9.26 Liquidation.Com

Liquidity Services, Inc. is an online auction company providing manufacturers, retailers and governments with an electronic marketplace to dispose of, liquidate, and track goods in a reverse supply chain. The company also offers valuation, appraisal, inventory, marketing, sale, and logistical management of assets, warehousing and inspection of inventory, plus collection and dispute mediation. The company has over 700 employees and is headquartered in Washington DC. {15}

The company was founded in 1997, was profitable from the 2002 fiscal year, seeing revenue grow at a compound rate of 27% since fiscal year 2002. The economic downturn helped its fortunes. {12} Over 1.6 million professional buyers were registered on the firm's online marketplaces in 2012, and 2011 financial year results were: Sales: $558.5 million (up 30%), Operating Cash Flow $39.9 million (up 25%) and EPS $1.05 (up 78%). {15} Fiscal year 2012 also saw excellent results: revenues $475.3 million (up 41%) and adjusted earnings before interest, taxes, depreciation and amortization of $110.1 million (up 109%). {20}

Business Model

Liquidity Services offers a reverse supply chain — i.e. instead of a supply chain efficiently pulling together all the components of a manufacturing process, the reverse chain finds the best market for items surplus to demand, be they overstocked, customer-returned or salvaged items. The market is surprising large, perhaps $58 billion in 2004 in the US alone {2}, and Liquidation operates three online marketplaces: Liquidation.com, Govliquidation.com and GoWholesale.com. A fourth, Liquibiz.com, a UK marketplace, has recently closed.

Sellers tend to be government departments (especially US Defense Department), manufacturers, distributor and large retailers (the latter commonly experience customer returns around 7% {3} {9}).

Purchasers tend to be leading manufacturers, distributors and etailers (especially eBay merchants). {16}

Online auctioning allows sellers to realize prices twice what would been achievable and some 80% of goods offered are sold. Liquidation commonly take a 20% commission. {16}

Challenges

Liquidation initially faced several problems:

Marketing

Liquidity initially had no brand name, but sales grew steadily through:

1. Organic search engine optimization, and then ppc marketing through Google and Overture (now Yahoo) ads.
2. Design of clear, easy-to-use and informative websites. {5}
3. Ads placed in trade periodicals to emphasize the professionalism and trustworthiness of the company.
4. Opt-in email marketing of addresses collected from their sites, often accompanied by simple questionnaires used to target customer interests more closely.
5. PR campaigns to get the company noticed by the mainstream press. {16}
6. Tracking customer behavior and refined the registration process.

Company Size

An important step was the acquisition in December 2007 of Information Management Specialists, Inc. and its GovDeals, Inc. subsidiary for approximately $10 million in cash. Liquidation became an exclusive partner of the US Department of Defense for the sale of all usable US military surplus. {6}

Trust

Liquidation offered a range of essential services, including collection, asset lotting, accurate description, invoicing, tracking and payment collection.

Points to Note

1. Slow growth of a company through progressive Internet marketing.
2. Range of services (and expertise) needed to gain customer confidence.

Questions

1. Explain the Liquidation.Com business model.
2. What Internet marketing techniques did Liquidation employ?
3. How did Liquidation build its brand name?
4. Who are Liquidation's important customers, and how are they secured?

Sources and Further Reading

1. Liquidation.com, Inc. Changes Its Name To Liquidity Services, Inc. To Reflect Evolving Business Model. Find Articles. 2005.
2. What is the size of Reverse Logistics in the U.S.? Reverse Logistics Executive Council. 2005.
3. Reverse Side Of Logistics: The Business Of Returns by Robert Malone. Forbes. November 2005.
4. Casting a web from business to business. Canada.Com. May 2007.
5. Liquidity Services, Inc. Honored with Three International WebAwards for Outstanding Web Site. Development. Liquidity Services. October 2007.
6. Liquidity Services, Inc. to Acquire GovDeals, Inc. Liquidity Services. December 2007.
7. President and COO of Liquidity Services, Inc. Named a Supply & Demand Chain Executive 2008 Pro to Know. Liquidity Services. March 2008.
8. Liquidity Services helps companies clear shelves by Joseph R. Perone. New Jersey Business. March 2009.
9. Reverse Logistics: From Trash to Cash by Brian Hindo. Business Week. July 2008.
10. One man's surplus is. . by Tim Feran. All Business. May 2009.
11. Government Liquidation opens Oklahoma City warehouse by Jennifer Palmer. NewSok. May 2009.
12. Liquidity Services Inc., marks 10 years by J D Kathuria. ExecutiveBiz. August 2011.
13. Liquidity Services, Inc. Answers. 2011.
14. Liquidity Services, Inc. Yahoo Finance.
15. Liquidity Services Inc. Company homesite.
16. Ecommerce 2010 by Kenneth C. Laudon and Carol Guercio Traver. Pearson 2010. 6.73-7.
17. Boom times for stock liquidation site by Jonathan Birchall. FT. November 2008.
18. Best practices in Managing Returns and Excess Inventory. Liquidation. Undated white paper with company statistics.
19. Liquidation com. Ripoff Report. Complaints against Liquidation.com practices.
20. Liquidity Services, Inc. Announces Fourth Quarter and Fiscal Year 2012 Financial Results. Liquidation Services Inc. November 2012.