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Morningstar | Ritchie Brothers Grows Transaction Volume While Juggling Online and Live Channels

Ritchie Brothers is a leading auctioneer of heavy equipment, with $5 billion of annual gross transaction value (GTV). Started in 1958 in British Columbia, Canada, as a local auctioneer, the company now has 40 auction sites in 13 countries. While Ritchie Brothers is known for its unreserved live auctions that can transact over $200 million in a single event, it has grown its online presence with the acquisition of competitor IronPlanet in 2017. Ritchie Brothers has carved out an important niche by providing sellers of heavy equipment liquidity and certainty of transactions. Its live auctions don’t have minimum bids or reserve pricing, virtually guaranteeing that 99% of equipment at these events is sold. It also doesn’t allow sellers to bid on their own lots or reject maximum bids, ensuring that every lot sells to the highest bidder.An important element to Ritchie Brothers’ business model is its skilled sales staff that must interface with prospective sellers. It most cases, Ritchie Brothers offers no minimum price guarantees. At the same time, seller fees are not fixed and must be negotiated based on the attractiveness of equipment offered. So, Ritchie Brothers’ staff must convince sellers to transport their equipment to the firm's auction locations at the seller’s expense for an unknown sales price. Seller willingness to contract with Ritchie Brothers under such conditions is driven by two key factors. First, sales staff can provide historical price information to prospective sellers. Second, Ritchie Brothers' live auctions are widely followed due to current and historical marketing activities, providing sellers reasonable assurance that their equipment will get adequate visibility.While most sellers at Ritchie Brothers’ auctions shoulder all the transaction value risk, Ritchie Brothers’ staff can deviate from its core model given its access to historical pricing information. In approximately 8% of the transactions, it provides price guarantees. In another 8%, it purchases the equipment outright. This requires the firm to carefully manage how it works with sellers to avoid cannibalizing its core business of unreserved live auctions without guarantees.