When I launched the eBay Private Marketplace business in 2004, I spent most of my time that first year talking to retailers and manufacturers learning how they manage bulk liquidation (ie. truckloads and pallets) of excess, overstock and returned inventory. After the first 20-30 of these conversations, I was amazed by the consistency of what I learned.
The key learnings, at a high level were that most companies:
- Don’t want to invest in a money losing operation like excess inventory liquidation
- Don’t like to even admit they have a liquidation problem, let alone invest in it
- Believe they are more dependent on their liquidator than the liquidator is on them
- Manage liquidation the way they do because that is how it has always been done at the company
- Don’t realize the true value of their overstock & other excess is far higher than they have become accustomed to receiving.
Calling these companies as eBay, we had little trouble getting just about any Fortune 2000 company to pick up the phone over the years (of course we would then have to spend 20 minutes explaining that we were not calling to convince them to sell to consumers via eBay.com, but that’s another story). What was really amazing was that big companies who had invested a tremendous amount of money, time and energy in bringing efficiency and automation to their supply chain operations had not evolved their approach to liquidation beyond the same process they had used for decades.
The answer to the question: “How do you handle liquidation?” was almost always: “Well, we have 2 or 3 guys we call when we have a need to liquidate any overstock, excess or returned inventory.” In some cases it got as advanced as, “We send out an email to our 4 or 5 buyers and ask them to get us back an offer by Friday.” As you would expect, the use of such a manual process necessitated limiting the buyer base to whom the inventory was shopped. After all, how could you manage this sort of process with 50 buyers, 100 buyers, 1,000 buyers? In no case was there any meaningful negotiation process or other discovery of the buyers’ true maximum willingness to pay.
As we built out the business, added customers and increased our annual “GMV” (gross merchandise volume, or the dollar value of everything our customers transacted on our platform), it became crystal clear that what we were doing was extremely powerful and could really impact a company’s bottom line. Generally speaking, we found that we increased recovery rates for our customers by anywhere from 20% to 100%, depending on the type of inventory. Take a look at what this means…if a company has $1 billion of revenue and generates 2% of revenue from liquidation, and we improved the recovery rate by 30%, we’d drop nearly $6 million straight to pre-tax profit. If that company operated at an 8% operating margin, we just boosted operating earnings by 7.5%. Not bad when you consider how easily accessible these dollars are.
So we continued to grow the business at eBay with great success. We never had a quarter with less than 50% year/year growth in the last 10 quarters I was there. Unfortunately, eBay’s core business started to really suffer and “all blood was being drawn back to the heart”. That is to say, there were no resources available to fund interesting, but small, businesses like ours. Finally, in late 2008, I decided that I had to leave and gather the resources needed to build this business as an independent entity.
So in January, my co-founder and I launched B-Stock Solutions. We closed our Series A financing in February and shifted into high gear. We built our platform in about 3 months and just recently signed a deal with eBay to take over the management of our old business from them. With that agreement and the associated customers moving over to B-Stock, we have again become the leaders in this market.
It is funny how things happen.