Going Once, Twice, ... Sold Online

For many retailers, online auctions may seem like a vast uncharted sea, best left to independent entrepreneurs selling merchandise out of their homes. But with online marketplaces such as eBay attracting 34 million visitors a month, an online auction provides a gathering place for new customers and a profitable opportunity for retailers to sell end-of-life merchandise. One company that investigated online auctions two years ago is West Marine (Watsonville, CA), a specialty boating equipment retailer. The company is unique in that it doesn't deal with large amounts of out-of-season or overstocked merchandise, but it does offer 50,000 items through its 240 stores, a catalog, and online Web site.

Originally, West Marine thought posting auction merchandise on its Web site would add a level of excitement to its online offering. "The problem we faced operating our own Web auctions, on top of the labor and integration issues, was getting enough traffic to that portion of our site," said Tony Gasparich, VP of Internet at West Marine. The retailer began to think that online auctions were not cost-effective ways to promote merchandise and almost threw the idea overboard. Then it decided to manually post five items on eBay and was surprised at the high number of bids and bid prices that the items received.

At first, West Marine worked with an auction software company that allowed it to choose and extract product information from its back end and automatically post it to eBay. The software company soon went out of business, but the experience gave West Marine an even better idea of what it needed to make online auctions a profitable sales channel.

Put Auctions On Automatic Pilot
West Marine's ultimate goal was to keep the labor necessary to maintain the auctions to a minimum. The retailer could automatically choose and post the items it wanted to sell, but once the bidding stopped, completing the transaction was not as simple. "For every auction that closed, eBay sent us an e-mail that included the customer payment and delivery information," Gasparich said. "We had to figure out how to get that information into our back end fulfillment system, and we had no choice but to manually type in the data." West Marine already had an order entry and replenishment system integrated into its online store and wanted to tie that functionality into the auctions.

West Marine learned ChannelAdvisor Corp.'s (Morrisville, NC) marketplace management software integrates with West Marine's WebSphere software from IBM and the company's legacy order entry system running on an AS/400. "We choose about 50 to 100 items based on what sells the best in the auction forum and send all the information including the images to ChannelAdvisor, who then posts them right on our West Marine eBay site," Gasparich said. Once the auction closes, ChannelAdvisor sends the auction customer an e-mail directing them to www.westmarine.com to complete the transaction. The link takes the customer directly to the retailer's online shopping cart. "With our previous attempts that were not tied into our own Web site, we had difficulty explaining special shipping requirements of some items or tax issues of some states. Now we are able to leverage the shopping cart functionality we already have built into our Web site," Gasparich said. "And the beautiful thing is that we introduce them to West Marine in the process."

Gain And Retain Customers On The Web
Analysts agree that it costs more to find new customers than it does to retain existing customers. But for West Marine, online auctions have become a powerful business tool to both gain and retain customers. "Since auction customers are sent to our Web site, they are automatically registered into our customer database," Gasparich. "From here we can market to them in the future and it gets them to know our name." It also provides an opportunity for the retailer to cross-sell other full-price merchandise, which helps it to drive revenue at a higher margin. "Of all the auction customers who are directed to our Web site, 82% of them are new to our online database. Of those new customers, 27% of them purchase again from our regular online store, converting them to what we recognize as a regular customer," Gasparich said.

Working with ChannelAdvisor has made auctions a largely automatic process for the retailer and does not require West Marine to work directly with eBay. ChannelAdvisor charges the retailer a per transaction fee for every successful auction purchase, but since the retailer often sells the end-of-life or refurbished merchandise online for more than it would get in its discount store, it still comes out ahead. "It comes down to comparing your costs. Since we have physical locations, some of which are discount stores, part of our analysis is the selling price of products on auction compared to an outlet store," Gasparich said.

West Marine posts the retail price of all the items it sells as well as a reserve bidding price which is the minimum they will accept as a final selling price. Bidders also have the option to "buy it now," which allows someone to buy the item at the reserve price immediately. Over the last two years, West Marine trial-and-errored its way to a successful online auction strategy, which has allowed them some smooth sailing in the ocean of multichannel retailing.