As the nation’s retailers look ahead to bagging profit in the final weeks of the year, Jacques Stambouli is looking forward to people marching back to the malls with ill-fitting clothes, duplicate DVDs and unfashionable watches. The 32-year-old wholesaling entrepreneur thrives off of what retailers hate–customer returns. Come January, his business figures will turn brisk. That board game you got for the niece or nephew who, it turns out, already has it? It may well turn up at a Southern California flea market for half of what you paid.
Call it re-gifting on steroids. Stambouli’s Vernon, Calif.-based company, Via Trading, which he founded with his brother, Alain, four years ago, is in the business of swooping in and grabbing up big retailer’s returns and excess inventory by the truckload, then selling it to discount stores, eBay (nasdaq: EBAY – news – people ) sellers, and proprietors of flea markets, garage sales and yard clearances. By taking the higher-risk strategy of owning the goods and reselling them rather than acting as a fee-based broker, Via Trading is positioned to benefit from high markups on goods such as tools, electronics and clothing. The firm often gets 100% markups on those products, according to Stambouli. “About 70% of returns are functional,” Stambouli said. “A microwave oven with a dent can still heat food.”
The company is on course to double sales for the second straight year–to an estimated $8 million this year from $4 million in 2004 and $2 million in 2003–while turning a $400,000 profit. It’s part of a $500 million industry that turns unwanted goods into money, according to Jason Prescott, president of TopTenWholesale.com, a company that helps match wholesalers with buyers. Via Trading’s competitors include Rhinomart in California and RJ’s in Kansas.
That’s still just a small fraction of the $600 billion retail industry, though these specialists have driven the return and surplus market to become more fluid and to move more quickly compared with back-of-the-store clearance tables. “They allow the Federated Department Stores of the world to move excess more quickly,” Prescott says. Studies have shown that an average of 4% to 6% of all retail purchases are returned, costing the industry about $40 billion per year. The demand for fast-paced inventory turnover keeps many stores from undertaking a comprehensive plan to maximize the value of returns, opting instead to get back something while making way for new merchandise. Historically, most has been sent to clearance centers on or off site, with only unopened items in mint condition returned to the shelves.
Enter Stambouli, who offers to take the stuff off the store’s hands in bulk. He’s forged deals with several large department stores, including. Since some items are unique to certain stores, labels and markings need to be removed to ensure they won’t be presented for a return a second time. Via Trading buys merchandise and stores goods at its own warehouse in Vernon, an industrial area just outside Los Angeles. They typically turn over inventory within 30 days, shipping customer orders that can range from a $50,000 palette of clothing for a discount store to a single UPS (nyse: UPS – news – people ) box for a stay-at-home mom selling watches on eBay or Craigslist.
While the company mostly limits its purchases to the West Coast, near its California-based facility, it has secured some ability to serve other parts of the country. Federated gave Stambouli free rein to access the inventory of its East Coast warehouse, letting him deliver goods directly from there to East Coast customers if he agrees to pick up the shipping tab. “He’s figured a way to turn trash into cash,” said retail analyst Britt Beemer of America’s Research Group. And they’ll do it with almost anything, generally staying away only from food or other perishable goods.
Otherwise, as Stambouli said, “If it’s legal and it makes money, we’ll sell it.” Stambouli says he got the idea for the venture while getting his M.B.A. at Harvard Business School from 2000 to 2002. While offering plenty of retail-related case studies, the school didn’t address what truly interested him, he says. “They never addressed the issue of reverse logistics, of what happens to obsolete or excess products,” said Stambouli, who spent his youth watching his father run an importing business in Bulgaria before heading to the London School of Economics for his undergraduate degree. “I decided I wanted to try a different type of retail business online, though it turned out to be wholesale.”
His company, which now employs 18 people, recently moved into a 65,000-square-foot warehouse, ten times the size of its original facility. Mexican immigrants running flea markets in the area routinely roll up their trucks to buy up clothes, furniture, gadgets and other items in bulk. “A lot of that group just subsists on flea markets,” Stambouli said, while indicating that his flea market/yard sale clients account for as big a chunk of his annual sales as discount and dollar stores do. His future vision includes a desire to tap into venture capital to help grow the business to $25 million in annual sales (he started the company with family money), followed by a merger with a few of his competitors. That could produce a $200 million a year power, ripe for a public offering. “Put a brand name on it, create a true national wholesale chain,” Stambouli mused. “And make the business more respectable and upscale.”