Infusion of cash allows Luzern to broaden its horizons

A €2.5 MILLION venture cash infusion from Delta Partners is set to broaden the prospects and market for online electronics refurbisher and reseller Luzern Solutions

The low-key Dublin company, which works with major vendors such as Epson, Creative, Palm, Fujitsu Siemens and Philips, takes in product returns as well as excess stock, repairs and refurbishes if necessary, and sells the items on to consumers via online marketplaces like eBay.

"We're actually one of the biggest sellers on eBay," says Ken Doyle, chief executive officer and co-founder, with finance director, Patrick Sherlock, of Luzern. The company runs eBay stores in Spain, the UK and Ireland, Italy, Germany and France, and Doyle says they sell 10,000 items a month, with a weekly increase of 22 per cent in visitor traffic this year compared to last.

With 35 people at its headquarters in Ireland, doing a bit of sales, some refurbishment, company finance and research and development on its in-house software, Luzern also has distribution hubs across Europe - in the UK, Spain, the Netherlands and Germany. Now, it has set its eyes on the massive American market, while continuing to expand in Europe, Doyle says.

Founded at the tail end of 2002, the company fits into a lucrative niche sitting between manufacturers and consumers.

"We both worked for multinationals. We could see the market was just coming out of the big bubble burst, and things were especially difficult for big manufacturers, with everything being pushed out to low-cost centres like China," says Doyle.

"But there were still a lot of services that needed to be supplied in Europe. Your product may come from China, but that's a long way to go to get it fixed. So we looked at ways of helping companies. We knew there was an opportunity to refurbish and resell those products."

The traditional route for manufacturers is to sell overstock or returns in a job lot to someone who pays a certain percentage price of the overall value.

What they do with the products is then hard to control or track. Sometimes, manufacturers found their excess stock ended up being sold back to their own channel partners (retail resellers), diluting the value of existing stock.

"That product can turn up anywhere and can create channel conflicts. We only sell to end-users, and manage the process for clients."

That management is one of its biggest selling point for clients, Doyle says - an in-house web tool they call Channel Optimiser that automates the intake process for the client and the purchase process for the consumer.

The client - the manufacturer - gets an online "paper" trail that enables them to see where products go and reassures them that items haven't been swallowed into a black market hole, or returned into the channel. For major manufacturers, such assurance of brand integrity is important, he says.

The optimiser is also used inside Luzern to analyse market data to understand where the best market and price is for a particular product. So, if laptops are getting the best prices in the UK, while MP3 players are doing well in France, stock can be placed in the appropriate market.

Luzern makes its income off a revenue share model, says Doyle, which motivates Luzern to opt for the best product placement to get the best revenue, rather than just dump the product anywhere. "The more we sell it for, the more we both win," he says.

By avoiding operating any brick-and-mortar stores and outsourcing some refurbishment (they do some, and clients sometimes do their own), the company keeps its overheads low.

Convincing manufacturers to opt for its resell process is a "lengthy process", says Doyle, but the trend is more and more to outsource such non-core activities. Only a few manufacturers, such as Dell, do their own refurbishment and reselling.

Competitors of Luzern's tend to be in very small niches, notes Doyle, who says Luzern is, as far as he knows, the only company doing such a range of products at such volume.

Selling on eBay - which has increasingly, if controversially, moved towards retail selling rather than auctions - suits Luzern perfectly, says Doyle, because the heavy lifting of running the stores in several languages, and attracting customers, is done by eBay. But Luzern also does some search engine ad placement and has started doing some promotions.

Doyle is looking towards rapid growth as third-party selling takes off. Amazon is part of the fray, earning over half its revenue from third-party sellers, but so are newcomers like Buy.com in the US, and smaller niche online marketplaces.

"The trend we're seeing in the US is that Amazon, eBay and Google were the gorillas in online sales, but new smaller models are starting up," he says. He expects Luzern to move from its current five platforms for selling "to 10 to 15 by the end of next year".

Doyle also says Luzern wants to expand into other products besides electronics.

"We do believe the model we employ can be expanded to other categories," he says, noting the company already has a customer base of 250,000. With its first base in the US, just outside of Chicago, Doyle says there's much promise in the vast US market, too.

And that's where the €2.5 million comes in. "We want to really accelerate our growth," he says.