By RACHEL METZ, AP Business Writer
Chicago-based Enable Holdings Inc. plans to launch RedTag on Friday and sell retailers' excess inventory at a fixed price. Its shipping charge will undercut a similar site, Overstock Inc., which charges $2.95 for standard ground shipping.
"We're willing to take less for shipping because we think you'll buy five more items from us — as opposed to if we got as much as we could from you, shipping this product, you may never buy again," said Enable Holdings' CEO, Jeffrey D. Hoffman.
The site is coming online a few months after gas hit $4 per gallon, a milestone that caused many consumers to see buying online as a way to make fewer car trips, said Scott Silverman, executive director of the National Retail Federation's digital division, Shop.org.
Even though fuel prices have come down, he thinks the habits consumers have adopted to save gas are still in place. Cheap or free shipping could be another way to keep them shopping on the Web.
This launch marks a revival of RedTag, which shuttered in 2004. Enable Holdings, which runs uBid, an auction site for excess inventory, bought the RedTag Internet address this spring from one of its major shareholders.
RedTag is selling items it gets mainly from retailers that have gone out of business, or manufacturers that have produced more of a product than was sold. Sometimes companies want to get an older model — a laptop, for example — off store shelves to make room for a new one.
By selling such excess goods, a site like RedTag has more flexibility than regular retailers in negotiating with manufacturers on the final price of a product, including its shipping cost, Hoffman said.
Still, he acknowledges that high fuel costs are straining everyone in the distribution chain. And RedTag's low shipping price will cost the company in the near term. After all, RedTag will need to pay more than $1.95 to ship most of its items.
Over at Overstock, Chief Executive Patrick Byrne said his company has been feeling cost pressures from shippers like FedEx and UPS, but he added that the company does not plan to raise its standard $2.95 shipping on orders. Asked about the $1.95 challenge from RedTag, Byrne noted that his site frequently offers free shipping deals and dollar shipping days. Counting those specials, Overstock's average shipping fee is a bit less than $2, he said.
RedTag's parent company is tiny next to Overstock, having reported just $43 million in revenue last year, compared with Overstock's $769 million. And both are small players next to Internet commerce heavyweights like eBay Inc. and Amazon Inc. — which generally offers free shipping on orders over $25. Amazon's sales totaled $14.8 billion in 2007, and more than $59 billion worth of merchandise changed hands on eBay's sites last year.
Scott Devitt, an analyst at Stifel Nicolaus & Co., sees the launch of RedTag as a "worthwhile endeavor" that could pressure rivals like Overstock.
"If they continue to move down this path it may make it more expensive for others in the category," he said.
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