide recognition. “We were named Alabama Retailer of the Year by the Alabama Retailer Association and we’re not even a member of that organization,” she says, noting that she was nominated by a local Chamber of Commerce.

The popularity and success of her Collage shops lie in their unique offerings: like-new dresses, coats, purses and other items with labels like Gucci, Prada, Chanel, St. John and Anne Klein, all sold at one-third or less of the original retail price, Dismukes says.

Last August, she decided to open a fourth store that would extend Collage’s women’s apparel and accessories sales to include women’s plus sizes and men’s apparel. But that created a new challenge: sourcing goods that could suit her business model of selling like-new designer fashions sourced from individuals. “Plus sizes are harder to find,” she says. “Women who wear plus sizes usually hold on to their garments.” And with her shops having catered only to women’s fare until then, she figured she couldn’t rely on men as sources.

So as a former banker who had worked with online b2b marketplaces, Dismukes turned to the Internet. A colleague suggested she try Liquidity Services Inc.’s Liquidation.com, which auctions excess goods sold by large retailers. She discovered that she could acquire large lots of goods to quickly fill her newest store as well as add inventory to her other locations. Although it costs more to source goods from Liquidation.com, including shipping fees, she’s still able to factor in strong profit margins, she says. “We’ll at least double our money, even if I have to mark down prices,” she says.

Dismukes is among the small merchants who are turning to the web as a b2b source of the goods they need to drive their companies. They’re using the web to acquire the kind of buying clout and economies of scale more typically associated with large retailers. Big retailers have numerous options for using the Internet for buying, including comprehensive trading exchanges like the WorldWide Retail Exchange and GlobalNetXchange, which offer procurement and auction services to major merchants like Sears, Roebuck and Co. and Kmart Corp.

But small retailers, even with the gains made by merchants like Dismukes, lag as a whole in using the web for their b2b needs, despite ample opportunities, experts say. “We really intended to start OverstockB2B.com for small retailers who never had access to liquidation products before, but most of our business is with mid-size retail chains and a lot of big eBay sellers,” says Patrick Byrne, CEO of parent company and consumer merchandise site Overstock.com. “But the mom-and-pops can still play on OverstockB2B.”

The difficulties in getting small retailers to use services like Overstock include concerns that shipping costs could outweigh procurement savings or that they may be unlikely to find the right products in the right quantities. In many cases, small retailers simply don’t have the time to learn how to capitalize on Internet services, says Duif Calvin, a retail analyst based in San Francisco. “Mom-and-pop owners are probably already working 18 hours a day, so there’s little time to think outside their regular routine,” she says, noting that many family-owned business don’t bother with the web until a son or daughter joins the business after completing college.

Byrne notes that sales transactions at OverstockB2B doubled year-over-year for the 2003 fiscal year to about $60 million. But only 10% to 15% of those transactions involve mom-and-pop stores. The vast majority are mid-size retail chains and independent sellers on eBay Inc.’s eBay.com, Byrne says.

EBay also reports significant growth in the number of wholesale transactions, but with less participation by traditional small retailers than eBay would like, says Karl Wiley, eBay’s senior category manager for wholesale. It’s now offering 250 categories of wholesale products within its Wholesale Lots section, up from just 25 a year ago. The categories, covering everything from jewelry to auto parts, now account for more than 55,000 listings, up from 11,000 a year ago, Wiley adds.

Beyond spot buys

EBay’s Wholesale Lots section, which posted 465% year-to-year growth in second-quarter gross merchandise sales, is used by small and mid-size retailers as buyers as well as by a large number of individual marketers, or eBay Power Sellers, who buy and sell on eBay, Wiley says. EBay is determined to get more small traditional retailers to buy through its wholesale section, he adds. “Some small retail chains are using us opportunistically for spot buys, and we want to help them make that a longer term strategy,” he says.

Liquidation.com, Overstock and eBay are all taking steps to increase their wholesale transactions with small retailers. Liquidation.com, which notes that small and mid-size retailers account for about 40% of its buyers, is planning to attract more small retailers through a multi-pronged marketing and publicity campaign, says Asad Haroon, vice president of business development. “We need small retailers in order to have liquidity, to have a mass of people participating in our auctions to generate fair market prices,” he says.

OverstockB2B hopes to lure more small retailers with services ranging from credit card acceptance to health care policies, Byrne says. “The audience best served by OverstockB2B are small retailers, but they’ve been the slowest to pick it up,” he says. “But services we’re planning to offer in the first quarter of next year will make OverstockB2B more attractive to the mom-and-pop store.”

OverstockB2B has already begun working with Advanta Corp., a bank that specializes in offering commercial credit card accounts to small businesses. The plan is to provide OverstockB2B users with special offers on credit cards that could coincide with additional offers for health care insurance and procurement of office supplies for a retailer’s in-house use, Byrne says.

Other service offerings from Overstock could include procurement of corporate gifts and premiums, including desk calendars embossed with a retailer’s name for distribution to customers. “We have in mind a business portal for small retailers,” Byrne says.

EBay is also trying to attract more retailers as well as wholesalers through advertising campaigns and additional services. “Our challenge on eBay has always been to build up supply and demand at the same time,” Wiley says. EBay is rolling out this fall an advertising campaign targeting small retail chains as well as wholesalers to make them aware of the kind of business that can be conducted in eBay’s Wholesale Lots. “One of the reasons retailers don’t buy on eBay is because they don’t realize they can,” Wiley says.

Moreover, eBay is already offering discounted health care and dental insurance to eBay Power Sellers. It lets them purchase discounted health and dental plans for themselves and their employees, even if some of their employees work in physical retail stores. Wiley adds that eBay is considering whether it will extend these benefits to other retailers who only buy on eBay. “We’re always looking at ways to benefit small businesses,” he says.

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Offering insurance plans through public exchanges can be difficult, however, because of differing state laws affecting how plans can be administered, and because of limitations on passing on volume discounts to non-employees of the sponsoring organization, Calvin says. Indeed, eBay has scaled back its original plan of offering comprehensive health care policies to a more limited menu of coverage. Nonetheless, some retailers say they’d be glad to consider buying such services through an online marketplace. “If the price was right, I’d always be willing to look at a health insurance plan from a reputable company,” Dismukes says.

Convincing skeptics

But if Liquidation.com, Overstock and eBay are to grow their b2b business with small retailers, they’ll have to convince merchants like William Frodsham, a partner with Washington Dollar Stores, based in Ellensburg, Wash. Frodsham has purchased large lots from Liquidation.com when he needed an initial influx of merchandise, but he dislikes paying shipping costs, which bump up his cost of goods, so he will continue to source his goods through regional wholesalers.

Frodsham says his past purchases from Washington, D.C.-based Liquidation.com turned out well and helped him ramp up quickly with merchandise. In one purchase, he picked a couple of pallets of Revlon and other brands of makeup, paying 60 cents per item on goods that he retailed for $2 each. “They’re a good beginning source, but because we’re in Washington state, shipping costs have been a major obstacle,” he says. “The cost of shipping can be as much as the price of goods.” He dismisses eBay as a source because he believes its sellers offer only small lots of merchandise. And he says hadn’t even considered OverstockB2B.

Nonetheless, Frodsham notes that he’s open to more online purchases under the right terms. He says he may purchase goods through BigLotsWholesale.com, because it charges a maximum shipping fee of 10% of the price of goods, and will consider advantageous spot buys through Liquidation.com and OverstockB2B.

His objections are common among small retailers, experts say. Exchange operators contend that buyers sometimes over-estimate the cost of shipping. Liquidation.com looks for volume discounts in shipment costs and passes the savings on to customers, Haroon says. “Buyers have to keep in mind that in some cases the shipping costs may be as much as the price of the goods because liquidation prices are so low,” he says.

The exchanges say they’ll try to step up their value proposition as well as their marketing to retailers like Frodsham. Haroon says advertising and publicity materials will note the advantages of buying through Liquidation.com, including its ability to ship from different regions of the country to minimize freight costs.

Randy Hadeed, president of eAuction Solutions, whose United Traders unit handles auctions for several thousand products each week in eBay’s Wholesale Lots section, says retailers have an inaccurate view of merchandise available on eBay when they figure it only offers small numbers of products in any listing. “We regularly do auctions of up to 500-piece lots,” he says. He adds that anyone can find large offerings by typing the word “pallet” along with other keywords into the eBay site search mechanism. A single pallet, he notes, could contain thousands of flashlights or 100 or more toasters.

Hadeed adds that United Traders will also arrange for private auctions for retailers based on their particular needs. “If a merchant needs 2,000 or 3,000 pieces of women’s apparel, we’ll find the products, work out a price ahead of time, then complete the transaction over eBay,” he says.

Dismukes, who specialized in cost accounting during her banking days, says she has found Liquidation.com and eBay helpful to her overall buying and selling strategy. She’ll set a maximum bidding price in auctions that will leave her with a sufficient profit margin, regardless of shipping costs and possible markdowns late in the season, she says. And if she winds up with a bunch of designer dresses that won’t sell at the price she wants, she’ll auction them off through eBay’s Wholesale Lots section. “I’ll use eBay to sell higher-end pieces,” she says. “If it doesn’t sell in our stores, it’s a perfect eBay item.”

paul@verticalwebmedia.com

Fossil’s time for B2B

Although its watches are commonly sold through major department stores like Macy’s and Nordstrom, Fossil Inc. is also reaching out to small retailers. In a special business-to-business section of its web site, it lets them place direct orders and see data on what’s selling best in Fossil’s 80 U.S. company stores.

“We have several thousand small retailers as customers, and all they need is a web browser to order from us,” says Matthew Brown, director of e-commerce. And before they place an order, they can see which watches are the top sellers in each category.

The b2b site is a scaled-down version of Fossil.com, with less detail and imaging but enough information to order products, Brown says. As retailers browse the site, watches in each category are listed in order of how much they’ve been selling in Fossil stores. “We’re sharing our sell-through data from our own stores to help our wholesale buyers decide what to buy,” Brown says.

Fossil created its b2b section for specialty retailers, including mom-and-pop and gift shops, Brown says. “They can place orders directly with Fossil without going through a sales rep,” he says. “It’s especially helpful for customers not on an EDI system.”