Electronic Catalog: Dead Dot-coms Fuel Net Liquidation

Online merchandise liquidators are profiting from the crash and burn of their dot-com peers

It’s no secret that the dot-com world is dog-eat-dog. But online merchandise liquidators such as SmartBargains.com and Overstock.com stand to come out on top, benefiting from the crash and burn of many e-commerce sites.

Salt Lake City-based Overstock.com resells to consumers at discount prices the products of such defunct online catalogers as Miadora.com, ToyTime.com, eHats.com, and Gear.com. The majority of its leftovers are hard goods such as shoes, backpacks, and cameras. But CEO Patrick Byrne insists that his company does more than peddle the wares of bygone e-tailers: “Only about 20% of our asset purchases are from dot-coms that have gone under.” Eighty percent of the company’s stock is closeout merchandise purchased from healthy manufacturers and retailers, he says. Overstock.com has about 80 manufacturing and retailing partners and offers roughly 5,000 SKUs.

Byrne purchased Overstock.com, which was then named Discounts Direct, in June 1999; he stepped in as CEO and launched the Website that October. “Prior to the online launch, it was an offline company that serviced the flea-market industry,” Byrne says.

Since its transition to a strictly online business, annual sales have soared from $2 million in 1999 to $40 million last year. “We project to have annual sales of about $150 million in 2001,” Byrne says. The Website has about 7 million visitors each month.

But the business of online liquidation may pose some challenges to Overstock.com and its competitors, says Rob Labatt, research director of multichannel retail for GartnerGroup, a Stamford, CT-based market research company. “Liquidation is a capital- intensive business because you have to buy merchandise in large volumes [from a few hundred to thousands of items] and hold it until it is sold, and there is some risk associated with that,” Labatt says.

And while there seems to be no shortage of dot-coms going under these days, the rate of Web launches and failures will dwindle during the next few years. “There is a firm correction under way in the online market, and in the next 12-24 months many of the companies will have already gone under,” which could tighten the availability of merchandise, Labatt says.

In the meantime, Overstock.com is busy rolling out a business-to-business operation in which it buys merchandise from manufacturers and retailers and resells it in large quantities via the Web to offline merchants for liquidation. And despite the slowdown of the Internet economy, liquidators — online and off — are in a unique position. “Liquidation is an anticycle business,” Labatt says. “In good times, liquidators have access to excess inventory that thriving retailers and manufacturers liquidate, and in bad times, bankruptcy trustees and accounting firms need liquidators to dispose of the assets of corporate failures.”

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