RSM Resources

We all know what happens to day-old bread and pastries: The baker moves them to a special rack and prices them to sell. If only managing the excess inventory of midsized companies were so simple.

Many organizations count on inventory turn and earnings per square foot, so excess inventory can take up valuable storage space and drag down the bottom line. To move surplus, small to midsized companies often rely on local liquidators or sell at marked-down prices — typically at a substantial loss. But managing excess inventory is getting easier thanks to a new breed of specialized Internet sites that can quickly and easily link buyers with all kinds of inventory.

The United States has about 11,000 registered market liquidators that bid on surplus business inventory, according to BusinessWeek. U.S. businesses liquidate about $60 billion every year, but they often find themselves in a difficult negotiating position, taking pennies on the dollar to dispose of unwanted inventory. Increasingly, they’re going online to find liquidators or sell directly to buyers.

Four leading online liquidation sites
eBay may be the most widely recognized third-party Internet retailer. Acting as a broker, eBay charges a service fee on each transaction in return for facilitating the transaction between buyer and seller. Known mainly for its retail-focused Web site, eBay is increasingly active in the business-to-business marketplace through its ProStores Web site.

On ProStores, customers find fully featured online stores that each online seller customizes. Buyers access the stores through Web addresses that are unique to the sellers and devoid of eBay branding. ProStores takes its cut through a monthly subscription fee, a per-transaction fee, and it charges for any marketing, design or Internet service functions it provides to sellers. The top monthly subscription fee is $249.95, and the transaction fee is generally 0.5 percent, capped at $5,000 per month.

Following are additional examples of Internet sites that can help midsized businesses dispose of excess inventory:

Liquidation.com is a business-to-business bulk marketplace. Its network of buyers and sellers source and sell bulk inventory in a wide range of categories, including clothing and accessories, computers, electronics, industrial equipment, jewelry, and vehicles. Liquidation.com sells directly to individual consumers only for high-value items such as vehicles.

Overstock.com purchases excess merchandise from catalogs, distributors, importers,manufacturers and retailers. It also purchases inventories in bankruptcy settlements. Overstock.com buys and manages the inventory supply for business-to-consumer sales.

uBid.com is a commission-based online merchant focusing on business-to-consumer sales. Most uBid.com auctions begin at $1, enabling market dynamics to set the price.

Proceed with caution
While liquidating products online might be cost-effective and easy to initiate, it’s not a strategy to be taken lightly, especially when it comes to pricing, says Professor Robert J. Kauffman, director of the Management Information Systems Research Center and chair of the Information and Decision Science department at the University of Minnesota’s Carlson School of Management.

"Businesses need to be keenly aware that ’move-it-now’ pricing can cannibalize valued distribution channels," says Kauffman, an e-commerce expert. "But, done properly, businesses can insulate themselves with specific brand and pricing techniques."

Employing multiple liquidation channels can confuse the marketplace, Kauffman says. One common method for avoiding this problem is to use "opaque" pricing when liquidating online. In opaque pricing, sellers use the words "call for price" instead of listing a price along with the item description. This strategy not only guards against quick online comparison shopping, it allows for continual pricing flexibility. Opaque pricing can be especially useful when the demand for a product has not yet been established.

Consider what to liquidate online
Products with perishable life cycles have benefited most from online auction or liquidation systems, Kauffman says. Since 1998, Priceline.com has had great success offering a finite pool of travel service items such as hotel rooms, airline tickets and rental cars to the highest bidder.

With these "use-it-or-lose-it" items, consumers are willing to give up preferences for scheduling, brand and customer service in exchange for the best prices. Because of the looming expiration of the products, the question for Priceline.com is not when to sell, but where to set the price in order to maximize revenue.

Due to the nature of consumer-electronics life cycles, retailers in that arena face similar issues. Because second-generation products are so much cheaper than the first models, when to liquidate the older generation of products and where to set revenue goals can be very delicate decisions.

Let someone else do the legwork
A turnkey approach — where a liquidator handles the process from start to finish — may be most appealing to midsized businesses that want to dispose of excess inventory.

Liquidation.com, for example,offers a full range of marketing, sales and distribution services in exchange for a flat 15 percent commission. The site handles every aspect of the sale, from physically taking items from the customer’s warehouse and moving them to its own facility, to inventorying items and preparing product descriptions and photos. Liquidation.com also groups items in lot sizes that make sense for potential buyers and advises clients on the timing of their auctions. The service collects money, handles inquiries and ships goods to the highest bidders.

However you choose to liquidate your inventory online, chances are there’s a market for what you have to sell. Who buys liquidated inventory online? Typically, small businesses. Roughly two-thirds of Liquidation.com customers are niche companies seeking to build inventory. For example,some buy high-tech products and then clean, repair, refurbish and export them. Some have online storefronts, so they may buy a pallet of jeans through one of Liquidation.com’s auctions and sell them at a highly discounted price. Others might be professional eBay merchants.

Online liquidation is still in its formative years. Only about 1 percent of the country’s surplus inventory is liquidated online. But, with growing numbers of niche online liquidation services, and an expanding roster of satisfied customers, it’s a phenomenon that’s likely to become more popular.