Building Businesses in Aftermarket Designer Merchandise: ShopWorn CEO Richard Birnbaum (Part 2)

Richard Birnbaum: We realized that the garment business was not for long term. We were buying back in the late 80’s. We were buying designer goods in the United States. We were buying Tommy Hilfiger, Calvin Klein, and Ralph Lauren. Back in those days, e-commerce was not what it is today.

We would buy the goods. We had very few restrictions on the merchandise. We would buy whatever TJ Maxx and Burlington Coat Factory didn’t buy at the end of the season. We would end up buying those goods. We would export them to Europe. Back in the early 90’s, the High Court in Europe decided that parallel goods are no longer protected.

The gray market goods may not be resold once they’ve been sold for the first time, contrary to what the US ruled years ago, which was once branded goods are sold for the first time, they are in free circulation. They can be legally sold again as long as you’re not infringing on the trademark.

Our business of selling into the big department store chains and warehouse clubs in Europe immediately went south, because Europeans could no longer legally import our US designer labels.

We had a warehouse full of inventory and we started selling it on eBay. That was the first time I have ever been involved in B2C. We realized that B2C seemed to be the future for us. We needed a product where you didn’t need a big warehouse. Watches and jewelry fit that bill perfectly. All you needed were a few safes and you were in business.

Sramana Mitra: What year did you start selling on eBay?

Richard Birnbaum: I started in 1997. 

Sramana Mitra: Right away, you were selling watches and jewelry.

Richard Birnbaum: No, we started off selling designer clothing because I had a warehouse full of inventory.

Sramana Mitra: You had an inventory to liquidate.

Richard Birnbaum: Yes.

Sramana Mitra: How long did it take you to liquidate that inventory that you had collected?

Richard Birnbaum: Very quick. I realized just within a couple of weeks that if you own goods at the right price, you just keep auctioning one piece after the other. If you own goods at the right price, you didn’t bother with the so-called “Buy It Now” method. You just did auctions. It didn’t take long at all to liquidate the inventory. As we were liquidating that, we were setting up a Swiss watches business.

Sramana Mitra: After you liquidated the clothing inventory, you didn’t buy any more clothing to sell on eBay. You switched the business to watches and jewelry?

Richard Birnbaum: Correct.

Sramana Mitra: What was the beginning of that business? How much inventory did you acquire? Were you buying the inventory or were you getting them on consignment?

Richard Birnbaum: I started in the watches business by going to meet an owner of a store. He was a friend of a friend. I had a contact for somebody to show me the ropes and explain to me the way the distribution model worked, what the retailers were looking for, and how they needed to protect the brands.

In the end, I walked out that first day with a brown paper bag with a couple of dozen watches. The person said, “Take these. Pay me when you sell it.” Within a week or two, we sold two-thirds.

Sramana Mitra: Why did this merchant give you all these watches on consignment? What was the relationship?

Richard Birnbaum: It was aged inventory. For him, it was just sitting on his balance sheet. The goods weren’t going anywhere. The entire authorized dealer business model is based around having the newest, latest, and the greatest.

Unfortunately, those aged goods just keep getting older and older. At least in the watches and jewelry business, nobody ever writes out any inventory. It just sits there forever.

This segment is part 2 in the series : Building Businesses in Aftermarket Designer Merchandise: ShopWorn CEO Richard Birnbaum
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