Online auction site eBay (EBAY 1.01%) may have been first to the e-commerce scene, but it's been lapped -- in spades -- by behemoth Amazon.com (AMZN -1.14%) in the meantime. eBay focused on small-time sellers listing individual items, but Amazon "won" by catering to mass market merchants. The performance disparity of each company's stock tells the story. eBay is up on the order of 480% since the beginning of the century, while Amazon shares have gained more than 2000%.
The next twenty years don't necessarily have to look like the past twenty have, however. eBay could push back against Amazon's dominance in a way that plays into the edge it holds on its bigger rival. Indeed, it's Amazon's growth that could be setting this stage for eBay, should it pursue the opportunity it has in selling unwanted merchandise returned to retailers.
Returns galore
The prospect of eBay's dive into the business of already-purchased items was floated last week when unnamed "sources" suggested the organization was interested in making an investment in Optoro, which helps companies process returned merchandise and then remarket those goods that can't be put back into inventory.
Image source: Getty Images.
Neither eBay nor Optoro was willing to comment on the prospect, and as such the whisper of the possibility went no further. It's noteworthy, however, that Optoro already lists items on eBay (though it also works with Amazon). Enhancing the relationship wouldn't take a monumental amount of groundwork. In fact, stepping up its returns-management game would possibly make eBay the go-to solution for a surprisingly big problem -- doing something constructive with the estimated $309 billion worth of merchandise Appriss Retail believes was returned to retailers in 2019.
Nobody seems to know the exact figure, for the record. That's one of the indications of just how fragmented the reselling industry is. Regardless, the ballpark estimate is still very big, and Appriss's figure is on the low end of the estimate scale.
The grand irony? Amazon may be the biggest reason the reverse logistics market has grown to its massive size. Whereas about a tenth of all items consumers buy in a store are eventually brought back for a refund, roughly one-third of goods bought online are returned. As is the case with brick-and-mortar store returns, many online purchase returns can't be resold as regular stock.
Fragmented, inefficient
Retailers have come up with an inelegant solution. Big names like Amazon and Walmart (WMT -0.65%) dispose of unsellable merchandise by collecting stacks of it on pallets, and selling the entire pallet for pennies on the dollar. They don't mind, as there's little else they can do with those goods. The process is far from optimized though, leaving the door wide open to anyone willing and able to scale up and extract efficiencies.
One of those streamliners is (ironically) former eBay executive Howard Rosenberg, who now runs B-Stock Solutions as an answer to the growing problem of leftover merchandise. The company -- one of the biggest in the liquidation market -- generated revenue of around $150 million last year by selling $2 billion worth of goods, but that's still only about 2% of the liquidation arena that overlaps with the returns reselling market.
As for the estimated $309 billion worth of merchandise returned to merchants last year, most of what can't be sold in stores will end up being sold by the pallet. It's anyone's guess as to what sort of wholesale or retail prices they'll command their second time around. Colorado State University business school professor Zac Rogers, however, suggested the salvage dealers, flea markets, and charities within the secondary/reselling market somehow did around $300 billion worth of business themselves reselling these goods in 2016.
The wide range of numbers again points to just how disorganized the space is, leaving it ripe for consolidation.
eBay is ideally suited
Certainly anyone could consolidate the reverse logistics market into something not just sizable, but profitable. It's eBay, however, that may be best suited to make it happen for one overarching reason. That is, the business is built on the idea of "one-off" listings, meaning each and every item is the only one of its kind available.
That's not to suggest eBay only sells individual items. Lots of sellers use the platform to sell the same product over and over again, just as they would at Amazon.com. By and large though, eBay lends itself to listings that allow sellers to note scratches, dents, or oddball finds not sold in numbers. eBay's shoppers are also accustomed to seeing packages that may have already been opened or banged around, or goods that were even used for a short period of time.
That being said, the opportunity isn't just in selling merchandise a retailer or wholesaler can't. The opportunity goes hand in hand with the simple service of getting piles of returned goods out of warehouses and store rooms. Many consumer-facing names are glad to pay for that service alone, and care little about making money on resales.
Looking ahead
But alas, it's only a possibility. eBay isn't making a publicized play on Optoro (or any other reverse logistics name) and Optoro is mum on the matter as well. It's not a development investors can count on, or bet on.
Whispers sometimes have a funny way of coming to fruition later on though, even if not in the way or with the companies first suggested. If nothing else, it's an idea eBay and its shareholders may want to put on their radars.
