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Find Wholesale Products to Sell on eBay in The Secondary, Surplus and Liquidation Market

Surplus or liquidation merchandise are goods that didn’t sell and are returned or sold at large discounts to the wholesale price by stores and online merchants. This market is a huge source of supply for eBay sellers.

Here is a great article by Tom Schmidt from Liquidation.com that explains the liquidation and surplus –or what is called the secondary market, in detail. This is a pretty long article but it bears reading if you are interested in the highly-profitable segment of the eBay marketplace.


Building a Profitable eBay Business with Secondary Market Merchandise

By: Tom Schmidt

eBay sellers are under constant pressure to not only have the right inventory to sell, but to acquire it at a cost much lower than the price that eBay buyers are willing to pay.

With over $63 billion of goods, the secondary market can be an eBay seller’s “gold mine” for finding the right inventory to stay competitive. As you scale your eBay business, it is important know how to locate quality sources of products as well as how to effectively resell the goods to eBay buyers.

What Drives the Secondary Market?

The reverse supply chain – which encompasses the flow of retail customer returns, overstock products and end-of-life merchandise – is a rapidly growing industry that fuels an estimated $63.1 billion dollars in the secondary markets (D.F. Blumberg Associates, 2005) – and ultimately into the hands of professional buyers such as eBay Powersellers.

Stores with liberal return policies, product innovation, supply chain inefficiencies and even regulatory policies fuel the secondary market. The bottom line is that ANY corporation or government agency that manufactures, distributes, sells or uses finished goods has a need to dispose of these items on a recurring basis. As such, goods in the secondary market mirror the U.S. retail supply chain. Everything from consumer electronics, computers, sporting and athletic apparel, house wares, hardware and building tools, jewelry, and even vehicles can be found in the secondary market. This is a large source of merchandise for eBay sellers.

A few interesting examples of why the secondary market is growing include:

  • 4-6% of retail merchandise sold per year is returned to brick-and-mortar stores and about twice that is returned to online merchants. Following the holiday season there is a slight surge in returns. In 2006, NRF reported that almost 9% of holiday purchases would be returned.
  • Product life cycles have shrunk from years to months or even weeks in hot consumer electronics categories.
  • Studies show that the average consumer in the U.S. will struggle for 20 minutes to get a consumer electronic device working before giving up and returning it to the store.
  • The federal government disposes of an average of 10,000 computers per week.

Locating Quality Sources of Secondary Market Merchandise

Big box retailers, Online eTailers, department store chains, service and warranty companies, manufactures, distributors and federal, state and local government agencies are large contributors to the secondary market. Traditionally, buyers have had limited access to these large sellers, relying instead on a personal network of industry contacts and fixed-site auctioneers to locate, evaluate and purchase specific items of interest. As you scale your eBay business larger, it’s important to find sources that have solid relationships with these sellers and have the resources to facilitate the sale of these items through an easily accessible sales channel.

Through the development of e-commerce auction marketplaces targeted to the business purchaser, buyers now have global access to a huge volume of these assets through centralized and professionally managed marketplaces. These marketplaces are able to develop high-value relationships with key sellers and can thus provide a continuous flow of merchandise. In addition, the use of online marketplaces creates an efficient and inexpensive sourcing process for eBay sellers to quickly purchase the goods they need.

Liquidation.com is an example of an online auction marketplace that specializes in providing professional buyers a quick and easy way to source inventory from top retailers, eTailers and manufacturers as well as government agencies.

As you evaluate potential inventory resources, the following tips will help you identify the best venue for your needs.

  • Look for providers that have established relationships with large sellers and can provide a consistent flow of quality inventory.
  • Remember, you don’t have to have a huge budget to take advantage of these marketplaces. Flexibility in package size and product conditions is also important for buyers. Finding sources that provide the right products, from single packages to full truckloads, in mixed or single lots, and multiple condition categories allows buyers the pricing and quantity flexibility to meet specific needs.
  • Superior product information such as detailed product descriptions, digital images, shipping dimensions and extensive technical information enables more informed purchasing decisions.
  • Be positive you understand the terms and conditions for every purchase. If you have questions, contact the marketplace for clarification.
  • Information about products, shipping, and transaction settlement are critical, as well as the ability for buyers to ask questions or moderate dispute resolution.

Types of Secondary Market Merchandise Categories

It is important to understand not only what types of merchandise are flowing to the secondary market but also consider why the goods are moving away from the end-user.

Did the consumer just not like the product?
Was it defective?
Or perhaps the store just wasn’t able to sell everything they purchase?

In general, goods flowing from the retail community occasionally have minor damage such as scratches or damage to the packaging. Typically the product is in good working condition with only minor cosmetic damage, but goods can range from new in the box to salvage.

In some instances you’ll have product that is pulled from the retail store shelf that is brand new in the box and is being sold surplus because it is not current technology or current season. Every three to six months technology leap frogs what is currently on the store shelves and that replenishment of technology drives a lot of valuable merchandise out of stores and into the secondary market.

Of course, other condition categories are present in liquidation channels and the reverse supply chain such as opened box return items, shelf pulls where there has been some handling of the item, damaged or defective items which are appropriate for a buyer with refurbishing capabilities, and even salvage merchandise which would typically be used for parts. Buyers with the right expertise can reutilize those parts for refurbished products but you want to be careful buying these types of goods unless you have to repair capability. Sellers of returns or non-working goods tend to have low feedback on eBay even when they are thoroughly honest about the merchandise.

As you fill your specific niche within the eBay marketplace, it is critical to note the condition code of the inventory you are buying and reselling. The definitions will help you get a good idea of what to expect:

New - New assets are in original packaging and possess all of the characteristics/qualities/features as advertised by the manufacturer. Traditionally, they are overstock items that were never offered for sale in a retail environment or used in any way. They often still include the manufacturer’s warranty cards.

Refurbished - Refurbished assets are used but have been inspected, tested, and restored to full working condition. They sometimes come in original packaging and contain documentation or any additional parts and/or accessories –but sometimes they don’t. Due to their operational history, refurbished assets can possess noticeable cosmetic defects and blemishes, including but not limited to dents, scratches, and signs of age.

Shelf Pulls - Shelf pulls were previously available for sale in a retail environment but were never sold. They usually possess one or more price tags and/or stickers, indicating multiple markdowns, and have been exposed to some customer contact.

In addition, since most of these items are sent through a reverse supply chain (e.g. from a retailer back to a centralized warehouse), they can show signs of further handling. Accordingly, Shelf Pulls may exhibit a wide range of individual product and package conditions that can differ substantially from the original manufacturing.

Used - Used assets were previously sold and put into use. They possess noticeable cosmetic defects and blemishes, including but not limited to dents, scratches, and signs of age. Since these assets are usually pulled from a working environment, they rarely come in original packaging and rarely contain any documentation, additional parts, and/or accessories. They are minimally tested to meet only the most basic requirements of functionality (such as the power turns on and off). Used assets therefore may not be in optimal working condition and may require additional maintenance and repair.

Returns - Returned merchandise was sold to a customer, who then either physically brought the item back to a store or mailed it to a specified location. Reasons for returning a product may not have any correlation to its usefulness (i.e., size, color, model, etc.), and as a result that product may be in fine working order.

The majority of returns, however, often have operational and/or cosmetic problem. Depending on a company's return policy, these items may also reflect a measurable amount of use. In addition, since most of these items are sent through a reverse supply chain (e.g. from a customer back to a store or a centralized warehouse), they can show signs of further handling. They generally do not come in original packaging and often do not have any of the advertised documentation or additional parts and/or accessories. Accordingly, returns can exhibit a wide range of individual product and package conditions that can differ substantially from the original manufacturing.

Salvage - Salvage assets have been identified as defective for reasons concerning their functionality, appearance, or both. Salvage assets usually can only be used for parts.

How to Source These Goods and Maximize Profit Potential

eBay sellers have to be savvy in knowing how to spot goods that can be purchased inexpensively and then “cleaned up” in some fashion to create a higher per unit sales price from eBay consumers. When sourcing bulk inventory from bulk auction marketplaces like Liquidation.com, consider the following:

  • Review the history around individual products that you’re purchasing. Can you look at historical auctions to see how much those goods have sold for in the past that helps you develop a purchasing strategy?
  • Try to estimate the ultimate resale value you will achieve for individual items and how much profit you need to make. From this information, a buyer can easily back out the highest amount they are willing to pay for the auction.
  • Make sure you are purchasing the right quantity of goods for your needs. It is typical that larger lots provide lower costs per item, but you don’t want to purchase more than you can sell.
  • It is important to calculate shipping costs into your total budget. To reduce these costs, look for sources that have warehouses or distribution centers near your geographic region and will either allow you to pick up your goods or will provide discounted rates on regional shipping.

If you must source from farther away areas, look for sources that have negotiated rates with major shipping carriers. In addition, always obtain the shipping estimate prior to deciding how much you are will to pay for the merchandise. The less you spend on shipping, the more you can pay for the goods. One last tactic is to ask if they can combine purchases into one shipment.

Tips for Selling

The holiday season is just around the corner – making your inventory sourcing decisions more important that ever. As you gear up for holiday sales and make plans to grow your business throughout the year, consider the following tips:

  1. Source quality merchandise that is attractive to your customer and target market – KNOW YOUR NICHE
  2. Avoid impulse purchases – don’t purchase anything simply because it is a “great deal”
  3. Avoid buying too deep in any given product category – You don’t want to compete with yourself by offering too much supply.
  4. Develop targeted merchandising strategies
  5. Add value to each individual item where appropriate – clean, test or refurbish items such as consumer electronics, house hold gadgets, etc.
  6. Benchmark what the market will bear in terms of pricing (original retail vs. secondary market)
  7. Understand what the competition is selling. If there are a lot of sellers for a hot item such as an MP3 player, consider selling the accessories instead.

As you constantly work to improve your eBay business, remember that inventory sourcing is the most critical element to setting yourself up for success and that secondary market channels are a gold mine for all your purchasing needs!
 


Tom Schmidt is EVP and General Manager of Liquidity Services, Inc Asset Recovery Division.



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