RetailExchange.com next month will enter the online business-to-business market for surplus retail goods, an area projected to grow rapidly, but also mired in stiff competition from entrenched offline players and Internet upstarts.
The Boston-based company, which declined to comment on the launch, will allow pre-qualified, international buyers and sellers to trade surplus consumer products online faster and more economically than through the offline negotiation process.
“This arena is ripe for a BTB marketplace,” said Steven Kafka, business e-commerce analyst at Forrester Research, Cambridge, MA. “The industry is very fragmented, implying significant efficiencies to be gained by enabling a large number of buyers and sellers to come together.”
Critical to RetailExchange’s success is the way it leverages the strengths of its Boston-based backer, Gordon Brothers Group, which claims to be the world’s largest liquidator of excess retail inventory. At last count, Gordon Brothers sold assets and inventory worth more than $5 billion for 5,000 stores in North America and Europe.
Besides Gordon Brothers, investors in a $11 million funding last month included venture capitalists Internet Capital Group, Castile Ventures and Dorset Capital.
RetailExchange will open its doors Feb. 14 with an initial focus on women’s apparel and home goods, followed by men’s and children’s apparel, toys, sporting goods, domestic products and hardware – “low-hanging fruit in terms of being products that have plenty of excess supply and demand,” Kafka said.
Participating vendors are not known, though the company is negotiating with retailers and manufacturers to list products on the site.
The service will be designed to “customize everything from the volume of merchandise you want to move to its channels of distribution,” according to a blurb on RetailExchange’s pre-launch site.
Competition is rife in the $351 billion market for surplus inventory and idle assets, which industry analysts expect to grow to $380 billion by 2002.
Major players in the BTB market for surplus inventory include TradeOut.com, VerticalNet, BizBuyer.com and Industry to Industry. Tradeweave, a subsidiary of QRS, this quarter will go live with online auctions to offload excess retail goods. SaleOutlet.com allows catalogers and retailers to sell excess inventory direct to consumers.
RetailExchange’s closest rival could be TradeOut, which went live in June and claims first-mover advantage. Its auction process allows buyers to bid against each other in rea time across more than 100 categories.
TradeOut generates revenue from a listing fee and a 5-percent cut of sales charged to sellers. The danger for companies such as RetailExchange is resistance from big-ticket, premium brands afraid of finding their products selling in mass merchandisers or department stores.
“Will DKNY want their products flowing to Kmart and Wal-Mart?” Kafka asked. “Sellers may demand some sort of filter or control to prevent brand degradation, and they may also demand particular contract terms in order to not upset supplier arrangements already in place. All of this makes it more challenging for RetailExchange.”
TradeOut circumvents these issues by allowing customers to choose sale formats. A seller can opt for first-come, first-serve sales, an auction environment or a closed sale with a preselected group of buyers to whom it wants to expose its products.
“In the bricks-and-mortar world as well as online, most of the consumer product and apparel items end up in off-price merchandisers or regional discount chains that specialize in closeout sales. It could be in the U.S. or it could be internationally,” said Timothy Diehl, senior marketing manager at TradeOut.com. “As far as who is buying the merchandise, it’s not dramatically different. It’s just that online brings the buyers and sellers closer.”
RetailExchange’s and TradeOut’s survival will depend on how deeply entrenched they are in the back-end systems of customers and suppliers. The aim is to make the cost of switching high for vendors.
“Ultimately, there won’t be more than two to three winners in this space, and their key to success is to build a critical mass of participants early on and then give them reason to keep coming back to the party,” Kafka said.
These reasons, he said, include value-added services such as financing, shipping, logistics, links to related sites and custom configurations for buyers.
Dermott Ryan, vice president of marketing at TradeOut, concedes that in RetailExchange’s case, Gordon Brothers’ heritage in liquidating chain inventory will come in handy. But Gordon Brothers specializes in stores that are going out of business, which is different from disposing of excess inventory not necessarily caused by store closures, he points out.
“The dynamics of the marketplace from an online perspective are different than an offline perspective,” Ryan said, “and a lot of legacy players – people who’ve been trying to gravitate their business online – haven’t always been winners in this space.”