Howard Rosenberg takes a moment to sift through the inventory of America’s rejects. It’s mid-December and the holiday shopping spree is at a fevered pitch, but inside this 120,000-square-foot warehouse on the outskirts of Phoenix, a hodgepodge collection of returned items sits in rows of boxes stacked 10 feet tall. Twenty-eight-pound bags of dog food, brownie mix, toys and weighted blankets are lined up alongside vacuums, sporting goods and patio furniture.
“It’s just very random,” says Rosenberg, the founder and CEO of B-Stock Solutions, poking around the glut of unsold goods belonging to several of the nation’s largest retailers. The 53-year-old eBay veteran, who has a head of gray hair and dons a checkered sports coat his wife picked out, has flown in from San Francisco for the day. He spends little time in warehouses like this one, owned by a company called Freeport Logistics, but the items packed into them are his lifeline. His Silicon Valley company, which runs online auctions for dozens of retailers trying to get rid of millions of returned and overstocked items, sold about $2 billion worth of heavily discounted merchandise on their behalf in 2019. That helped his 160-person firm generate estimated revenue of $150 million.
In 2018, Americans bought a record $3.7 trillion of goods, according to the National Retail Federation. Ten percent of those purchases were made online. These days that almost always means free shipping and lenient return policies. As a result, return rates for online purchases can be as high as 30%, triple the rate of in-store purchases, according to Rosenberg. As much as half of all returns will be put back on the shelf, while the rest get liquidated, destroyed or thrown in a landfill, according to Forrester Research. It’s a phenomenon so big it’s now being tracked along with holiday sales milestones like Black Friday and Cyber Monday–January 2 is now National Returns Day. “The analogy I always use is that the light [the retailers] have seen way off in the distance they now realize is a train coming at them,” says Rosenberg, describing their panic when faced with mountains of returns.
“We are giving products second, third or fourth lives. Instead of it going to a landfill, it will get sold to someone.”
Retailers come to B-Stock for help to quickly unload goods they can’t put back on shelves. Through its online auction site, B-Stock sells the products in bulk, posting them under marketplaces branded by retail chains, sold off in time-limited auctions to the highest bidder. It offers retailers access to 570,000 resellers, ranging from mom-and-pop discount stores to independent eBay super sellers who operate 21st-century versions of the discount bin.
Macy’s recently offloaded 493 pieces of dinnerware and other items by Lenox, Waterford and other brands for $2,050. Best Buy sold 53 scratched and dented washers and dryers for $16,200. Dick’s Sporting Goods offered 7,434 golf clubs, baseball gear and hunting accessories with a retail value of $276,147 that by the third day of a weeklong auction had a high bid of $20,716. It’s pennies on the dollar, but Rosenberg says this competitive process enables chains to make 30% to 50% more than they used to earn on excess inventory.
Of course, this is basically making the best of a bad situation–liquidating product means the retailer bought wrong and risks losing money on the item. But it’s a common problem, which is why more than 50 of the nation’s largest retailers and manufacturers, including Amazon, Target, Walmart, Macy’s, Home Depot, Best Buy, Unilever and Whirlpool, are customers. Last year, sellers liquidated 78 million items on the platform.
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“We are giving products second, third or fourth lives,” says Rosenberg, over the whir of a forklift. He points to a treadmill. “Instead of it going to a landfill, it will get sold to someone.”
Rosenberg built his company with eBay’s money. After collecting degrees from the University of Pennsylvania and Harvard Business School, and cutting his teeth as a New York investment banker and Silicon Valley venture capitalist, he joined eBay’s business development team in 2002.
Once there he pitched an idea for a new marketplace that served large enterprise retailers. He knew there was demand on both sides. For one, he had seen retailers struggle to use a platform that wasn’t built for selling millions of items. He also knew eBay’s top sellers frequently complained that their biggest barrier to growth was finding reliable access to new inventory. He was on to something, but he struggled to reach the right decision maker, and never succeeded in persuading them to overhaul their liquidation strategy.
Howard Rosenberg, 53, sits atop a pallet of unsold boxed brownie mix at a third-party warehouse in Phoenix. The amount of merchandise, like the mixes, that his company, B-Stock, auctions off jumped by an average 174% for each of the past three years.
AARON KOTOWSKI
By 2008, his marketplace was doing a couple hundred million dollars in gross merchandise volume every year, a good business, but a rounding error for the online auction giant, which shuttered the division and let Rosenberg go when the financial crisis hit. He was 42, married, with two children to support and still believed in the business. He took the operation with him in exchange for giving eBay a cut of revenue for the first couple of years. With its existing client roster, B-Stock was profitable in its first year.
He raised $1.2 million from friends at VC firms True Ventures and Harrison Metal in 2009 and has collected a total of $73 million from investors. “They’re just scratching the surface of what we think is a massive market,” says Pete Jensen, a partner at Spectrum Equity, which led a $65 million Series C round in 2018. Neither he nor the company would discuss the company’s valuation or their ownership stakes other than to confirm that Rosenberg has a minority stake. Based on the one publicly traded competitor, Liquidity Services, the company is likely worth at least $130 million, but that is likely low, given how fast it is growing.
“That is why Spectrum wrote us a check for $65 million. They like big markets,” agrees Rosenberg.
B-Stock isn’t the only option, of course. Washington, D.C.-based Optoro operates one warehouse but these days mostly sells software that helps chains identify the best way to offload unwanted inventory, whether by restocking merchandise, returning it to a vendor, refurbishing, donating or sending it to a secondary marketplace. It also operates Blinq.com, which sells one-off returns to consumers, and Bulq.com, a smaller B2B competitor, to B-Stock. Happy Returns installs pop-up receiving sites for chains that have limited brick-and-mortar presence, and Liquidations.com similarly sells excess inventory via auction.
Rosenberg has taken a different tack, putting all of the burden back on the original sellers, who deal with sorting, packing and shipping items to buyers. No inventory risk, no shipping costs and all the pricing decisions are made by the buyers and sellers. Even the warehouses where all that stuff sits in are the domain of retailers or third-party logistics companies. Sellers pay an estimated 5% to 10% transaction fee based on the amount of merchandise they move through some 175,000 auctions every year. That keeps overhead low–85% of Rosenberg’s costs consist of doling out paychecks–and that, he claims, has helped him produce net profits since the day he started in 2009.
To help retailers get the best price, B-Stock tinkers with things like whether to sell stuff together or separately, how big a lot should be, how long an auction should run, what pictures to use and what day it should close. It also helps leverage the power of brands–trusted retailers can command a 15% premium–with separate marketplaces for each customer.
“There are times when we get bogged down with returns,” says a manager at a Fortune 500 company that has worked with B-Stock for six years and declined to speak on the record. “We needed someone to help us find homes for product that might beforehand been thrown away.”
Who’s buying all this? People like Clayton Cook, 33, who runs three discount stores in Salt Lake City. He spends an hour every morning browsing B-Stock and typically places about 150 to 200 bids for toys, apparel and other items sold by Walmart, Target and Costco. He doesn’t have time to haggle, so he lowballs his bids and figures he will only win a fraction of them. “The biggest plus is that I get it directly from the source. Because of that I get a better variety and a better product,” says Cook, who expects sales of $8 million in 2019. The site has also attracted a lot of eBay and Poshmark sellers, although the company doesn’t keep track of just how many.
That’s not to say the business is hassle-free. The company’s Better Business Bureau page is littered with complaints from unhappy buyers, most of them upset by the actions of a retailer but blaming the middleman as the face of the transaction.
Rosenberg says the marketplace model has allowed him to build the biggest online liquidation business in town, yet he still only lays claim to less than 2% of a liquidation market that totals $100 billion. To continue cashing in on the returns boom, he wants to bring on outside companies who can offer various logistics services, including sorting and shipping, for an extra fee. He also has plenty of new business to chase: Only 18 of the top 100 retailers in the country are working with B-Stock, plus his current customers could be liquidating even more stuff through his platform.
“It’s a huge opportunity,” says Rosenberg. “And a really, really big market.”
FORBES