February 1, 2014 by Patrick Callan
From flights to event tickets, to books and office supplies, making purchases online has become the norm. And it’s not only the travel, retail, and goods and services industries that are cashing Buying construction equipment, whose prices tags can command up to seven figures, is also gaining some serious traction in online sales.
A Canada Post analysis of online shopping trends reveals that Canadians spend more time online than any other country – 45.6 hours per month – which amounted to $22.3 billion spent on retail ecommerce in 2012.
Sue McGregor, managing director of Canada for IronPlanet, a global online marketplace for used heavy construction equipment established in 1999, says just like everything else buying construction equipment online, both new and used, is picking up steam. IronPlanet has seen an 86 per cent increase in registrations over the past five years.
“What we’re seeing in Canada is year over year double digit growth in both the number of our registered users and items they bought over the last five years,” she says. “It’s a pretty steady trend that we’re seeing.”
And despite the baby boomer laden Canadian construction industry – who didn’t grow up with the Internet and online shopping like their younger counterparts, the millenials – many from the older generations are quickly adapting, says McGregor.
“The millenials get it. They were raised with computers; it’s normal for them to buy online,” she says. “But we are seeing a lot of baby boomers converting into buying online, especially once they have made their first purchase and it is a positive experience.”
Peter Blake, CEO of Ritchie Bros., Canada’s leading online auction website for construction equipment, echoes McGregor’s remarks.
“You’d be surprised how nimble people can be when the tool is easy to use and it helps them in their world to do what they need to do,” he says.
Convenience and time-savings are key drivers when it comes to buying construction equipment online. “They don’t have to travel and they can shop any time they want,” she McGregor. “And it’s becoming more competitive. Not having to have that overhead or the yards and the brick and mortar buildings to conduct a sale.”
Since the Canadian population is most dense around major urban centres and because many construction projects happen in very remote parts of the country, the costs of shipping and researching new equipment can get pricey quick.
Online buying is a viable option to help reduce those costs. It also makes a significant difference when it comes time to off-load old equipment, too.
“Selling online where they don’t have to move it and incur big transport costs to get it to sale is very appealing to people and I think that’s why we’re seeing the increased demand to sell online,” says McGregor.
Meeting customers’ needs
Like IronPlanet, Ritchie Bros. has also witnessed a surge in online buying activity in recent years. Following a slow start out of the gates back in 2002 when the company first began offering the service, there has been a steady increase in online sales year after year, says Blake.
“It started off slow and now it’s become a really significant part of our business in terms of the ability to offer that service to customers,” he says, adding about 37 per cent of Ritchie Bros.’ total sales in 2013 came from online bidders.
He attributes a large portion of that success to giving sellers more control over the price and process of selling. “When we looked at the market we discovered about half the people really wanted more control,” he says.
Blake says not everyone feels comfortable participating in Ritchie Bros.’ traditional unreserved auctions – where everything sells to the highest bidder on auction day – so there was a need to provide an alternative. In 2013, the company launched a website called Equipment One as a secure online marketplace designed for people who prefer to buy and sell equipment privately.
Whether using Equipment One or placing a bid online during one of Ritchie Bros.’ auctions, having the information available online can help speed up the process by providing things like pictures, inspection reports, and data, which allows people to do their research well in advance of the auction day, says Blake.
“The vast majority of people that end up buying online still have gone and done the inspection, they just don’t necessarily want to show up on auction days,” he says. “They’ll come upwards of seven days prior to the sale, do their homework, and find the three or four they want to bid on and bid accordingly online.”
The devil’s in the details
Bidding on a piece of construction equipment, whether new or used, is no small potatoes. Buyers are likely to invest tens of thousands, or even millions, of dollars on any given purchase or combination of purchases.
And with that comes a certain amount of risk, which company’s like IronPlanet and Ritchie Bros. strive to remove from the equation by offering safeguards to ensure the quality of the equipment. This is primarily done through the inspection process.
When a potential seller approaches IronPlanet, one of their territory managers will arrange to see the equipment and then evaluate it based on a number of factors such as condition, year, make, model, and number of hours logged.
“They’ll go through the piece, start it, run it, check functionality of every aspect, take upwards of 100 photographs of each area, rate each area for condition and functionality, and pull fluid samples and analyze them,” says McGregor of the inspection process which can take up to eight hours. “We post the whole inspection report on the website. They actually get more information than you would at a physical auction when you see it roll across a ramp because we’re going right through the whole piece in detail.”
Ritchie Bros. also conducts its own inspections on every piece of equipment that shows up at their gates looking to be sold. The inspections are done free of charge and are then posted online as well.
Blake says although the inspection process is an invaluable reference guide for potential buyers, it should not be used as a substitute for an actual physical inspection. Instead, the two should be used in tandem.
“You can’t ignore the fact that condition is everything,” he says, especially when it comes to pieces of equipment with 5,000 to 6,000 hours under their belt. “You can evaluate certain things based on photos and reports but buying sight unseen is a very risky thing.”
Clearing the hurdles
Instilling the confidence that what you see online is what you’re going to get remains a significant challenge, says McGregor, which is why IronPlanet guarantees the accuracy of its inspection report.
“We’re saying it’s going to be in the condition that we’ve said it’s going to be in, and if one of our guys missed something, or we misrepresented something, there is a dispute procedure team that will go through and look at the data and rectify the situation,” she says.
From a seller’s point of view, the biggest concerns are the financial transaction and the transfer of the equipment from the seller to the buyer, she says.
“We’ve got people in all those areas to support that transaction – whether it’s pickup support, logistics or finance – and a process laid out so that the seller knows we have received the funds in trust and they can release the piece to the buyer,” she says. “There has to be a real solid process
around that transition, from seller to buyer, and also to know that the person’s not going to default on payment.”
From the buyer side, Blake says it is always buyer beware, and despite the guaranteed inspection reports, you still need to read the fine print. “You want to make sure that you are dealing with an organization that you know is going to deliver, and that whatever you are buying is the same thing you get in the end,” he says. “Condition is very much a driver of value, so deal with a reputable company and use a well-known auction site.”
Brave new online buying world?
Just as easily as Canadians can arrange a vacation half way across the world with the click of a button, so too can the sale of heavy-duty construction equipment take place from opposite ends of the globe.
At any given Ritchie Bros. auction about 50 per cent of the items sold are destined to leave the province, state or country that the auction is in. “It’s very much a global market,” says Blake, noting Dubai as an example of a market that is starting to be more active. “The comfort level of people buying from far flung and global in our environment is very good and very strong.”
However, he reiterates that online buying should still be used with caution. Even those buying from places like Dubai will typically have a local, trusted contact stop by an auction to physically inspect the piece before making the final purchase.
“The online world is a tool to help people gain comfort with what they are buying,” he says. “It’s important you provide choice: the choice of buying it online or seeing it on-site and inspecting it is important.”
McGregor agrees that providing an online service for buying construction equipment online is essential and that there will always be a place for human interaction and some good old fashion tire kicking before finalizing the sale.
“These are big ticket items. We’ve sold pieces of equipment for over $1 million,” she says. “There still has to be somebody to get out there and walk them through the process to get them comfortable to understand how it’s going to work and to mitigate any fears or risks they may have.”
How to buy:
*Financing options available (see websites)
By the Numbers:
IronPlanet gains in 2013