How the Ritchie brothers turned a business headache into a massive opportunity
B.C. company has grown into the world's largest industrial equipment auctioneer
Ritchie Bros. Auctioneers is a global corporation and a Canadian business success story, but it started off as a used furniture shop with a big problem: The bank had called in a $2,000 loan.
It was the 1950s and the three Ritchie brothers — Ken, Dave and John — had taken over the family furniture store in Kelowna, B.C. Short on cash and in a bind, they took someone's suggestion to hold an auction to sell surplus tables and chairs.
The following Saturday, they rented the local Scout hall and sold enough furniture to keep the bankers at bay. The sale was a revelation for the brothers. The auction convinced them to move on from the O.K. Used Furniture Store and try their hand at new line of work.
The brothers stumbled into the auction industry by circumstance, but the seeds were sown for continued success.
Ritchie Bros. Auctioneers has grown into the world's largest industrial equipment auctioneer with more than 40 locations in 20 different countries.
Still headquartered in B.C., the company sold about $4.5 billion in equipment in 2017.
This year, Ritchie will mark its 60th anniversary since its humble beginnings in the Okanagan Valley. The journey includes auctioning off more than 20 hectares of new and used equipment accumulated during the cleanup of the Exxon Valdez oil spill in Alaska during the 1990s. Its auctioneers were also selected for the sale of the equipment used in the building of the Confederation Bridge in Prince Edward Island.
The company has undergone global expansion and sales success, but it has little time to celebrate anniversaries. It is in an industry in transformation and Ritchie faces a plethora of competitors and the challenges of shifting from a bricks-and-mortar auction house into a modern tech company.
On the second floor of Ritchie's auction house in Edmonton, 82-year-old Dave Ritchie sits in a small office playing cribbage with a longtime customer who has bought tens of millions of dollars worth of equipment at the company's auctions through the years.
As Dave deals another hand of cards, you can still hear the patter of auctioneers in three different theatres below selling dozens of skid-steers, excavators, and ATVs, to name a few of the 9,500 items to be sold during the five-day auction.
Dave was regarded as a visionary and was the company's first chairman after it went public in 1998. Even though he retired in 2006, he still seems at home at the auction yard with customers.
"I have to let him win," said Dave, with a laugh.
The sale near Edmonton this past April represents the backbone of the company, as well as the evolution of the enterprise. Thousands of people flocked to the site for the sale to see the equipment first hand and be in the crowd for when the auctioneer starts calling numbers. In total, more than $200 million of equipment was sold, but the majority of money was spent by online bidders in Canada, the United States and around the world.
"Customers, they buy shoes online. They can buy bulldozers online too," said Brian Glenn, senior vice president of sales in Canada for Ritchie.
Glenn describes live auctions as mini-Super Bowls, considering the energy level at the events and the sheer size of the facility, crowds and equipment. The company needs 250 workers during the Edmonton sale for security, shuttles, catering and other roles.
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The traditional auction is still valuable for Ritchie, but increasingly, the focus is online.
"In the 20 years that I've worked here, we've gone through monumental change," said Glenn, mentioning how technology plays more of a role in every facet of the company down to how equipment is inspected in the field.
Becoming a tech firm
Ritchie acquired IronPlanet in 2017 for $758 million.
The investment community has noticed the reshaping of the company. Ritchie had developed its own online services, but analysts say they were making fewer inroads with customers as compared to IronPlanet.
"IronPlanet catapulted Ritchie into a leadership position in the online industrial equipment auction space, providing Ritchie with enhanced digital capabilities and a scalable platform to drive long-term growth," wrote RBC Capital Markets analyst Derek Spronck in an April report on the company.
The research highlights some of the challenges Ritchie faces. The company has little control over what it sells. Ritchie doesn't own the equipment, so its fortunes often follow the construction cycle. During slow periods, plenty of equipment usually hits the market, but prices are lower. Conversely, during robust construction seasons, such as in the U.S. right now, prices for equipment are higher, but there is often less for sale and it's usually older, since companies are busy and want to keep the machinery they have to complete projects.
Ritchie also faces many competitors from other traditional auctioneers and unconventional sources including new online startups and listing companies like Craigslist and Kijiji.
"The market is highly fragmented with over 200 competitors," said the RBC report.
The online startups include Fuelled, a Calgary-based online marketplace for oil and gas equipment. Its clients include Encana and Obsidian energy.
"It's Amazon oilfield," said Raj Singh, president and founder of the tech company. "We're happy to take care of all of the logistics to make it feel as much as buying on Amazon as possible."
While Ritchie sells a wide range of equipment for construction, agriculture, forestry and other sectors, Fuelled focuses on its niche of energy equipment.
For instance, it recently sold a nitrogen vaporization trailer listed for $350,000 from a seller in Floresville, Texas, to a buyer who was 4,000 km away.
"A lot of the equipment we sell is tied into gas plants or oil batteries that are currently operating. Fuelled takes on that obligation to get the equipment off the site and often times, transportation to where it is going in Canada or the U.S.," said Singh.
The abundance of competition shows how fierce the industry is, but also how much room there is to grow for a company like Ritchie, not only in North America, but around the globe.
Ritchie already has auction sites in countries such as Australia, the UAE and the Netherlands.
"According to management, the global (annual) used equipment market is valued at more than $300 billion, including an opportunity in the U.S. of over $50 billion. This provides Ritchie with significant market share opportunities, with the company's GTV (Gross Transaction Value) in 2017 of $4.5 billion, representing just 1.5 per cent of the estimated global used equipment market," said the RBC report.
As Ritchie marks six decades since that first used furniture sale by the three brothers in Kelowna, further growth is a priority as the company has made several acquisitions in recent years. For Glenn, the Ritchie executive, future expansion will depend on the company keeping on top of its ever-changing industry with technology advances and evolving needs of the buying public.
"I wouldn't say the year I started that we were a one-trick pony, but we were probably a two- or three- trick pony," he said. "Now, we've got so many channels and opportunities to provide that we didn't have before."