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Liquidity Services online channel creating greater efficiency, speed and more competition for corporate America’s surplus property resulting in higher recover rates



Services
Retail
Not Public

Liquidity Services, Inc.

2131 K Street
Washington, DC 20037
Phone: 202-467-6868



Bill Angrick
Chief Executive Officer

Interview conducted by:
Walter Banks
Co-Publisher

CEOCFOinterviews.com
August 2002
 

Bio of CEO,
William P. Angrick, III
Chairman and Chief Executive Officer Mr. Angrick is Chairman and CEO of Liquidity Services, Inc. with overall responsibility for leading the strategic direction of the Company and the execution of its business plan. Mr. Angrick has more than twelve years of growth company operations, strategic planning, marketing and finance experience. Prior to co-founding the Company, Mr. Angrick served as a Vice President of Deutsche Banc Alex. Brown's Consumer and Business Services Investment Banking Group, where he provided strategic advice to rapidly growing companies involved in the business services, e-commerce, and direct marketing sectors in the U.S. and abroad. Mr. Angrick holds an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University and a BBA with honors from the University of Notre Dame. Mr. Angrick also holds a C.P.A.
 
Company Profile:
Liquidity Services, Inc., a privately held corporation headquartered in Washington D.C., is the leading global provider of full service solutions to sell bulk surplus assets. Through their unique combination of in-depth market knowledge, superior technology and operational expertise, Liquidity Services, Inc. provides major manufacturers, distributors, retailers, and public sector agencies with a complete solution to convert surplus assets into cash quickly and conveniently, with returns up to 50% to 200% higher than traditional liquidation. Their active customer base and integrated services ensure a fast, cost effective, and reliable way to buy or sell surplus. They provide financial services including Short term Credit, Factoring and Letters of Credit through their alliance with GE Capital Commercial Finance.

Their portfolio of solutions includes the development of an asset sales plan, qualification of customers, auction services, payment collection, warehousing, consolidation, and management of shipping and logistics. During the past two years, Liquidity Services, Inc. and its subsidiaries have completed over 100,000 sale transactions in a wide range of categories, including consumer merchandise, transportation, electronics and audio/video equipment, computers, industrial equipment, construction materials, office supplies, medical equipment and aircraft parts.

Two business units:
Their commercial division, Liquidation.com combines sophisticated marketing services with a conventional sales force to accelerate the sale of your surplus assets. Liquidation.com provides all the services necessary to manage and close asset sale transactions involving surplus buyers and sellers from around the world.

Their public sector subsidiary, Government Liquidation, LLC, currently serves as the exclusive partner of the U.S. Department of Defense. It is responsible for the storage and sale of over $4 billion of original cost of surplus property per year across the United States, Puerto Rico and Guam, through their website GovLiquidation.com.

CEOCFOinterviews: Mr. Angrick, please give us a brief history of Liquidity Services.

Mr. Angrick: “Liquidity Services is the parent company for two distinct business units. The first is Liquidation.com, which is our commercial division and the second business is our Government Liquidation, LLC, which is the exclusive partner with the Department of Defense, for the remarketing and sale of Military surplus.

The company was founded in the summer of 1999, by three professionals with backgrounds in corporate finance, supply chain management, operating consulting, and technology. The second founder, Jaime Mateus-Tique worked for McKinsey & Company. My background was as an investment banker working in the financial services arena with direct marketing and outsource business services companies with Deutsche Bank (NYSE: DB) and prior to that, Alex Brown & Sons. The third founder is our chief technology officer Ben Brown. He was a leading software engineer with Delta Airlines, and helped build their E-commerce model from scratch.

We moved to Washington D.C. in January of 2000 with six employees and raised one million ($1,000,000) dollars of seed funding from seven accredited individuals. That allowed us to put together a team to begin developing our transaction model and software platform focused specifically on business surplus. From that point, during the next twelve months we built a team, and finished the development of our software and technology platform. We began servicing clients in the government and corporate arenas as a new paradigm and service to convert surplus property into cash. We have continued to make great strides as the market leader in providing a professional turnkey service for clients to sell surplus property. We now have 200 employees”

CEOCFOinterviews: Where did the idea for your business come from?

Mr. Angrick: “The idea for our business came from a background of reviewing hundreds of business plans. A number of people look to the Internet and online auctions as a business tool. Liquidity Services didn’t necessarily have the unique idea of conducting online auctions; eBay (EBAY) championed that idea back in 1994. However, what we really saw was an opportunity to provide for the first time to business customers, a professional services firm with high quality standards and a turnkey service to enable clients to sell in bulk, wholesale quantities of excess inventory and surplus assets.

We made it effortless for clients to use our service because we involved an array of services around our online sales channel, which includes logistics, collections, customizing merchandising plans, and a specialized technology platform to focus on liquidating corporate and governmental surplus in bulk; we handle all the elements of that for our clients.”

CEOCFOinterviews: What advice would you give corporate America?

Mr. Angrick: “We believe that today, the best business practice for corporate America is to maximize the value of surplus property. There is a $300 billion dollar market in the United States for surplus property; to maximize that value by using a services firm that can bring the maximum liquidity for client assets; that is what we do using the power of the Internet combined with traditional services.”

CEOCFOinterviews: Does Ebay get involved with clients on the same level as you?

Mr. Angrick: “They do not! In fact, we have on a number of occasions, been chosen as a preferred vendor over eBay because of the level of service that we provide. We have key account sales directors, which are available to hold the customer’s hand, understand their needs on a recurring basis. Our clients are healthy companies that have on-going surplus liquidation needs. Having a relationship with a key account sales director is a huge difference.

We also protect our clients’ names and brand names in distribution channels. Our clients’ identity is protected in using the liquidation.com sales channel. All of the interaction with buyers is conducted by Liquidation.com on behalf of our clients, which is very important. Many of our clients are quite sensitive about protecting their distribution channels for their on-going product, and don’t want to cannibalize the sale of their next generation of products with surplus. We handle that on an anonymous basis and have tremendous speed, relative to alternative methods. Our sales programs are executed in as little as 2-7 days. An alternative method for large corporate clients, might take eight weeks.”

CEOCFOinterviews: What is it that enables you to move product so much faster than traditional liquidators of surplus?

Mr. Angrick: “If the client is using a traditional process, such calling up liquidators in the local market or calling a traditional auctioneer to advertise a live auction event through the newspapers, build a mailing list, rent the facility and do the shipping; that takes eight weeks. The clients have to invest up-front dollars to conduct a traditional sale. With Liquidation.com, we conduct that process in a matter of 1-2 weeks, and we are able to do that based upon the delivery of information to a base of about 60,000 wholesale buyers, using our online channel.

First, we create greater efficiency and speed, secondly we create much more competition for the client assets and higher recovery rates as a result, and thirdly, it is an effortless process for our clients because we take on all the steps of preparing the assets for sale, collecting the information for our clients, and marketing that to our buyer base.”

CEOCFOinterviews: What is the process for moving product from a client to a buyer?

Mr. Angrick: “More recently we have expanded our service to provide all logistic requirements to take property from our clients warehouses and move them to a Liquidation.com warehouse, where we inspect the assets, take the digital photos, and merchandise the goods into appropriate bulk lots, and then move that through our online channels. Once the buyers are identified, we are responsible for the shipment of the merchandise from our warehouses to the buyers. The sell-side client ultimately turns everything over to us and we deliver them a check at the end of the process.

Clients in general, are looking to free up valuable warehouse space and ”wash their hands” of something that is a non-core aspect of their business. We are very much, in a traditional sense, an outsourced services firm. We take surplus out of the warehouse and we take it out of the business manager’s hands so he/she can focus on the on-going normal distribution channel or normal retail client. We have a very effective secondary market channel, and that is where we are at our best and how we position our company.”

CEOCFOinterviews: Does the client have to deliver the product to your warehouse?

Mr. Angrick: “We will pick it up. We have established capabilities to take inventory from anywhere in the country. This is done through our unique relationship with CON-WAY Logistics, which is part of a publicly traded transportation company, CNF Inc. (NYSE: CNF), a multi-billion dollar holding company. We have developed over the last year, a very tightly integrated service where we take assets that are surplus or customer returns or discontinued product lines, throughout the country and place them in one of nine warehouses and then we begin to work in selling those assets. It is a very rapid process and relieves our clients of pain in terms of products taking up valuable space, having to deal with the load-out requirements of individual buyers, having to deal with individual buyers coming to the physical location to inspect goods; we relieve them of those burdens.”

CEOCFOinterviews: How do you generate your revenues, and how has this been such a successful venture for you?

Mr. Angrick: “I’d be happy to share some of our basic financial information with you because it demonstrates the value that we bring to our clients. Our company did $16 million dollars of revenue in calendar year 2001, and we expect to do $40 million dollars of revenue in calendar year 2002, which is a pretty substantial growth. We charge our clients on a success fee basis, we collect 10-30% of the value realized in a sale and that ranges based upon the level of services we provide. Our clients are able to achieve recovery rates much higher than alternative methods and a much compressed sales cycle. Those are the key drivers for the business.

The other side of the equation is that we are constantly aggregating wholesale surplus buyers to our online channels. The cost and expense to aggregate that amount of buyer liquidity for a typical corporation, exceeds the level of focus that they have. One of the things that drives our success, in both revenue increases and recovery rates, is that growing liquidity that we can offer through an online channel.”

CEOCFOinterviews: Which is your top revenue producer right now, the corporate website or government liquidation?

Mr. Angrick: “Most of our revenue comes from government liquidation, which is a result of the fact that we won the largest outsourced surplus contract in history as the exclusive vendor for the Department of Defense. We handle about 3.5 billion dollars of original cost of items for the Department of Defense, which we auction or sell through the URL, www.govliquidation.com. It is a case study for the level of services that we provide any large corporate client, because the needs are fundamentally the same, which are how to get a higher recovery rate for surplus property and have less effort expended to do so.”

CEOCFOinterviews: What type of merchandise do you move through the Govliqudation.com website?

Mr. Angrick: “Electronics and communications assets, which could be anything from test equipment to communication devices to a variety of industrial electronic components. Other big categories are vehicles and transportation, apparel and textile items, aerospace parts and medical supplies and equipment.”

CEOCFOinterviews: What types of buyers do you see going to the Government surplus site?

Mr. Angrick: “The buyer base is very similar to both the commercial and the governmental. These are professional wholesale buyers. Another big difference in our business and the business model from eBay is, we have professional wholesale buyers that want to purchase in larger quantities. In the vast majority of cases, they are reselling these items to make a profit, so these are business buyers not consumers. These professionals might refurbish the product and resell it in a local venue whether it is a retail store or maintenance repair operation. Some of them will even refurbish it and export it.

CEOCFOinterviews: What type of industries have you seen showing good success on the corporate liquidation.com site?

Mr. Angrick: “The technology arena is an explosive growth category for us, both original equipment manufacturers and value added resellers, are using our service increasingly. With changes in product life cycles, and changes in consumer demand, there is an increasing need for our service within the technology and peripheral industry; this could include laptops, routers, servers, printers, and PDAs. You read about companies introducing new products every 3-6 months, and that naturally creates an immense amount of surplus. This present one is a big growth area for us. Related is the telecommunications business, a lot of which is driven by technology life cycle issues.

Consumer electronics and retail goods are another big opportunity. Fundamentally, you have changes in consumer demand and changes in the business climate, which requires business managers to make relatively quick decisions on the future of certain product categories. That is where we can be very reactive, the sooner that a corporate client recognizes that something is going to be discontinued, or needs to be taken out of their distribution channel, when utilizing a service like ours, the greater we can recover for them. The longer a client waits to recognize that problem, the more rapidly their asset value depreciates. One of the things we think is very important for our corporate clients is speed; we can react faster and preserve the maximum recovery rate for our client.”

CEOCFOinterviews: Have you seen movement in the apparel area?

Mr. Angrick: “We have seen good flow, we handle both industrial and branded apparel items. One of the big advantages using a company like ours is, we provide anonymity. The sellers don’t have to disclose whether they are a retailer or an original manufacturer, because it is liquidation.com they are selling through. Further, our buyers must be accountable to certain restrictions at sale. We have a client base of 60,000 buyers, and if a seller only wants product exported out of the U.S., we can constrain who is able to purchase that merchandise. If sell-side clients only want a certain region of the country to have the merchandise flow, we will require a buyer to establish and represent an end user certificate of where they are going to put that product.”

CEOCFOinterviews: So you sell merchandise on behalf of both manufacturers and retailers.

Mr. Angrick: “Correct, and in between we sell on behalf of distributors and wholesalers. In the textile business that is less prevalent than in technology and communications arena where there are many distributors in the supply chain. The channel partners, those players responsible for the bulk of selling to end-consumers, which is where a lot of the product emanates for us.”

CEOCFOinterviews: It seems to me that you are a great asset to our economy and the consumer because you help get to the product through the supply chain faster and eliminate some of the loss that manufacturers and retailer would normally have.

Mr. Angrick: “Yes, and in fact there are “power sellers” in this profession who buy in bulk from us and then resell in other online venues such as eBay or a consumer auction such as Yahoo or even Amazon.com. Therefore, there is a virtual supply chain as well, which will take our products in bulk and ultimately deliver it to the consumer through another channel all online.

CEOCFOinterviews: What would you say is driving awareness within Fortune 1000 clients?

Mr. Angrick: “The thing that is driving awareness within the Fortune 1000, is an environment where disclosure and best business practice is ever more important. We provide a transparent process where goods are put on the auction block for qualified, professional buyers to see and compete for the surplus assets so our clients know they are getting the best dollar value. Using our tools, clients can go online and review the status of every transaction, as opposed to the traditional world where you would have individual warehouse managers or foreman cutting deals in the backroom and not sure of whether the corporation is getting the best deal for their shareholders. What we offer our corporate clients, which includes publicly traded companies, is the best business practice using our online channel and services to maximize shareholder value.”

CEOCFOinterviews: For the first time buyer, can you explain the value of buying through you rather than traditional channels?

Mr. Angrick: “We are focused on a wholesale buyer who is looking for a bulk quantity. A buyer will register and provide us with detailed info on who they are and how they conduct business. Once they are approved, they have an incredible tool that saves them the cost of securing a channel for surplus property. Many of these buyers would normally spend time traveling and participating in live auctions or negotiated purchases through companies or garage sales and locally publicized sales. We bring the largest quantity and assortment of bulk surplus merchandise with the stamp of credibility. 

Liquidation.com has an exclusive relationship with its sellers; we handle the logistics process so our buyers are assured that the cost to ship merchandise is known and we don’t release funds until the buyer receives the merchandise. We are also here to mediate any disputes that occur between a buyer and a seller. We provide much more support and coordination with our buyers than other companies, such as eBay, which requires you to trust a seller without any security or reliability you never met. We provide lower cost, greater selection, greater convenience and greater security of transaction.”

CEOCFOinterviews: Do buyers have to pay Liquidity Services a fee to participate in one of your auctions?

Mr. Angrick: No, it’s free to the buyer, which is another big benefit.

CEOCFOinterviews: Where do you see your company a year or two from now?