Online auctions are catching on

By Staff -- Industrial Distribution, 8/1/2000

Newton, mass.-Suddenly, obsolete inventory is sexy. No longer relegated to gathering dust on warehouse shelves, excess and obsolete inventory is gaining new life through online auctions that may offer opportunity for manufacturers and distributors alike.

Milwaukee Electric Tool Corp., for example, recently named uBid.com as an auction authorized dealer of select Milwaukee-brand tools on the uBid.com site.

Milwaukee spokeswoman Debra Sajkowski said the company intends to sell overstock or discontinued products through the site, excess products that have already been offered to members of the company's traditional distribution network.

"Our main focus is selling through distributors," Sajkowski said, "so we have no intention of auctioning off our normal product at this point. This is simply an avenue to sell some of our older and discontinued product."

UBid.com, which auctions everything from art to computers to appliances, primarily attracts a consumer audience. In terms of industrial tools, that means the buyers are typically weekend warriors, although some small contractors may shop the site.

"We're looking for product that established retailers have said 'no' to because they're moving on to the next generation," said Paul Gardener, senior director of merchandising for uBid.com. "We see this as a quicker, more profitable means of moving inventory, versus going to a liquidator or trying to move it out of the country."

Gardener said the big advantage for manufacturers is that uBid.com takes possession of the inventory. Distributors, he said, could also use the online auction site to liquidate product.

Distributors are giving the practice a cautionary green light, depending on the level of technical support required by a given product.

"I think there is a place for both Internet purchasing and auctions, but I think companies, end users, and customers need to be ever mindful of the fact that you can't just lump everything into one basket and throw it out there," said Bill Holden, president of Haggard & Stocking Associates, Inc., a specialty distributor headquartered in Indianapolis. "Those products that require complex, technical support have no business being sold on the Internet."

Nick Lundquist, national sales manager for Fastenal Co., welcomes online auctions as another way to go to market, particularly with excess or slow moving inventory.

"I think online auctions will grow and have an effect on the market," Lundquist said. "I think that companies like ours that are national with large inventory levels will thrive in that environment. It may drive down our piece price, but it will also expose us to a lot of new customers."

Need more proof that online auctions are gaining popularity?

As of June, more than 4,000 suppliers participated in the B2B marketplace run by FreeMarkets, Inc., which includes online auctions for industrial parts, raw materials, commodities and services. The firm created auctions for more than $2.7 billion in goods last year.

Jim Zuffoletti, vice president and general manager of the diversified manufacturing group at FreeMarkets, expects increasing numbers of manufacturers and distributors to turn to online auctions to sell industrial products.

Unlike uBid.com, FreeMarkets' customer base of buyers are typically large Fortune 1000-size companies in the automotive, consumer and package goods, public sector and heavy equipment industries. FreeMarkets creates a procurement marketplace that connects buyers with sellers and distributors have the opportunity to bid on real business, Zuffoletti said.

"We've worked with companies with distribution arms that we've helped purchase things for resale," Zuffoletti said, explaining other opportunities open to distributors. "We also have the ability to sell assets, which include excess inventory, and so a distributor could use us as a way of either getting rid of or obtaining excess inventory."

FreeMarkets doesn't consider traditional brick-and-mortar distributors to be competitors, Zuffoletti said, because "we're not really performing the same functions that a traditional distributor is performing for a customer."