Archive for Monday, October 29, 2001

Closedown Web sites buck e-commerce downturn

October 29, 2001


— Recession? Not in the bustling back-room buying office at

Crowded between racks of sample Gucci handbags, cashmere sweaters and Toshiba digital cameras, the company's Boston-based buyers work the Internet and phones, eyeing excess inventories from manufacturers, overstocked stores and flailing e-tailers.

Smartbargains and competitor say business for the Web closedown industry where sites resell excess inventories and canceled orders at deep discounts has never been better.

The industry is consolidating around a few sites, deals with Web portals have brought huge increases in traffic, and a wave of cheap goods from defunct Web sites and struggling retailers is filling the pipeline.

Plus, the companies say, the economy has left consumers more bargain-conscious, and the terrorist attacks may have them staying closer to home.

"When you buy online from home, you buy from the safety and security of your own home," said Smartbargains chief executive Carl Rosendorf. "That's a factor today."

Meeting critical mass

Some experts are skeptical these sites will ever serve more than niche markets. Still, several have seen big jumps in traffic just in the past two months.

Boosted by a portal agreement with America Online, Smartbargains' site's traffic jumped 335 percent in September over the previous month, The company has jumped from No. 215 to 67 in rankings by research firm Jupiter Media/Metrix of e-commerce site traffic. Sales rose 85 percent.

At Salt Lake City-based, the 10th largest retailer on the Web, traffic rose by about 1 million unique visitors per month in September to 5.5 million. CEO Patrick Burns expects a 60 percent increase in sales to $8 million in October. For the year, he expects $100 million in sales, down from previous hopes but far more than the $36 million last year.

"I think we did meet some kind of critical mass," said Burns, who said he feels vindicated after being "the only guy walking around Silicon Valley who couldn't raise money in 1999."

Sales at upscale site also are somewhat higher, though it faces continued financial problems and its stock is mired at about $1 per share.

'Abundance of great buys'

Much of the liquidation business is still in the hands of old economy liquidators and bricks-and-mortar discount chains such as Tuesday Morning and T.J. Maxx.

Earlier this month, T.J. Maxx parent company TJX Corp. of Framingham reported September sales were up 10 percent over last year, despite the drop immediately after Sept. 11. The company gets most of its merchandise through "opportunistic buying," said spokeswoman Sherry Lang.

"There never has been a time where there has not been enough goods for us," Lang said. "That said, there is an abundance of great buys out there right now."

Meanwhile, many of the Web sites that tried to break into the space have gone under. But backers insist the survivors are well positioned, and with their speed and reach offer an efficient way to match companies with excess goods and bargain-hungry shoppers.

Among the recent discounts at Smartbargains was a Gallery leather jacket for $99.99, down from retail of $375. Overstock featured a Tiffany-style table lamp retailing for $199.99 for $49.99, and at a Prada shoulder bag went for $249, or 50 percent off the retail price.

A competitive market

The sites are carving out their niches.

Overstock, which offers about 4,000 items at one time, is trying to appeal with a broad selection. Smartbargains, with about half that many items, is looking for the selective bargain shopper. Bluefly focuses more on high-end goods.

All three are facing competition from eBay, which is increasingly being used by companies to sell excess inventory directly to consumers. Spokesman Kevin Pursglove said the company has anecdotal evidence of more corporate sellers, but said eBay doesn't track those who sell on its site, and notes that corporate sellers might not identify themselves as such.

Ironically, these discount e-commerce sites also have benefited from the dot-com demise and its accompanying flow of cheap inventory.

Burns still scans an off-color Web obituary site for business.

"We're seeing better deals than we've ever seen," Burns said. "Everybody's getting jammed with excess inventory, and now they're trying to jam each other."

But dot-com detritus was never a major source of goods, and it's drying up. More productive for Smartbargains has been its ties to another investor, Gordon Brothers, a 100-year-old reseller that Rosendorf says turns over as much as $6 billion in goods each year and passes business to its protg.

Smartbargains has been boosted by the deal with AOL, one of the company's backers, which has Smartbargains operating the "clearance" section of AOL's Web site.

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