Onsale Wants to Expand Sales
Well Beyond Computer Products
By JOELLE TESSLER
Dow Jones Newswires
NEW YORK -- Onsale Inc. is making a name for itself by selling
everything from computers to electronics to steaks through auctions on the
Internet.
But while the on-line auction house may be best known for PCs, hard
drives, printers and other hardware, Chief Executive Jerry Kaplan said he
believes computers are just the beginning.
"Our customers are omnivores," Mr. Kaplan said. "They will eat just about
anything that can be sold in the on-line auction."
Travel and vacation accommodations, airline seats and tickets to concerts
and sporting events are just a few other types of item Mr. Kaplan would
consider putting up for sale. Onsale's site could even be used to host
charity auctions, he said.
Heavy Computer Sales
Onsale, in fact, sold a wide variety of goods -- including collectible
watches, prints and art work -- when it first set up shop on the Web in
May 1995, Mr. Kaplan said. But it quickly discovered quickly that
computer-related products were among the best sellers on the Internet,
and began focusing on that market.
Today such products account for about 80% of Onsale's sales, a portion
Mr. Kaplan would like to reduce to 50% to 60% over time.
Another 15% of Onsale's sales are of consumer electronics. The remaining
5% includes a broad range of goods, from specialty foods -- the company
periodically sells fare from Omaha Steaks -- to sporting goods and sports
memorabilia auctioned through a site run jointly with Sportsline USA Inc.
Onsale gets its wares from about 250 suppliers, including manufacturers,
distributors and retailers. For the most part, it sells products they are trying
to get rid of -- excess inventory, refurbished items, close-outs and
customer returns.
That can mean some great bargains for bidders.
Onsale puts 900 to 1,000 different types of products -- anywhere from
one to a few hundred of each -- on its Web site every day for Internet
surfers to haggle over.
Bidders, who are automatically registered for the site upon making their
first bid, offer what they believe is a fair price for an item and are notified
by e-mail if they are outbid. They can then offer a higher price or drop out
of the auction.
In the fourth quarter, Mr. Kaplan said, the average buyer bid 7.2 times
and won 2.6 times.
The company recently set up the Onsale Exchange, which functions much
like a classified advertising service, allowing individuals and small
businesses to post products for auction. After Christmas, the company
encouraged people to use the exchange to sell their unwanted Christmas
gifts.
More Than 100,000 Daily Visitors
To date, 500,000 people have registered with Onsale, Mr. Kaplan said.
Approximately 100,000 to 150,000 people visit the site daily, and "we
add 1,000 to 1,500 new buyers every day."
While 60% to 70% of Onsale's sales are business purchases -- either for
corporate or home-office use -- the executive noted that "just about
everyone buys something for themselves, too."
Mr. Kaplan believes the system appeals to bidders not only because they
can find bargains, but also because it's fun. "It is an entertaining, engaging
form of retail," he said.
"The reason this is so successful is because it leverages two unique aspects
of the Internet," he added. "It creates a community and takes advantage of
real-time news value."
And this, perhaps, is what sets Onsale apart from other retailers on the
Web. "Most electronic commerce has been little more than taking static
catalogs and putting them on-line," Mr. Kaplan said. "What we've done is
very different."
He said Onsale appeals to manufacturers, too, because it offers them "a
new channel ... to dispose of goods they couldn't otherwise get rid of."
Strong Year-Over-Year Growth
The company reported gross merchandise sales -- the value of all goods
and services purchased through the site -- of $115.9 million for 1997, up
from $30.7 million in 1996. Gross merchandise sales have historically
grown 15% to 25% each quarter, Mr. Kaplan said.
The company's average sale is about $180, he added.
In about 45% of cases, Onsale purchases goods directly from the
manufacturer and resells them to the highest bidder -- pocketing the
difference. In another 30%, the company sells the goods on a consignment
basis. The remaining 25% of sales are agency sales, in which Onsale is not
responsible for the transaction and simply acts an order taker.
The company takes a 10% to 20% commission on most consignment and
agency sales. It also receives listing fees from the Onsale Exchange and
takes a commission of between 3% and 4% of sales from transactions on
the new service, which it treats as agent sales.
Web-Site Ads as Revenue Source
Looking ahead, Mr. Kaplan expects advertising on Onsale's Web site to
become another major revenue stream -- and a high-margin revenue
stream at that, since it doesn't require much investment on the company's
part.
For the time being, Onsale continues to invest heavily in marketing and in
building its brand -- for example, by purchasing advertising space to
promote its service on other well-trafficked Web sites, such as those of
America Online Inc. and Yahoo! Inc.
These expenses caused the company to start losing money in the second
quarter of 1997. For the fourth quarter, it reported a loss of nine cents a
share, compared with net income of one cent a year earlier.
But Mr. Kaplan is comfortable with analysts' projections that Onsale will
return to profitability in mid-1999. |
