So if we can just bump recovery by 10%, very high payoff in the second half of the year. So we did staff up a little bit there. We’re talking about taking Machinio to Asia, and that market, including China, is bigger than the U.S. and Europe combined, and that’s a 90% gross margin business. So fall through of incremental revenue there is like 55%, 60%. So we set up an office in China to expand classified listings and we provide financing now on Machinio for buyers of used equipment. We also rolled out financing for buyers of equipment on GovDeals. So we put some bets and some, I think, very rational investments into the model. In an inflationary environment, I would add, and we’ve digested that but I think we’ll get good leverage on those investments in the second half in the near term as we move through executing the strategy and the growth that’s out there.
Gary Prestopino: Are you using your balance sheet to finance? Or are you just facilitating a third-party transaction with a lender?
William Angrick: The latter. We’re not a direct lender nor do we want to be. But that referral to a broader ecosystem of financial institutions is very healthy for us and very complementary.
Operator: Our next question comes from the line of George Sutton with Craig-Hallum.
George Sutton: Bill, you made a very compelling comment at the beginning about a once-in-a-generation chance to consolidate. I believe you mentioned the retail portion of the space. Can you just go into more detail on what you were referring to there?
William Angrick: Yes. I think a marketplace dynamic benefits when supply and demand coalesce around that set of services and the buyer experience, and we’re seeing a lot of interest in our service. We’re getting additional awards and programs to use our services, and we’re doing a great job in a multi — what we call multichannel engagement of the buyer community. So from truckloads to pallets to direct consumer buyer demand coalescing onto our platform. I think that’s very valuable for the industry. And at the same time, I think a lot of smaller players that are being disintegrating essentially not being able to perform and scale and going out of business. So I think those dynamics happened during a cycle like a Fed tightening cycle.
We saw this back in 2008. And really, at the time we started our business in the dotcom mania and then crash. So those that stand tall and deliver on their promises that can deliver scalable marketplace experiences, which does take long-term investment. It’s not inexpensive. We have a great marketplace that has been enhanced. We’ve got a national distribution center network, really international, Canada and U.S. that now has both B2B and direct-to-consumer online sales channels and pre and post-sale logistics support, that’s very valuable to the industry. And I think the industry has been dealing with excess capacity for some period of time. We’ve had a lot of tightening of costs among retail players, reduction in warehouse footprint, reduction in corporate overhead.
And so we step into that and provide a turnkey one-stop solution to manage and sell both returns and excess inventory. So that’s, that’s setting the stage for what we believe is an opportunity to consolidate our position. And that’s the long-term North Star of any marketplace which you want to be that indispensable, very well-integrated solution with sellers and buyers, and that’s what we have in front of us.
George Sutton: And it sounds, if I’m hearing you correctly, you’re doing a fair bit of that just through natural competition. You also could end up becoming an acquirer of another entity in the space? Is that effectively what you’re in saying?
William Angrick: Yes. I mean, I think that’s — we get to see just about everything that’s available in this marketplace because people recognize our role. And I think we have a number of very good, healthy partnerships, but I would rule out M&A over the course of time.
George Sutton: Just another historical question putting this current environment into context. You’ve seen cyclical dynamics where retail buyers start to buy lower price items given the economic situation. Can you just give us any sort of context or sense of how long you see this dynamic playing out?
William Angrick: Well, it has been playing out over the last 12 months. And I think people generally have done a better job managing the personal balance sheet. But I think they are a little guarded, I think the lower end is probably disproportionately pulled back from buying goods and either due to higher cost of living and/or trying to build a buffer for a concern that maybe there’s a hard landing in 2024. So they’re not as — saying we’re about buying appliances or redoing an entire living room, entire outdoor entertainment space. And I think we’re seeing upper funnel activity in the results from companies like Lowe’s and Home Depot and Target and Walmart and even Amazon commentary yesterday suggests that there’s been a shift down in sort of average basket of consumer purchases.
And that’s fine. I mean whatever it is, we’ll be able to liquidate. It just means that the higher end of the market has softened, and that may mean that some retailers are probably long on some products that may not move as well during the holiday season. And on the other side of that, that’s an opportunity for Liquidity Services. But we’re very focused on being the most efficient cost-efficient and scalable provider, and we can sell whatever it comes through. But there’s no doubt been a tempering in consumer behavior around the purchase of goods.
Operator: Thank you. We have no further questions in the queue. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
