Most people would not believe it if someone told them they made a living selling used items on eBay. But for one Northwest Arkansas company, selling merchandise on the popular auction site has turned into a major business.
Fayetteville-based NR Group Inc. operates Hot Liquidation Spot. HLS is one of millions of sellers on eBay. But what makes the company different is how they get their merchandise, according to CEO Chad Hudson.
"We are liquidators. And what we do is basically have agreements with companies like Amazon.com and Groupon.com, BestBuy.com and several sites like that – we go through sort of a brokerage firm and we help to move products that they no longer have interest in moving," he said.
The products Hudson's firm receives come in the form of a pallet full of merchandise, generally returned items that companies are unable to re-sell.
"If you think about it like you take something to Walmart (that) you don't want anymore, that would be a returned product – whether you return it because it's broken or you return it because it's missing something or you return it because you changed your mind and you don't like purple. You change your mind for various reasons. So basically, that product has to go somewhere in the marketplace and this industry is relatively new at this level," Hudson said, adding that previously "some mom and pop guys who would do (this) on the side."
But that has all changed in the four years Hudson has been in the business, starting with the purchase of a single pallet of items which netted about $100, losing all the money he had invested in the third pallet and eventually creating a $40,000 per month business that has three full-time employees and several sub-contractors in addition to Hudson and his wife.
According to the National Retail Federation, about 9% of all products are returned which equals about $54 billion in returns divided between in-store and online retailers. A 2010 study entitled "Creating value through product stewardship and take-back" said the secondary retail market now represents 2.28% of all gross domestic product in the United States.
So how does a company make money buying unwanted merchandise and re-selling it in auctions on eBay? Hudson said it all boils down to his past experience in the car industry and using those skills to determine whether a pallet would be a good investment based on the manifest of goods he receives from the retailer.
HLS now subscribes to software that helps determine not only what items are worth, but what they are being sold for in online auctions not only on eBay but on other sites. Hudson also developed his own proprietary pricing models to assist in the business.
And even before a pallet arrives and all items are product tested for quality and condition, the staff of HSL is already finding keywords to use on eBay and maximizing the chance of their products being seen through the effective use of search engine optimization (SEO).
Purchasing software and using proprietary pricing models are not the only methods HSL uses to make money, according to Hudson. He said in the world of liquidation, you have to spend money in order to make money.
"We've learned in this business that you have to take on more product to be competitive with these big major retailers, because they're not really interested in selling you a pallet. They're really not. That's just minuscule in what they have to do. So we've kind of figured we need to be able to purchase more product to be more desirable to them. That's why we had to keep getting bigger space and taking on more product."
Moving into larger spaces, he said, has meant five different moves in the last four years – from the company's start in his garage, to a storage unit and eventually to an 8,500-square-foot facility on Martin Luther King Jr. Drive in Fayetteville.
And even though sales have climbed each year, with this year likely to see sales just under $500,000, Hudson said he is already looking to the future in a business where he typically sees a 75% to 80% return on investment.
"Well, at the rate that we'd like to go, there's some possibility on the horizon of maybe franchising a little bit bigger around the country," he said. "If there's one thing that limits us, I guess, is because we watch our costs so closely, we really have to be within a region that is easy to ship to a lot of people and Northwest Arkansas is great for that. But it's also has to be in a region where we have to be able to receive product in from our suppliers."
With that in mind, Hudson said expanding operations to the West Coast was a long-term goal, especially now that a private unnamed investor has come on board to help support HSL's growth plans.
But in the end, Hudson's skills and a lot of hard work are keeping the business thriving in a national economy that has been turbulent for much of HSL's history.
"We're still growing and we're not where we want to be. As an entrepreneur, you still want to keep stabbing at it. But I think where we've been, like any business growing up it's hard – you go through times (asking), 'What am I doing? I'm not going to make it.' And our biggest thing between my wife and myself is we've just learned to trust in our faith."