November 15, 2010 (Vol. 30, No. 20)

Equipment Resellers Thriving as Industry Consolidation Creates Redundancies

Among the plethora of life science tool companies, there exists a market for used and refurbished equipment that follows a very different business model and contains unique dynamics compared with new product sales. Nevertheless, it is a quickly growing market in terms of competition, customers, and revenue.

The number of competitors within the market has grown considerably over the last five years with few barriers to market entry. While the number of used equipment suppliers continues to increase, the rapidly growing number of customers buying used products has compensated for this intensified competition.

The ebb and flow of laboratories shutting down and starting up have helped the market gain customers and awareness. Those researchers that discover they can sell their used products to resellers are more likely to return to them as customers, helping to build a loyal customer base.

An estimated $2 billion market globally, used laboratory equipment is expected to experience double-digit growth in 2010 following a 2009 plummet due to the extreme economic recession. With the awareness of refurbished and used equipment options growing, the market is expected to maintain healthy growth over the next five years.

The used equipment market relies on different types of researchers to both stock its inventory and purchase products. Most used equipment suppliers boast savings of 40–75% off new product prices, so they rely on budget-conscientious researchers as customers. To acquire inventory, vendors depend either on laboratories shutting down or researchers upgrading to the latest technology.

For instruments whose technology changes quickly, one to five years old is the best range for re-selling. This category includes high-end analytical instruments such as sequencers, mass spectrometers, and various kinds of microscopes, to name a few. To obtain these types of products for resell, suppliers often rely on early-adopters to quickly buy the newest technology and liquidate their older instruments.

These older instruments may not contain cutting-edge technology or novel features, but they continue to be functional for laboratories that do not necessarily need or cannot afford the latest product. For more basic equipment or laboratory furniture with little recent technology development, used equipment providers sell products that are well over five years old. This category includes products such as hoods, fumes, shakers, freezers, and other low-cost or nonanalytical equipment. These types of products rely on a customer base content with reliable, practical, workhorse equipment.

The business model of laboratory equipment resellers makes it an attractive market for new entries. This market is expected to grow in the number of competitors over the next several years as several factors contribute to a simple entry process. The company does not need manufacturing capabilities or scientific expertise in-house, keeping spending on labor and facilities extremely low. Furthermore, the trend of consolidation among pharmaceutical, biotechnology, diagnostics, and life science companies continues to reduce the number of laboratories, as mergers often necessitate triaging vital R&D from superfluous or duplicate labs.

Laboratory closures create a surplus of equipment that can either collect dust in storage or, more intelligently, can be sold to a reseller for cash. Therefore, once a start-up reseller gains brand awareness, the trend of consolidation will help make the accumulation of used equipment rather straightforward. Companies that offer refurbished instruments collect this used equipment, refurbish it through qualified service technicians, and resell it often with limited warranties. Other vendors sell used instruments “as is,” without conducting any services.

Still other vendors choose to take a lesser role in the reselling process, only serving as a means for buyers and sellers to connect. Such vendors serve as Internet marketplaces for laboratory products but do not buy or sell any of the equipment that changes hands. These companies function as auction sites and posting sites similar to newspaper classifieds sections.

These companies generate a portion of their revenue by charging sellers for posting ads. This rather hands-off approach creates a rapid and inexpensive start-up process, allowing for easy entry into the market. Several new vendors of this kind are likely to enter the market over the next few years.

While the used laboratory equipment market has existed for decades in various forms, it has more recently emerged with a much larger presence in the life science  tools market. With customer awareness and acceptance growing, the market is expected to maintain strong growth over the next several years. Furthermore, with attractive, simple business model options, competition is likely to increase with new companies finding few barriers to entry.  With such an outlook, new product vendors should find ways to take advantage of the trend, rather than fight it.

Christianne Bird ([email protected]) is an industry analyst, drug discovery technologies at Frost & Sullivan.

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