December 31, 2002, 12:00 AM

Where professional buyers shop

Retailers are discovering the online liquidation market—not just to sell their excess merchandise, but also to buy goods to stock their stores.

More and more smaller retailers are going online to source inventory as the web liquidation channel picks up steam. In Washington state, one Dollar Store franchisee recently sourced the entire inventory for two new stores on liquidation site, an online arm of Washington, D.C.-based Liquidity Services Inc., by buying more than 40 lots of merchandise ranging from SuperGlue to cameras at auction.

The franchisee, new to retail, also was juggling with setting up the store leases, filings on zoning, and everything else that goes with establishing a brick-and-mortar business. “If he had to fill out a hundred credit applications to get inventory from different wholesalers, retailers and manufacturers, he couldn’t have done it. This way, he could get over the barrier of filling the stores with inventory,” says a spokesperson.

Many liquidation sites buy surplus from manufacturers and larger retailers at deep discounts to resell it to individual buyers and small businesses at discounts only slightly less deep. But 3-year-old puts its own spin on the exchange by selling lots and pallets for its manufacturer and retailer clients, in effect, on consignment, taking about 20% when the merchandise sells. And unlike some liquidation site competitors, sells only at auction.

“A lot of the traditional liquidators and those who’ve adapted to the Internet are buying from manufacturers and bigger retailers to resell and therefore, negotiating the lowest price possible with the seller,” says Bill Angrick, CEO. “We tell the seller that we want to get the highest price from the buyer, and that we’ll share in that upside through a success fee arrangement.” The fee also covers sales and marketing services, online auction management, fulfillment and shipping. Winning bidders are responsible for shipping costs, though shipping arrangements are made by The site fulfills from 2 million square feet of leased warehouse space in six regional hubs and through drop shipment from the seller.

The auction dynamic and competitive bidding help secure higher returns for the original seller and more on the percentage for “The auction sale model is a more effective sales methodology than a negotiated sale,” says Angrick. “The other piece is where we are in the supply chain.” Angrick says those who bid on the auctions-buyers from small to medium-sized stores-typically source from brokers and wholesalers one or two steps removed from the original seller, who charge a mark-up at every turn. “In every step of that supply chain, there is margin, and that margin ought to go to the first seller-the larger retailer or the original equipment manufacturer,” says Angrick. “We are allowing the original seller to disintermediate those steps before the end consumer buys the merchandise.”

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