Online Auctions Unload Excess Merchandise

By Ben Steverman, Investor's Business Daily

2/6/2007 Retailers are experts at getting their clothing and apparel to customers in an efficient, timely manner.

Problems happen, however, when you reverse the supply chain, when retailers are stuck with surplus, returned, out-of-style or out-of-season clothes.

Liquidity Services Inc. (LQDT) says it can make the reverse supply chain as efficient as the regular one. A product of the dot-com boom and a survivor of the bust, Liquidity Services says the Internet is the best way to connect wholesale liquidation clothing buyers with apparel sellers.

Its model is similar to that of eBay (EBAY) — buyers bid in electronic auctions for merchandise described on Liquidity Services' Web sites. But unlike eBay, Amazon (AMZN) or other online retailers, Liquidity Services doesn't sell to the general public. Merchandise on the site — everything from clothing and coats to shoes and lingerie — is bought and sold in bulk, making it inconvenient for the average consumer. Buyers tend to be businesses that resell goods individually online or in discount stores.

On the commercial side, its main competitors are hundreds of off-line wholesalers. Often specializing in a particular type of clothing or a particular category, they buy up merchandise, equipment and other assets in bulk and then resell them.

It can be an inefficient and time-consuming process, and Liquidity Services executives say they have found a better way.

The first advantage over traditional liquidators, they say, is that online auctions create a more transparent process: Sellers end up with good data on where their clothing products end up.

Also, Liquidity Services offers a number of services to help auctions happen: The firm can store merchandise and arrange shipping. It has expertise in giving buyers the information they need, including photos, and in how large lots should be. The company handles payments and resolves disputes between buyers and sellers.

"They take some of the hassle out of selling these goods," said Colin Sebastian, an analyst at Lazard Capital Markets. "I think that generates loyalty."

Finally, as Chief Executive William Angrick said in a December speech, "we share in the upside created as we improve sales results." Liquidity Services negotiates revenue or profit-sharing contracts with its sellers, so both the company and its sellers benefit when goods sell for higher prices.

It takes a "large education process" to persuade wholesale sellers to move their liquidation online, Weinstein said. Liquidity Services is "going against entrenched systems."

http://www.investors.com