Retailers are learning: Auctions work for some excess goods, but not all
By Mary Wagner
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.”
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.
“We don’t use the word ‘auction’ so much anymore, because the line between
auctions and other marketplaces is blurring,” says Scot Wingo, CEO of auction
software and services provider ChannelAdvisor. “If you think of auctions, eBay
is it. They have virtually 100% of the marketplace. Analysts are starting to
think about what is the next level, and a lot are saying it’s online marketplaces.
And in those marketplaces, there are a lot of things going on—fixed pricing,
auction format, different products and different categories that sell well to
different audiences.”
For example, the eBay marketplace does well with liquidation product, and
not as well with retail product, while the reverse is true for Amazon, Wingo
says. That makes the biggest divider between these two online marketplaces not
so much whether the auction format is used, but the nature of their audiences,
says Wingo, who estimates an overlap of only 10% between the two.
Different audiences
“The eBay buyer is looking for 20% to 80% off retail. That’s why they like
auctions; they draw them in,” he says. “The Amazon audience is the flip side.
They don’t want the 2-year-old camera; they want the camera that just came out—they
are most interested in new products, the latest and greatest, convenience and
then price.”
Retailers with product to move across life cycle stages look for access to
both marketplaces at different times. That’s why ChannelAdvisor is gearing up
to offer online sales management that goes beyond auctions to provide clients
with integrated access to auctions and fixed-price sales. In June, it expects
to launch support for Merchants@Amazon, serving retailers with storefronts on
the Amazon site. “It’s similar to what we do for retailers on eBay,” Wingo says.
“We do an integration that ties eBay into their database and fulfillment systems.
We’ll be able to do one integration and get our clients Amazon and eBay support.”
As retailers and their supply chain partners gain in knowledge and improve
their ability to match different products at various lifecycle stages with the
right online opportunity, auctions stand to become an increasingly effective
means of liquidation, where they are used selectively. And the same goes for
the selective use of other pricing formats and online marketplaces. “We will
use all of the tools at our disposal to get the highest recovery the market
will pay,” Lhormer says.
mary@verticalwebmedia.com
