That phone case you returned to Best Buy has ended up here: In Ed Lawrence’s garage, where he is going through boxes of castaway phone accessories.
“I take a look at the quality to make sure it’s reasonable or salvagable,” Lawrence says as he sorts his latest haul into three piles: sell, fix, trash.
A flowered phone case goes into his 50-gallon trash can, followed by a glittery case and another encrusted with rhinestones. After that, a tablet cover made of pebbled leather and four packages of screen protectors.
“Here’s another one I know is not worth keeping,” Lawrence says, as he tosses away a blue Macbook case. “The unimportant, the strange, the no-name brands; they all go into the trash.”
Then he finds something worthwhile: a black LifeProof case for an iPhone 6.
These waterproof cases are what he calls “premium-dollar finds” — one can easily fetch him $50 on eBay, more if it’s in a desirable color like red — and they are what drive the bulk of his profit.
“It’s kind of like Christmas when I find one of these,” says Lawrence, 51, a former banker who now makes $8,000 a month reselling returned products on eBay. “But the thing is, you just don’t know how many good ones you’re going to get.”
Lawrence, who lives in Richmond, has cobbled together a living buying and reselling a small sliver of the billions of dollars in merchandise that shoppers return each year.
As Americans increasingly flock to the Internet to buy clothing, toiletries, even groceries, they are returning more items, as well. An estimated 25 to 30 percent of online purchases are sent back, about triple the rate for items bought in-store, according to a recent report by Worldwide Business Research. For clothing and shoes purchased online, the return rate can be as high as 40 percent.
The result is $260.5 billion worth of returned items a year, a 34 percent increase from 2010, according to the National Retail Federation.
“There is no question that this is a growing problem for retailers,” said Jim Rallo of Liquidity Services, a major District-based company that helps chain stores and manufacturers manage returns. “Think about it: How many people do you know who go to Zappos.com, buy five pairs of shoes and decide to keep just one? That’s an 80 percent return rate right there.”
More than half of returned items are put back on shelves, Rallo said. But the rest — a mixer that’s been used once, say, or a set of sheets that wasn’t properly repackaged — are often liquidated.
“If a retailer tries to put that back on the shelf — even if it’s in great shape but the packaging has been opened up and messed with — well, who’s going to buy that?” Rallo said. “Retailers have learned over the years that consumers always go for the new.”
In recent months, Liquidity Services, which has long specialized in helping IT firms and government contractors get rid of outdated tanks, vehicles and machinery, has expanded its retail practice to deal with an influx of online returns.
The shift to retail comes as the company struggles to shore up its government business following the loss of a high-profile contract with the Department of Defense. Last year, Liquidity Services posted $397.1 million in revenue, a 20 percent decrease from the year before.
The company now manages returns for 10 of the country’s 20 largest retailers, including Amazon.com, Home Depot and Best Buy, as well as manufacturers including Sony. (Jeffrey P. Bezos, the founder of Amazon, owns The Washington Post.)
Returned items often arrive directly to one of Liquidity Service’s six warehouses throughout the country. Some items are refurbished and resold, while others are auctioned off on the company’s site, Liquidation.com, where buyers like Lawrence bid on boxes — or pallets or entire trucks — of rejected inventory.
Back in his garage, Lawrence pecks through his shipment of 116 items, which cost him $220. He works quickly, opening each package and inspecting its contents.
“Here’s another LifeProof,” he says, taking a pink case out of its box. He turns it over and notices that the headphone jack is missing.
“I guess that’s why it got returned,” he says. “But here’s the thing: I have extras I saved from other cases that I can just plug back in.”
He continues, item by item, until he’s fininshed. The entire process takes less than 10 minutes.
He steps back and eyes the keepers: A stack of 25 brand-name phone cases. If all goes well, he says he will make $720 selling them on eBay, netting a $500 profit.
“This was a very good box,” he says, nodding his head with approval. “Not all of them are this good.”
By the time a phone case reaches Lawrence’s garage — or his garbage — it has probably traveled the world: from manufacturer to retailer to consumer, then back again.
Liquidity Services has a variety of arrangements with retailers and manufacturers. Some companies vet their returned wares themselves and pass on damaged goods to Liquidity Services to handle. Others have returns routed directly to Liquidity Services, which then trashes, refurbishes or resells the merchandise.
“A lot of what we decide depends on the value of that product if it’s going to be resold,” Rallo said. “If we can get at least $75 on a secondary market, that’s usually enough to justify fixing it up and reselling it.”
There is a hierarchy, he says. A $30 Oster blender with a missing part would probably be sold as-is as part of a larger pallet or shipped off to a recycling facility, while a malfunctioning $200 KitchenAid blender might be refurbished, reboxed and resold.
“We obviously have been benefiting from the increasing rate of returns,” Rallo said. “Today, the vast majority of our retail business, about 80 percent, is returns. That’s where retailers and manufacturers need the most help.”
Returns are a rapidly growing part of the company’s retail business, which Rallo says is expected to grow about 40 percent this year, even as the company struggles to recover from the loss of a lucrative contract with Wal-Mart in December 2014. Liquidity Services last year posted a loss of $104.8 million that it attributed largely to the end of its business with the world’s largest retailer.
“Losing that Wal-Mart contract was a big deal for them,” said Colin Sebastian, an analyst for R.W. Baird. “That created a large hole in the company and pushed both revenue and profit margins a lot lower.”
Liquidity Services, which has 1,300 employees, is hoping its renewed focus on returns will help make up for some of those losses.
Even so, analysts say the company faces a competitive market. Among the biggest challenges, Sebastian said, will come from auctionhouses and regional liquidators.
“If you’re the local or regional manager of Target warehouses, sometimes it’s just easier to deal with the local guys than to start filling trucks of stuff and sending them to Virginia or New Jersey for online liquidation,” he said. “The opportunity is large, but there are also a lot of friction points.”
A couple of years ago, Lawrence logged onto Liquidation.com for the first time and made a $700 bet. He bought a pallet of 2,000 OtterBoxes — those bulky phone cases favored by baby boomers — and wondered if he’d made a mistake.
Three-quarters of his haul went into the trash; the rest went on eBay. It took a few months, but Lawrence made $5,000 selling those cases, a seven-fold return on his investment. He was hooked.
“The more you do it, the better you get at this,” he said, adding that most listings come with just a handful of blurry photos, making it difficult to tell exactly what he’s buying. “I generally try to double my money on anything I buy.”
Lawrence works out of his basement. He spends his mornings bidding on auctions and his afternoons sifting through deliveries and posting items on eBay. He buys bubble mailers by the thousands and keeps a postage scale on his desk so he can easily package purchases for customers. Most days, he sells 20 to 30 phone cases.
“I won’t be surprised if this one goes right away,” he says as he lists a lime green LifeProof case with a beginning bid of 99 cents. “The unusual colors sell very quickly.”
Lawrence has 448 active listings on eBay, selling more than 1,300 products. They range in price from a red OtterBox case for a Samsung Galaxy (with a beginning bid of 99 cents) to a black LifeProof case listed for $79.99. He photographs each item using his smartphone — a Samsung S3 encased in a black OtterBox — and posts it to the Web.
“I use a very disciplined approach,” he says. “You’ve got to learn the market. The things that sell today might not sell in a few weeks from now. It’s always evolving.”
In his spare time, Lawrence is looking for a full-time job. He’d like to get back into banking — he used to oversee the area’s consumer lending for SunTrust Bank before the company moved its operations to Atlanta and Orlando and laid him off eight years ago.
He used his severance package to buy a LearningRx franchise, where he offered “brain training” programs. A year and half ago, he closed that business to shift his focus to eBay.
“Did I ever think this business would get to be so big? No way,” Lawrence said. “Never in a million years.”
But it continues to grow. He bids on several auctions a day and wins at least one every few days. Most of the items he receives have been returned to Best Buy or Amazon, he says.
Occasionally Lawrence finds something strange or funny and sets it aside to show his teenage daughters. He received a four-pack of athletic socks for a dog once and, just the other day, ended up with a compression knee sleeve that he plans to give to his daughter’s volleyball coach. His most lucrative finds are new iPhones, which can command more than than $100 a piece. Once he received a shipment of 10 Samsung S-3s that he was able to sell for a total of $1,300.
But he also receives a lot of junk. Tucked away in his basement are bins full of HDMI cables and heaps of phone chargers — not worth selling online because they’re so cheap these days, he says. He keeps them around to give away to friends and family. Sometimes if his neighbor is having a yard sale, he’ll set out a table of chargers for $1 a piece.
The business can feel a bit like a waiting game at times. The more popular merchandise may sell within a few weeks, but many items languish in Lawrence’s basement for six months to a year. Just look around, he says. Those fish tank pumps have been here for nine months, the stack of University of Utah-branded iHip headphones for more than a year.
But today, things are moving quickly. A crystal-encrusted iPhone 6 case sells for $31, then a black OtterBox for $32. Lawrence finds each one, packages them in envelopes and prints out mailing labels. He asks his daughter to drop them at the mailbox on her way out.
He’s won two auctions already and is waiting for the results of a third one. It’ll take a few days for the shipments to arrive. And then, he says, the process will begin again.
“I’ve gotta say, if and when I get a real job, I’ll keep doing this on the side,” he says, sitting back in his chair. “It’s like a treasure hunt each time you open up a box.”