Got Excess Inventory? Who Ya Gonna Call?
A tech startup believes it has the answer to apparel’s excess inventory woes—and it wants to stand out by giving brands the chance to offload their unsold merchandise discreetly and sustainably.
Ghost, an online B2B marketplace that connects brands with off-price retailers and other sample sale operators and buyers, wants to give sellers a private experience that keeps their presence hidden from competitors and consumers—effectively giving them more control over where they can sell their excess product.
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Within the marketplace, suppliers, retailers and wholesalers alike can upload their goods to the platform and list SKU information, product availability, total volume and product descriptions. In line with the promise of privacy, the inventory owner can select specific restrictions as to which potential buyers can see the product.
For example, sellers can opt not to sell to online-only retailers, or exclude non-U.S. merchants from viewing their products. None of Ghost’s product appears on online searches.
Co-founded by Josh Kaplan and Dee Murthy, Ghost launched in beta in July to give brands and suppliers a chance to better protect their product and intellectual property (IP) alike.
While “a few hundred brands” have been onboarded, according to Kaplan, Ghost now has a 600-brand waitlist due to high demand. On the buyer side, Kaplan said in September that the company hoped to get “a few thousand” buyers on the platform within six months.
“We’re incredibly strict as to who we let into the platform on both sides,” Kaplan said. “We go through a very strict vetting process. We require the leases for all of the goods before they’re uploaded. I think that that helps us prevent inventory from getting into the wrong hands, and you don’t want it to be displayed on the internet for everybody to see. Liquidation is not something anybody wants to deal with, but everybody has to.”
Buyers can browse the goods that are available on the platform, bid on them in an auction-style setting, and the seller can determine which offer they like best. Unlike many auction platforms, Ghost isn’t designed to reward the highest bidder, Kaplan said.
“The highest price isn’t always the best option in liquidation,” Kaplan told Sourcing Journal. “Sometimes someone will want to take a lower price for a higher volume, or take a lower price to get a foot in the door at a bigger retailer that they don’t have a relationship with. They also may want to diversify the product outside of the U.S. and so they may want to take a lower price, because they have to include things like international shipping.”
In June, the company closed on a Series A equity round of $13 million, as well as another $7 million in debt. The investment was led by Union Square Ventures and included participation from Eniac Ventures, Human Capital and Flexport.
The marketplace came out of the all-to-common problem plaguing the retail supply chain over the past two years. Los Angeles-based fashion company Five Four Group (now knows as Menlo Club), which Murthy co-founded before recruiting Kaplan to his team, saw “tens of millions of dollars’ worth” of excess inventory stuck in shipping containers at West Coast ports when e-commerce demand shot through the roof at the peak of the Covid-19 pandemic.
“We got our jackets in the summer and our shorts in the winter,” Kaplan said. “We witnessed firsthand just how challenging it was to offload excess inventory, especially being digitally native brands.”
From there, Kaplan and Murthy sought out multiple options to offload the goods, but none were satisfactory. The first was discounting, but that was nixed early due to potential margin compression and brand erosion. The second alternative was to go directly to an off-price retailer like T.J.Maxx or Burlington.
“We found out the hard way that it takes months to get set up as a vendor, and even longer to get paid,” said Kaplan. “They didn’t know who we were. Without any real history of our brands, which we felt were pretty strong for the millennial consumer, there was really no willingness to pay for our product versus any other.”
The last option was partnering with a third-party wholesaler, but the challenge there was “there was no transparency on where the product was going, and we were getting paid pennies on the dollar.”
When none of the ideas played out, the two decided to go it alone and Ghost was born. While the idea for the platform was initially designed for smaller digital natives that don’t have relationships with the larger retailers, Kaplan says the platform is also valuable to more household names.
“There’s many brands that don’t have this sophistication—enormous brands that are using maybe just one wholesaler to take all their excess and they just don’t want to deal with it anymore,” said Kaplan. “Or maybe they have just one or two relationships with the biggest off-price retailers, but no other diversity, and that’s really where we’re winning. It’s basically about being that outlet for the biggest brands to diversify where that product goes.”
The co-founder also hopes that the platform will give the buyers better prices, since there aren’t as many middlemen involved as a typical merchandising process.
Kaplan and Murthy keep a tight lid on who is on the platform, even from investors and most of the company’s employees, with Kaplan only admitting to having “at least two or three of the biggest brands in the U.S.” on the platform.
He called the buyers a diverse set, largely in off-price and department stores. While Ghost started in apparel, it has since expanded to beauty, home goods, accessories and electronics.
Ghost took approximately 90 days to reach its first $1 million in total gross merchandise volume (GMV), and then 180 days to get to its first $1 million GMV day, Kaplan said.
With the latest funding round, the company has been able to scale up hiring. While Ghost had only eight employees before the Series A, that number increased to as many as 40 employees this fall. Kaplan expects the business to have “closer to 60” staff members by the end of 2022. The product and engineering team has tripled since the round.
“I think we’re going to see some really spectacular product improvements over the next year that we’re so excited about,” Kaplan said. “We’re really trying to better understand and invest in the customers’ experience, so that entails better integrations and access to services, and better partnerships that allow for us to really be the one-stop shop for liquidation. That’s the goal.”
This article appeared in SJ’s Inventory Report. To download the full report, click here.
