Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
(Page 2 of 3)
The model for selling surplus goods changes from site to site. Liquidation.com uses an auction format. Auctions last about two to three days, attracting on average six bidders, Angrick says. Liquidation.com handles the logistics, including customer support, and shipping from the retailer’s distribution center to the Liquidation.com facility.
In addition, Liquidation.com captures the information on the items, and takes photos and writes descriptions to be posted for the auction. The site uses software developed in-house to pull information from retailers’ asset- or inventory-management systems. Retailers need no special software.
Liquidation.com also confirms the item count, and measures and weighs the lots so buyers can obtain real-time shipping quotes. “We give the buyers more certainty about what they’re buying so they’ll pay the most for those items,” Angrick says. On returned items, Liquidation.com has consistently doubled and tripled the rate of return to the retailer, he says.
The online liquidation site also can cut shipping costs for sellers by nearly 50% due to economies of scales, Angrick says. Liquidation.com ships 2 million products each month through carriers nationwide.
The site also handles the collection of funds from the buyer, answers any questions buyers have about the merchandise, and sends the seller the net proceeds.
Because the service is Internet-based, sellers and buyers can integrate their financial system with Liquidation’s back end, enabling them to check the progress of each in-process transaction. “They can get a full dashboard of all the items they are selling, what the status of the bids are, the prices of items, where items that have been closed have been shipped to, and the status of the money that is due to them all in one place,” Angrick says.
Liquidation.com charges sellers 15% to 25% of the completed transaction, depending upon the level of value-added services provided, Angrick says. “The way we price our services is to align our interests with the seller,” he says. “If we don’t complete the sale, we don’t get paid. And we get paid on the gross sale value so our incentive is to maximize the value.”
Search engines play a major role in Liquidation.com’s operation because 62% of wholesale buyers use a search engine before any other media to find products, Angrick says. “We have a very active keyword advertising strategy and a very active level of organic search tied to our marketplace because we’ve indexed all of the auction content to the keywords that are searched on,” he says. “We get 4 million searches a month on our marketplaces from people looking to buy products.”
Buyers who log onto Liquidation.com can search for items based on product category, condition type, geographic location, purchase price per unit and other features. Liquidation also will send out e-mail alerts to buyers who want to know when specific items are being auctioned.
At Overstock.com, b2b liquidated items are sold at fixed prices. Overstock is leveraging its b2c site by setting up a “bulk buys & business supplies” tab on the home page navigation bar, Ramirez says. In some cases, Overstock approaches its existing fulfillment partners and manufacturers seeking products in case pack quantities. Overstock then buys the products outright and sells items individually to consumers or in bulk quantities to businesses, Ramirez says.
In other instances, Overstock will give manufacturers an interface to a commerce platform that enables them to load products and drop ship them directly to Overstock business customers. For that access, Overstock negotiates a fee that typically ranges between 10% and 15% of the transaction, he says.
Overstock also sells directly to discount retailers such as Costco Wholesale Corp. and Big Lots Stores Inc., Ramirez says.
This approach gives manufacturers three market segments through a single site, Ramirez says. “We tell manufacturers we can sell their product directly to the consumer, in case pack quantities directly to small mom-and-pop shops and in truckload quantities to brick-and-mortar discount retailers,’” he says.
Buyers can navigate the site using either the search box or category tabs.
Overstock focuses on housewares, small appliances, and apparel and accessories in the b2b area, but plans to add electronics, jewelry and watches, Ramirez says.
At Dollardays.com, buyers also pay a fixed price on liquidated items. The wholesaler sets the price by adding a margin to the bottom line price set by the manufacturer, Joseph says. “Everybody who works here is an ex-retailer,” he says. “We look at each individual item, we know what the true retail value is and we know what the close-out price needs to be based on that.”
Case packs with between 60 and 72 pieces generally sell for under $1 per item while cases with between six and 12 pieces may sell for $5 or $10 per item, Joseph says. Some palettes have assorted items numbering in the thousands.
Buyers search the site by category, brand, price, closeouts, hot sellers and other characteristics. Dollardays’ customer base includes independent gift shops, drug stores, convenience stores, dollar stores, discount stores and apparel stores
The number of retailers, manufacturers and distributors using online liquidation sites is likely to grow because it allows retailers to try out new products with minimal risk, Angrick says. “Retailers have to continually take risks and anticipate consumers’ tastes and preferences,” he says. “We’re a solution that gives retailers comfort that even if they do make mistakes-and everyone will-we can handle those mistakes.”
The higher returns promised by online liquidators also attract retailers. “If a traditional liquidator is buying things from me for 10 cents on the cost dollar and then (an online liquidator) will either buy it for more or in some way enable me to sell it for more, that’s pretty appealing,” says Scott Wingo, CEO of ChannelAdvisor Corp., which sells technology and services to retailers selling through third party platforms. “That’s found money that drops right to the bottom line.”
Online liquidators also create a level playing field for retailers and manufacturers looking to sell overstock and discontinued items, says Michael Blumberg, CEO of D.F. Blumberg & Associates Inc., a research and consulting firm. With the traditional liquidation model, the liquidator is in control, he says.
Changing the value proposition
“They had insight into who was buying the stuff from them and where the sellers were,” Blumberg says. “But with the online liquidator, it takes the mystery out of it.”