TRADEOUT.COM AIMS TO BE LEADER IN SURPLUS
Byline: Thomas J. Ryan
NEW YORK — TradeOut.com, among the many online sites for selling and buying surplus merchandise, plans to raise up to $115 million in an initial public offering.
The firm, based in Ardsley, N.Y., said its objective is to become “the world’s leading business-to-business Internet marketplace for buyers and sellers of business surplus,” according to the prospectus for the initial public offering. The site allows sellers to post merchandise on the site for a fee, with a commission charged if the merchandise is sold. Buyers pay no fees.
The site was launched in April 1999. As of Dec. 31, the company said 359 businesses bought more than $15 million worth of excess inventory and idle assets. At yearend, approximately $979 million of excess inventories were posted for sale on its Web site. As of Dec. 31, the firm had approximately 12,700 registered users, and is currently registering about 100 new users per day.
The site currently has eight classifications: apparel-footwear-accessories; computer products; food and beverage; health and beauty care; housewares-household products; automotive; metalworking machinery, and power and utility equipment.
A visit to the TradeOut.com site last Tuesday showed that the women’s apparel section on the site is currently offering 10,000 DKNY and DKNYC T-shirts for $7 each; 120,000 units of Lady Rina bras at $14.50 per dozen; multimillion closeout lots from designers Rifat Ozbek and Alexander McQueen, as well as plentiful selections from several lesser-known branded firms.
TradeOut.com said in its prospectus that the worldwide market for business surplus — typically stemming from manufacturer overruns, the discontinuation of products, customer returns, retail overstocks — in 1999 totaled more than $400 billion. Typical channels to purge excess goods, such as jobbers, closeout dealers, used machinery dealers and brokers, are not as efficient in negotiations and pricing as the Net, partly because of their limitations on conducting widely attended live auctions, the prospectus noted. By comparison, TradeOut noted that as a worldwide venue for closeout sales, its Web-based approach should lead to significant savings in time and money for both buyers and sellers compared to traditional channels of inventory reduction and liquidation.
“The Internet enables the creation of centralized marketplaces that allow widely dispersed buyers and sellers to interact and facilitate the efficient exchange of product and pricing information,” the firm said in its prospectus.
Sellers also have greater flexibility and control over the sales process by being able to sell their products through either a standard auction — on a first-come, first-serve basis — or through a highest-sealed bid process. Sellers need not disclose their identities on the site. In addition, they can set delivery and payment terms, and identify product specifications and lot size.
A posting generally includes the following: an item title and description; quantity for sale; location of the item; acceptable payment methods; asking price; sale duration, and a photograph of the items.
TradeOut had revenues of $828,000 last year, but lost $19 million as a result of costs in developing and marketing the site.
TradeOut said its ultimate success will be gauged by its ability to attract buyers and sellers to the site. The firm said it expects to benefit from being a “first mover,” or one of the first to launch a site of its kind.
“We plan to aggressively promote the TradeOut.com brand through advertising in key business and trade periodicals, direct mailings to members of trade organizations, participating in industry events and trade shows, and conducting targeted promotions and public relations campaigns,” said the firm in the prospectus.
The firm gets its listings of excess goods through alliances with liquidators, brokers and trade organizations. In March, General Electric Capital Corp. agreed to encourage its business units to post assets on TradeOut’s site, promote these assets and provide remarketing services to G.E.’s customers. G.E. paid $15 million for warrants to buy up to 2.4 million shares of TradeOut.com’s stock, or a 7.5 percent stake.
The firm also expects to build excess goods base through alliances with Quality King Distributors, a wholesale and retail distributor of health and beauty care products, fragrances and grocery and pharmaceutical products; Purity Wholesale Grocers, a wholesale distributor of grocery and general merchandise products, and Rumarson Technologies, which specializes in technology asset management and product disposition.
The firm expects to increase traffic to the site through marketing alliances with Chase Manhattan, Merrill Lynch, PurchasePro.com, the National Association of Wholesaler-Distributors, the Consumer Electronics Association and DowJones.com.
Benchmark Capital Partners IV owns 21 percent of the stock, and eBay, 6 percent.
Brin McCagg, founder and chairman, owns 20 percent of the stock. He was managing partner of CommServe, a private investment fund, and prior to that he ran a firm specializing in the recycling of waste materials.
George Samenuk, formerly general manager of the Americas for IBM Corp., was named president and chief executive in January. Samenuk received options to purchase 1.64 million shares of TradeOut.com at an exercise price of $2 each. He will receive a base salary of $250,000 a year.
The expected price of each share and the number of shares to be sold were not included in the initial filing. Proceeds will be used to expand operations and for general corporate purposes, including working capital and for possible strategic investments or acquisitions.
TradeOut.com becomes the first of many cyber closeout sellers to go public. Competitors include RetailExchange.com, VirtualRags.com, WholesaleTradeShow.com, WholesaleCentral, Rebound, CloseOutNow.com and CloseoutCentral.
TradeOut’s IPO is being underwritten by Goldman Sachs, Donaldson Lufkin & Jenrette, Merrill Lynch and Chase Hambrecht & Quist.