business

Taking the Agony Out of Overstock

For a 15% cut, Liquidation.com will pick it up, dust it off, warehouse it, and market it to thousands of online bidders

Surplus inventory is a killer for small retailers. Not only does it take up valuable storage space but the cost of the nonselling items can be a huge drag on the bottom line. Small companies typically rely on local liquidators to move surplus at a loss.

But some are turning to online business-to-business auction outfits that specialize in selling unwanted merchandise -- a boon for former investment banker Bill Angrick, co-founder of Liquidation.com. Smart Answers columnist Karen E. Klein recently spoke with Angrick about the origins of his fast-growing company and why online liquidation offers an attractive option for many small businesses. Edited excerpts of their conversation follow:

Q: How did Liquidation.com come to pass?

A:

I founded the company in the summer of 1999 with two partners -- Jaime Mateus-Tique, a friend from business school, and Ben Brown, our chief technical officer. I was working as an investment banker with growth companies in the mid-1990s when I became enamored of eBay (EBAY ) and realized that what they were doing was not just a fad. I knew that online auctions would have lasting value.

The other thing I knew was that every small business that makes, distributes, or retails finished goods will need to liquidate surplus items, whether it's seasonal overstock, cancelled orders, products that became obsolete, or customer returns.

Q: How are those surplus items traditionally disposed of?

A:

There are 11,000 registered market liquidators all across the country who go to businesses and bid on surplus inventory. About $60 billion is liquidated every year in the U.S., but small business owners are often in a terrible negotiating position when they are liquidating inventory. Excess inventory is costly, and when companies confront it they have to move fast -- time is not on their side. So most business owners will take pennies on the dollar to move the loss off-site. The liquidator wants to maximize his margins, so his interests are not aligned with theirs. It's not a competitive process.

Q: What do you, and other online liquidators like you, do differently?

A:

We take charge of the surplus inventory, but we don't buy it ourselves. We offer it to the 220,000 buyers who come to our site to buy merchandise on an as-is basis. We get paid a 15% commission on the gross sale price after the merchandise sells. Our customers don't pay anything up front.

Q: What are small businesses getting for that 15%?

A:

We recognize that owners don't have the time or expertise to handle an online liquidation auction themselves. So we handle every aspect of the sale, from physically taking items out of the customer's warehouse and moving them to our facility, sorting and counting the items, writing descriptions and taking photos, grouping them in lot sizes that make sense for our buyer audience, and advising them on the timing of their auctions. We collect the money, handle the inquiries about the auction, and make sure the goods are shipped to the highest bidder. Ours is a turnkey service, including physical flow and financial transaction and information exchange.

Q: How do you know that all the items will sell, and how do you drum up interest in surplus items that don't find buyers in the retail space?

A

: We do extensive marketing on more than 6,000 community Web sites, with industry associations, and in magazines and publications that link to our marketplace. We have banner ads and affiliate partners, and we established ourselves early on in this market, so we're highly ranked with search engines.

Because we've built trust with our buyers by instituting rules about accurate shipping quotes, photos, and merchandise descriptions, we have a deep and loyal audience. We send more than 1 million buyer-alert e-mails out to them every month, notifying them of merchandise they've told us they're interested in.

Q: Who are these buyers?

A:

Typically they are also small businesses. Roughly two-thirds are highly focused niche companies looking for inventory. For instance, we have companies that buy tech products from our clients, then clean, repair, refurbish, and export them. Some have online storefronts, so they may buy a pallet of jeans through one of our auctions and sell them at a highly discounted price on their Web sites. Others are professional power-sellers on eBay.

Q: Do you consider companies like eBay and Overstock.com your competitors?

A:

Actually, no. We move large quantities of merchandise that our customers need to liquidate. We can sell 10,000 or 100,000 units of an outdated product, for instance. A traditional online marketplace like eBay won't let you do that: You'd have to list the units one at a time and have overlapping auctions. So the average price on a consumer-oriented site is $90, but our average auction brings in about $1,500.

Q: What's the next step for Liquidation.com?

A:

We're still in the infancy of this industry. Only about 1% of the total surplus inventory in the country is liquidated in the way we're doing it, and we already have 2 million square feet of warehouse space and ship 2 million pounds of product every month, mostly through UPS. So we can only grow our operation from here on out.

Karen E. Klein is a Los Angeles writer who covers entrepreneurship and small-business issues

Edited by Rod Kurtz

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