When the Covid-19 pandemic began, retailers were hurt by disruptions and delays in the supply chain. Ghost used this crisis to enter the market, showing retailers that their brands would not lose value if they placed excess product in secondary markets. 

The Beverly Grove-based company, which offers an exclusive business-to-business marketplace for merchants to sell surplus inventory, recently closed a $30 million series B funding round and has more than 1,000 sellers on its platform, including brands and retailers in apparel, footwear, beauty products and home goods. 

Ghost was founded in 2021, when co-founders Josh Kaplan and Dee Murthy saw the business they were running, a fashion holding company called Five Four Group, consistently suffer from surplus inventory issues caused by shipping delays. 

Retail fallacy

Kaplan, who serves as Ghost’s co-chief executive alongside Murthy, said that one of the biggest fallacies in consumer retail is that products in high demand can sell only at full price. He said that Ghost’s platform is becoming increasingly relevant as brands grow more comfortable with their products being sold at a lower price points, such as at TJ Maxx and Nordstrom Rack or even in retail subscription boxes like Menlo Club or Stitch Fix.

“I think many brands like to believe that their pricing integrity is predicated on being sold at full price … 365 days a year,” Kaplan said. “The reality is the best brands in the world have excess inventory … just because you get Chanel at a retail store doesn’t mean there’s any difference in demand from the person that had to buy it on the secondary market.”

Because selling inventory into secondary markets is still a delicate matter for some companies, Ghost emphasizes its discretion and does not disclose its brand clients. Sellers can restrict who can see the inventory being liquidated, such as competitors, and prevent listings from showing up in Google search results. 

Kaplan said that some brands, such as Hermès International S.A. or Louis Vuitton Malletier, have built their business on exclusivity, so putting products on sale is not their strategy. He added that – especially since “Americans love a deal” – many companies are realizing that placing products in off-price marketplaces has enormous value to both the brand and consumer and that the strategy is helping companies capture new demand from customers that can’t or won’t pay full price. Excess inventory sold on Ghost is most commonly purchased by off-price department stores like TJ Maxx. Kaplan said subscription box companies are becoming less-frequent purchasers, as the subscription-boxes trend has softened.

“More and more, our sellers are increasing the amount that they sell, not decreasing, because they’re realizing that this is actually a net-positive moment for both,” Kaplan said. “(Brands) get higher recovery rates for the product that they don’t have distribution for … they can test new markets and have better cash-conversion cycles. If you can get that liquidity faster, you can invest into new, better-performing inventory.”

Timeliness

Surplus inventory, or that which can’t be sold through traditional channels such as a brand’s official website, is also partly defined by a timeliness aspect. Kaplan said that every brand owner has their own definition but commonly set a timeline, such as eight weeks, and assume that if a product on the shelf doesn’t sell in that window, the probability of selling it at full price diminishes significantly. 

Chris Tang, a professor at the UCLA Anderson School of Management, said that excess inventory is a consistent problem for brands, an issue caused in part by variable customer demand, market dynamics, shipping delays and how early retailers must order inventory to receive it on time. He said that retailers don’t always want to sell liquidated items in stores due to the risk of that sale cannibalizing business for full-price items. With Ghost being business-to-business rather than business-to-consumer, Tang said its offer of a discrete avenue to dispose of surplus inventory is a valuable proposition.

“This kind of marketplace can actually allow sellers to get rid of the inventory even earlier, rather than after the fact (for) maybe pennies on the dollar,” Tang said. “If the seller can get rid the inventory … before the end of the season when they liquidate all the inventory … they can get rid of the excess inventory ahead of time for more money before it becomes obsolete.”

Kaplan said that there are rare moments where a company’s relationship to its customers is attached to the prices it upholds, and a lack of transparency around putting items on secondary markets could hurt that relationship.

“But, more often than not, customers understand the retail lifecycle and they understand that certain products are going to be sold on discount and certain products are going to get liquidated,” Kaplan said. 

Ghost offers education and advice to sellers on how to photograph and price their listings and connects them with freight booking and insurance. Purchasers can search and shop through Ghost’s marketplace and make offers on inventory, with selling brands ultimately choosing which offers to accept. 

No minimum

While Ghost doesn’t set a minimum for the number of units sold in a single transaction, Kaplan said that units are sold in wholesale bulk numbers usually in the tens of thousands. Ghost charges the seller a transaction fee, the amount of which it would not disclose, and offers financing services if a seller needs payment immediately. 

Tang said that one of the biggest problems with the amount of goods available for consumption is that consumption doesn’t always meet the supply that is produced. He said that, since Ghost has access to extensive data about sales and excess inventory, he’d like to see the company offer advice to brands on which products they should scale back on.

“Because they observe all the sellers, (Ghost) knows which particular categories, which particular products, are really way overproduced,” Tang said. “They could actually provide additional value to the buyer, not just in terms of helping them to get rid of excessive inventory but maybe also helping going forward to reduce excessive inventory.”

With its new capital, Ghost is investing heavily into hiring more engineers and web designers to expand the quality of its marketplace. Like many companies, it’s also putting capital toward artificial intelligence development. Kaplan said Ghost is working to strengthen its platform with the hopes of going public in the next five years, and someday situating itself as a competitor to Amazon.com Inc. and Alibaba Holdings Group Ltd.

While delays in the supply chain and shipping market continue, Kaplan said that Ghost isn’t just for brands that are impacted by shipping delays. The company wants to step in as a leader in the push for retailers, particularly mid-price ones, to explore the benefits of unloading inventory into secondary markets.

“We believe that predicting demand is akin to predicting the weather,” Kaplan said. “It is so challenging because of how long the lead times are and how fickle the customer is, and we just don’t know what the consumer is going to want a year from now. It would be irresponsible for us to say we are 100% certain, and so we believe as long as there is a consumer with free will, there will be a discrepancy between what’s manufactured and what’s sold.”