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Take It Back

Los Angeles Business Journal, January 9, 2006

Jacques Stambouli knows about deals, but not the kind that his fellow Harvard Business School alums are accustomed to, with the handshakes and million-dollar transactions. Stambouli’s deals involve shaving a few dollars off merchandise that customers return to retailers and he’s doing a lot of them, especially now, in the post-Christmas season when unwanted gifts are returned.

The warehouse of Stambouli’s company, Vernon-based Via Trading Corp., is a kind of grocery store of returned goods, where everything from fake Christmas trees to PlayStation parts to poker sets to dishware is crammed into boxes lined up in rows. This conglomeration is then sold to vendors, who in turn market the goods at yard sales, discount stores and both real and virtual flea markets, eBay Inc. being the biggest. “You are selling to people wholesale who are reselling it, but it is not really established businesses,” said Stambouli. “It is more of this big underground economy.”

Although underground, this economy is getting larger as more people take a stab at Internet commerce and search for wholesale suppliers. Via Trading is one of a small number of the larger wholesale players in an industry where solo brokers channeling goods from retailers to vendors are the norm. “There were very, very few established companies that dealt with wholesale. There are no wholesale chains across the country,” said Stambouli. He partially attributes this hole to the demise of mom-and-pop stores that, unlike chains, would fill their shelves with goods from wholesalers like Via Trading. Stambouli estimates that Via Trading will make $13 million this year, up from $7 million in 2005 and $4 million the prior year. Via Trading gets most of its items from department stores and big-box retailers. These companies off-load customer returns, which make up about 4 percent to 6 percent of all retail sales, when they can’t put merchandise back on the shelves.

Via Trading gets the goods at 10 percent to 25 percent of their wholesale cost, depending on the size of the order. And Stambouli expects his customers, who typically buy hundreds of items gathered in boxes at about $200 each box, to be able to double their money and still sell at half regular retail prices. Barry Riemer sells purses that he buys from Via Trading at Hooked On Handbags at the Valley Indoor Swap Meet and online. He discounts handbags at his 800-square-foot swap meet location at 60 percent to 90 percent off the retail price. A purse he sells for $15 to $50 might go for $50 to $150 at department stores.

It’s turned into such a booming business for Riemer that he’s phasing out of his job as a vocational teacher. Last year, he sold $60,000 worth of handbags at the swap meet and $100,000 worth on eBay. He doesn’t see his sales ebbing because he said others don’t sell the high-end bags he has. “I don’t feel the least bit threatened. They are selling junk from China. Nobody can compare with a major department store,” said Riemer.

Reliable supply

Even in the underground economy, Stambouli’s MBA came in handy. In fact, Via Trading was the result of a business school exercise: he had to conjure up a new retail concept. “It was going to deal with returns, (but) be a lot more Web-focused. I had done some research, and I had seen a lot of wholesalers trying to do it, but no retailers,” he said. “After a month or two of it, I found it was really difficult to find a reliable source of supply.” Stambouli decided he would be that reliable source, and Via Trading was born. As Via Trading has grown, it has used its size to attract more retailers that it buys from and customers it sells to.

On the retail end, Via Trading can swoop in and scoop up large quantities of goods because it houses inventory in its warehouse. That helps retailers avoid the complication of having to deal with scores of smaller operators, most of whom don’t have the space to store a lot of merchandise. Buying large quantities also benefits Via Trading’s customers. That’s because retailers reduce the price for surplus wholesalers who pick up larger quantities and, therefore, the wholesale price is knocked down.

Among Via Trading’s most popular merchandise categories are electronics, tools and clothing. In December, toys were the biggest sellers. In the warehouse, Stambouli groups the goods according to their sources and can track which stores his customers are most interested in buying returned goods from. Stambouli is coy about releasing information about the stores. As part of his agreement to buy their returns, stores instruct Via Trading and its customers to deface the labels on items. The stores don’t want items to get returned again, a problem that Stambouli said he hasn’t had to deal with yet.

Calls to Target Corp. and Costco Wholesale Corp. for comment were not returned. Sharon Weber, a spokeswoman for Wal-Mart Stores Inc., said the company doesn’t sell returned goods to surplus dealers. “We either sell them back to the supplier or, in some cases, if it is merchandise that is unused, we will put it back on the shelf,” she said. “Other than that, we destroy it.” Some retailers who sell to surplus wholesalers make an extra effort to ensure their products don’t make their way back to their stores. One retail chain that Via Trading just started buying goods from doesn’t have stores in California and went with Stambouli to make sure that surplus merchandise is sold far away from its locations.

After the Christmas holiday season, the supply of goods spikes and Via Trading can load up its inventory. However, Stambouli said that’s not necessarily the best time to do so, because the flood of returned goods drags down the price he can command and, after all, the highest demand for the products is right before Christmas. For the most part, Stambouli said he can get returned merchandise all year, and both the flow and demand for the products isn’t particularly seasonal. In Southern California, where the weather is good, flea markets are held throughout the year, and vendors constantly need to replenish their merchandise.

Higher prices

But selling surplus isn’t always easy. There’s a wide variation in the quality of customers: some have little knowledge about what it takes to vend returned goods, while others learn that different products work well in different venues. “You don’t quit your day job. It is $200 to start your own business. If it works, it works. If it doesn’t, you got $200 worth of merchandise,” Stambouli said. Those for whom it doesn’t work skipped the necessary legwork. It takes time to sift through the merchandise, pick out the products that aren’t too damaged and can be sold with a higher return, and price accordingly. Those for whom it does work get a good handle on where to best sell the items. For instance, it is not cost-effective to sell cheaper goods on the Internet, where the shipping costs can equal the price of inexpensive items. But more expensive, branded goods can fetch a premium online.

Riemer has found that averaged priced handbags, like a Nine West purse, are good swap meet items. On eBay, Fendi or Coach bags sell for higher prices than they would at the swap meet, where people who are looking for low-price deals shop. The discounts on Riemer’s handbags aren’t what they once were. In the past two years, he said his prices have gone up 20 percent to 25 percent, as he passes on higher wholesale prices to his customers. At Santa Fe Springs-based wholesale surplus supplier Rhino Mart Inc., owner Drawlon Tsang said his prices have risen because retailers are charging more, sometimes triple or quadruple what they were four or five years ago. Retailers can raise more prices because there are more players in the wholesale market, and they’ve increased demand for their returns by making the goods available to the same customers Rhino Mart and Via Trading are after: flea market and Internet vendors.

At the same time, Tsang said retailers are more diligently identifying and retaining the quality items, leaving wholesalers with badly damaged goods that they can only sell at slim margins. “It is now riskier to buy. There are problems with every single item,” he said. At Via Trading, Stambouli can rely on his scale to heighten his bargaining power. With stores dependent on his services, he can make price and quality demands. That’s one reason why, once he hits $20 million in revenues, Stambouli might merge with other regional players to make a $100 million company with even more leverage. “I can’t see this business ever slowing down. There are billions and billions of dollars worth of merchandise that is resold and reprocessed,” he said.

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