That unwanted holiday gift you finally sent back last week? It might not end up where you imagined.
Rejected sweaters, unwelcome blenders, or ill-fitting pajamas you thought you sent back to Sears or Amazon don’t always return to that store’s shelf, real or virtual. Increasingly, these products are sold at online auctions, an option that some companies have found to be an easier and more lucrative way to unload goods.
Think of it as an eBay for retailers. While companies have always unloaded surplus items, many are now working with online auction sites, which help resell the products — sometimes sight unseen, for pennies on the dollar — to salvage dealers, liquidators, or oversees merchants.
How does it work?
One company, B-Stock Solutions, last week featured on its website an auction for a full truck’s worth of goods from Boston-based Wayfair.com. “Truckload of rugs, upholstery, entertainment, kitchen & dining, office [decor] & more.” The suggested price was $36,888, but the final bid clocked in at just $3,225.
“There’s actually a ton of demand for returns and products that didn’t sell,” said Dale Rogers, an Arizona State University professor who studies the so-called secondary retail market. Online auction houses, he said, have become adept at tapping into that demand. “It’s bigger than it ever was.”
Returns have long been a headache for retailers, who must figure out what to do with that lone corduroy jacket as they prepare to introduce spring merchandise, for example. But with more online shopping, there are more returns for them to reckon with. Retailers reported about $260 billion in returned merchandise in 2015, a 52 percent increase from $171 billion in returns in 2007, according to a survey for the National Retail Federation.
Jessica Dankert, a senior director at the Retail Industry Leaders Association, said the rate of returns for e-retailers is “in the 30 percent range,” as much as triple the rate of returns at brick-and-mortar stores. That’s due in part to the fact that online retailers know a lenient returns policy is a big customer draw.
“Online shopping has really had a dramatic effect on the volume of returns,” Dankert said. So “new companies are bringing the benefit of technology to that age-old problem.”
Enter the digital auctioneer, companies like Silicon Valley-based B-Stock Solutions. Founded by former eBay executive, Hingham High School graduate, and Harvard Business School alumnus Howard Rosenberg in 2008, the company conducts online auctions for Walmart, Amazon, and Target, in addition to Wayfair and other well-known brands, reselling their cast-offs to the highest business bidder. Rosenberg said the company has grown 200 percent annually, with a roster of Fortune 1000 clients.
“Think about people ordering six pairs of shoes, keeping one, and returning the rest,” Rosenberg said. Companies “are leaving huge amounts of money on the table by dealing with those returns the way retailers did 50 years ago. There are new, more-efficient ways.”
It works like this:
Target wants to sell off a pile of returns or overstock, so it hires B-Stock to conduct an online auction, which entails creating a site specifically for the retailer. Only buyers vetted by the retailer are allowed to bid.
B-Stock never touches the goods, and approved bidders can make a bid only with a password and by agreeing to the terms of sale.
For instance, a retailer can require a buyer to resell the merchandise only in the Midwest, if the brand is worried about introducing the goods too close to its full-price market.
Or the retailer can stipulate that the products be resold only outside the United States or online. The returned holiday sweater may end up in Australia in June, or in a New York or Boston boutique the next season.
“Some companies don’t want the secondary market to hurt primary A-stock sales,” said Eric Moriarty, vice president at B-Stock’s Boston office. “This model creates competition. And the client is extracting the highest willingness to pay.”
On average, B-Stock auctions a combined 1,200 pallets and truckloads on a typical day. But exactly who buys them and where the goods end up is not something companies are eager to publicize.
Wayfair said it auctions some of its returns — at times by the truckload — using B-Stock because it’s an easy way to handle the ones in less-than-perfect condition that cannot be resold on the Wayfair site.
“We’re done with it once a load is awarded,” said Greg Konicki, vice president of distribution at Wayfair. “There’s not much margin left in it. At that point, it’s their problem.”
A bargain-hunter might want to know who that buyer is, but Wayfair’s not saying.
“I’m not sure we would want to disclose that,” Wayfair spokeswoman Jane Carpenter said.
Target, another B-Stock customer, also declined to elaborate on its bidders or reselling practices.
But that returned holiday sweater could end up with Ham Marden, the second-generation owner of Marden’s Surplus & Salvage, a chain of liquidation stores in Maine.
Marden’s has long bought inventory directly from major retailers and insurance companies off-loading goods after a fire or a burst pipe in a backroom. More recently, it has turned to online auctions.
Ham Marden’s contracts with those companies don’t allow him to identify them publicly. But he said his bidding opponents have also multiplied and now include a cadre of online buyers whose identities are blocked from view. He said they often seem to specialize in shoes or electronics or particular goods that they probably resell online.
For Marden, the digital bidding wars aren’t just efficient, they’re fun. And he and his buyers purchase a lot — enough to fill several large warehouse stores around the state — and do more than $100 million in business annually.
But the popularity of online auctions is changing the business.
“The desirable goods got very expensive,” Marden said. “It’s so competitive now.”