RETAILEXCHANGE SUCCEEDS IN PRIVATE

Byline: Peter Braunstein

NEW YORK — Until recently, most close-out B2B marketplaces online operated according to a cult of secrecy worthy of a Cold War spy film.
In part because their clients demanded anonymity, the exchanges themselves, though eager for media coverage, would not provide any information about who their buyers and sellers were, what goods were trading hands, or even the scale of their operations. Hard figures like ‘annual revenue’ were also dodged in favor of more abstract measurements like ‘test liquidity.’
The reasons for the information blackout on the close-out Web sites soon became clear. Just like airlines never admit to overbooking flights, manufacturers and retailers rarely go public with their dirty little secret: excess inventory. It is this wall of silence among active or prospective clients that online B2B marketplace RetailExchange.com is hoping to overcome.
“We want to remove the shame associated with excess inventory,” said Jason Kissell, director of marketing for RetailExchange.com. “Now that exchanges exist where you can make spot buys and source more easily, you can put money into enhancing margins instead. Wholesalers were initially worried that exchanges would replace them,” Kissell added, “but now they’re beginning to see that it gives them better market penetration.” Since launching in February 2000, RetailExchange.com now boasts 7,000 members, comprising 5,500 businesses, with apparel constituting 40-45 percent of the marketplace’s entire inventory. As additional validation of their business model, the Gordon Brothers-backed online marketplace closed in December on its third round of financing, totalling $25 million. New investors for this latest round included American Express Financial Corp., which provided $5.5 million, and venture capital firm 3i, with more than $10 million.
Kissell attributed Retail-Exchange.com’s success at attracting clients and investors alike to its ‘don’t ask, don’t tell’ approach to operations. “Sellers wanted the option of listing products anonymously, so their competition can’t see that they have excess product and the listing price,” said Kissell. “It’s also a pride factor: You’re saving face by listing anonymously.” Kissell believes that while the excess inventory-equals-shame equation still prevails, much of the stigma will fade away when sellers realize online marketplaces are a safe, viable, and liquid source for disposing of excess product. “Eventually people will learn that you can overproduce and not worry as much about it,” Kissell maintained. There are even encouraging signs that, while RetailExchange won’t ‘out’ any of its clients, some of them are taking those bold first steps out of the closet on their own. Discount retailer Ames, which produces sales of $4 billion annually in 460 stores nationwide, took a great step forward by publicizing an alliance forged with RetailExchange.com to serve the chain’s inventory management needs. Further evidence of a newer, more ‘out’ B2B close-out marketplace culture can be found in last month’s opening of the RetailExchange.com showroom, at 1410 Broadway, in the heart of New York’s Fashion District. Named the Search Center, this offline slice of RetailExchange.com will display samples of online product listings that are available for immediate purchase in such categories as apparel, toys, and sporting goods.

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