Industrial Auctions: Past Their ‘Used By’ Date

In the book ‘Moneyball’ Oakland Athletics General Manager, Billy Beane, follows a contrarian theory of mining for gold out of the least desired, most devalued assets (players) in Major League Baseball. When the market is over paying for speed, buy the assets that generate power. When the market is overpaying for power, buy the undervalued assets for defense… and so on… always trying to stay ahead of the curve.

Bill Belichick is widely considered the greatest NFL football coach of all time. Winning year in, year out in a salary cap era is supposed to be impossible. How does he do it? Most feel he runs contrarian to conventional thought. The price is too high on running backs? Focus on wide receivers. Too much to buy a top notch wide receiver? Focus on purchasing undervalued tight ends.

We all know the old infomercials about the get rick quick courses that focus on real estate bankruptcy and forfeiture sales. They might have been a success at one point, until hundreds of people had taken the exact same course and showed up at the auctions. Then prices went up as bidders increased dramatically and suddenly no more deals in a seller’s market.

So how do these analogies apply to Industrial Auctions? It’s simple, when a company is trying to earn a competitive return… their auction needs lots of qualified bidders who want to buy assets. The only problem is that bidders get smart, qualified bidders in a slow economy get poor and a flood of assets to the market can bring the prices down much further. There’s also another, far bigger and far more insidious problem…Greed.

Meet the New Boss, Not Quite the Same as the Old Boss

You see, the proliferation of the internet actually boosted the possibilities of creating lucrative online auctions, and it worked well… for awhile. It worked so well that a site rose up from all the rest and grabbed the mantle as ‘the place’ to post your auction. Many/most of the leading industrial auctioneers started to host their auctions there. became sort of the EBay of industrial equipment. Life was good. Lots of people came to the online auction mega-giant, buyers had lots of auctions to choose from, there was a product for everyone and companies selling their old equipment were able to get a very competitive yield. But the various auctioneer firms didn’t like it. They didn’t want to earn only a couple of percent out of the 15%, they wanted ‘all’ of the 15%. So many took it in-house and they created their own online auction websites.

Too Much of a Good Thing is Not Necessarily a Good Thing… For You

The only problem is, when one (1) big EBay blows up like a 4th of July firework and spawns dozens of Mini-Me’s, the general population doesn’t know where to go or what to choose. It doesn’t want to sign up for 20 sites, process paperwork for 20 sites and so they maybe just pick a few. But then they often don’t even waste time trying to source assets out there anymore… so many stop going altogether. When you add in a bad economy making many a rich man (businesses) poor and mix in a whole bunch of companies going out of business or downsizing and flooding the market with similar used assets, the resulting cocktail is weaker than a non-alcoholic Shirley Temple and a company looking to make a decent return on their used assets, many times won’t even generate scrap value from the auction.

But here’s the kicker, the auctioneer doesn’t care. They get 15% of the smaller pie as opposed to a couple of percent of the bigger pie. They’ll say it was a ‘tough market’. The math will tell you that even if the asset sells for 500% less, the auctioneer still wins. Shrewd auction scavengers win. It’s only the client that loses. When there is a loss, it is ‘always’ the client that loses.

Applying the Lessons Learned

But as Billy Beane and Bill Belichick have taught us, everything has a cycle and someday auctions will be good again. Today, however is not that day and judging by the economy, the amount of Mini-Me in-house auction sites, and the amount of closings, shutdowns and downsizing’s happening every month, its gonna take an Armageddon type market contraction to make the traditional auction option sizzle once again.

So what to do? Where’s the current undervalued way to recover asset cost? Where’s the path less traveled to find the rewards more shrewdly earned? It is in direct sales. It is in overseas markets. It is in ‘out of box’ sales tactics finding alternative uses and industries for the assets. The game is always about matching a willing seller to a willing buyer. To get a commensurate or even an impressive great return on an asset you only need one willing buyer. The trick, the talent and the skill is in finding that buyer.

So when looking for a firm to help you recover, do they recommend their in-house auction site? Do they tell you that the market is solid? Do they give you estimates? Why not just look at old auctions still on their site. Better yet, look at existing auctions that are currently going on and see how they are doing. Maybe contact firms and ask how close the yields actually matched the estimates… or maybe they were made to feel that it was a valiant effort in a down market?

Don’t be fooled. There are still excellent opportunities to make a solid recovery on assets in today’s environment… just take a look down the opposite path.


Pop Quiz: How Long Will it Take? Go Ahead and Take Your Best Guess

This article below brings up some very interesting considerations. It looks at a portion of Australia´s retail woes and talks about asset recovery online retailing, particularly overseas retailing, and how it is presents new challenges. We feel, or to put it more appropriately, we fear those challenges are far worse than the author may even realize. Our hopefully though provoking comments and questions are in bold. Truth be told, even we shudder at the conclusions.

The reality of online retail

Author: Brendan Lewis on 3 August 2011

I read today that Myer intends to do away with shipping and handling costs for its online store, to stop the leak to internet shopping. Apparently “Commonwealth Bank estimates that Australian consumers spent $9.5 billion online last year, with $4.2 billion going to overseas online retailers and the remaining $5.3 billion paid to domestic retailers.”

4% of all of Australia´s $240 billion in purchases were online and already 44% of the online purchases were made overseas. Which direction do you think both these percentages will move in the next 5 years and how fast?

Competing on price isn´t going to work, as the competition is always going to roll you. Here´s a real example.

This week I had my quarterly breakfast meeting with Scott Kilmartin of haul. haul is a highly successful multi-channel retailer that upcycles advertising billboards into laptop bags, iPad cases and promotional products for companies from their materials. Scott and I get together regularly to dissect our businesses and offer each other impartial advice. I value Scott´s insight into retail trends as he is a keen watcher of players in the market, a keen reader of analysis of retail trends and has bags of experience (excuse the pun).

Scott conducted a couple of experiments this week that have got him worried. He purchased two items off eBay that were shipped directly out of China. The first was a black sweater, XXL size, and in his words “well made, no loose threads or rough sewing/joins. It could be from Country Road”. The total cost – AUD$9.90 including shipping (but retailing in Australia for around $89.95). The second item was a fake leather iPad case, for AUD$10.45 (retailing in Australia for around $49.95). Both were delivered in 10 days in an Australia Post eParcel box. (Note Scott´s rate to send an empty eParcel box from Carlton to Fitzroy is a whopping $7.65 at the 1,000-5,000 pieces a year contract rate.)

So can Myer and big retail compete on:

  • Price? Not a chance.
  • Quality? Nope, goods are coming from the same factories.

The “goods are coming from the same factories”… Wow! Let me get this right… You´re telling me they are the same goods from the same factory and at a cheaper price? Yikes!

  • Delivery speed? Perhaps if they lift their game. Seven days delivery from local stocks is slow when you can get something from China in 10 days.

China is already ´only´ 3 days slower for deliveries than in-country online purchase for delivery. How long before China is equal to or maybe even better in delivery because of the purchasing volume generated from their far superior pricing?

  • Risk of fraud? Absolutely. The much lower buying from an Australian retailer and a fear campaign could work well.

EBay and other online services will continue to reduce this risk with more refined evaluation systems, review systems and policing efforts.

  • Impact of fraud? Nope. Almost everyone I know is happy to trial an order or two and write-off the $10 if it doesn´t work.
  • Range? Nope. Australian retailers can´t afford to stock all shapes and sizes, as most men in their 40s find out when they go to buy jeans.

Brick and mortar retailers cannot compete with online product range and unfortunately this gap will only widen… severely

The conundrum retailers face is an old one, not just in retail. On a number of occasions businesses I have worked for have had an agency for wholesaling electrical products that we practically built the market for. And when our sales were strong enough, the manufacturer decided to directly step into the market and we just couldn´t compete. This always happens.

Manufacturers will step into the market only now we predict in the future they will likely do this even cheaper online.

The solution though is not to compete on price, but to endlessly innovate and provide superior customer service.

Those “innovations and customer services improvements” MUST have a greater online component to them or it just will not matter to overcome the massive pricing differentials.

Cutting costs and only competing on price is a death spiral. Always has been, always will be.

So let´s look at this now and wrap it all up. ´Online China´ will have:

  • The same goods
  • The same factories
  • A cheaper price
  • A tightening on delivery variances that will soon enough be nearly negligible
  • Lower and lower risk of fraud that will also disappear
  • A wider range

So then the average brick and mortar retailer will then only be able to compete on service. OK then, first we´d ask… Didn´t we just list most of major the service elements and get our butts kicked?

So then what happens when China hires all those soon-to-be-out-of-work retailers in Australia and USA to serve as better customer service reps for their online megastores otherwise known as EBay, Amazon or whatever other online selling service arrives next on the scene?


Long Range Consulting Yields Much Bigger Asset Recovery

Long Range Consulting Yields Much Bigger Asset Recovery

Recently we were engaged by a major national manufacturing and distribution firm considering options for closing down one manufacturing division and consolidating its west coast and east coast distribution centers to one facility. For obvious reasons this company must remain nameless but some of the results were quite fascinating.

As with every project, we needed to assess the expected return on asset value. How else can we set a price, right? However, in this particular case, we had much longer than normal advanced knowledge and ability to plan (6 to 8 months) and to arrange sourcing for secondary market sales. That´s more than twice as long as our typical job with generally attached deadlines in the 60 to 75 day range.

Our estimate is that we would return an extra 3% to 5% per month yield on assets each month for up to 4 months. That´s 12% to 20% greater yield realized back to the organisation because they strategically prepared further in advance for this option. We also estimated that we could recover an extra 11% to 13% of otherwise unusable assets into cash with the extra time.
Overall, we estimated increase in the recovery yields of up to a 33% more simply by exploring options and engaging an industry expert (Asset Impact) in the early stages. That´s millions of extra dollars that can be used to fund severance packages and/or any other critical company expenses associated with the transition.

The lesson is: It´s never too early to get a true assessment of what your assets will yield on a secondary market and what it will really cost to implement a dramatic corporate change involving a shutdown or major structural facility changes. We can´t predict your organization´s success in ´your´ marketplace, however, we can unequivocally tell you that if you do think ahead, where in ´our´ market and industry, names, brands and chains that have lasted a century are closing every month, we´ll absolutely reduce the fallout significantly.


Even More UK Shutdowns and Consolidations

Even more UK Shutdowns and Consolidations: Yet Another Sign to the Times

Asset Impact has maintained for years that the trends we see in facility shutdowns are worldwide and have something to do with economics but many times has far more to do with logistics. At some significant level, people will always buy food, clothes and for fast convenience outside the home or from their mobile device, but as the Internet continues to expand its reach and scope, retailing in terms of brick and mortar outlets is a dying trend that loses more blood every year. Consider the following news.

A 2011 UK Business Park Activity Report points out many major shutdowns and acquisitions (and their impending consolidations) from various nationwide organizations… More than 20 chains fall into the above category. That’s a lot of warning signs. Here at Asset Impact we cannot change your company’s delivery method, but we can surely help you adjust more fluently if you happen to alter your tactics.