eBay’s Savvy Move to Get Fashionable

by Jonathan Berr | July 20, 2012 9:15 am

eBay’s Savvy Move to Get Fashionable

Remember when eBay (NASDAQ:EBAY[1]) was synonymous with Beanie Babies and subpar merchandise? The largest online auction site is betting those days are a distant memory.

Earlier this week, the San Jose, Calif., company announced that[2] it had joined forces with seven designers — Billy Reid, Chris Benz, Fallon, Jonathan Adler, Ruffian, Steven Alan and Tibi  — to create “an original, limited-edition gift collection of men’s and women’s apparel, jewelry, travel and electronics accessories and home décor” that can be purchased only on eBay. The merchandise will be available starting Nov. 12 at prices from $50 to $100, including free shipping.

Investors, even those who are unsure about whether to wear white shoes after Labor Day, should be heartened by the news.

Though this particular deal may not be a huge moneymaker, it’s a step in the right direction because it gives consumers another reason to shop at eBay during the critical holiday season. Let’s hope that it leads to more deals like it. Creating exclusive merchandise will attract more shoppers. It’s worked for Etsy, the online market for handcrafted goods, and bricks-and-mortar stores have done it for years.

eBay, which first made its name as a marketplace for collectibles, has tried to sell itself as a destination for newer merchandise in recent years, a strategy that appears to be paying off. About 70% of goods now sold on the site are new.

This success didn’t come easily, though. The fashion industry complained bitterly for years that eBay failed to do enough to stop the sale of counterfeit merchandise. Smaller sellers also complained that it was trying to squeeze them out. But now eBay seems to have found its niche.

“Our sweet spot is last season’s new items,” CEO John Donahue told Bloomberg News[3]. “In consumer electronics, people are coming out with a new model every quarter. In clothing, the entire inventory turns over every quarter. In another month, Nordstrom doesn’t want bathing suits in their stores. EBay’s a great place to get rid of summer inventory.”

Though the media was filled for years with speculation of eBay’s demise, the company seems stronger than ever, thanks to its acquisitions of PayPal and GSI Commerce. eBay this week reported better-than-expected quarterly results.

Of particular note was the MarketPlaces business[4], which saw a 16% increase in gross merchandise volume, its best performance since 2006. Net revenue at the business jumped 9% to $1.84 billion. PayPal, which has been a cash cow for years, had a strong quarter as well with payment volumes surging 20% year-over-year.

Though the stock is trading at near its 52-week average price target of $44.38, it has more room to run. For one thing, according to eMarketer, e-commerce retail sales are expected to surge 15.4% to $224.2 billion in 2012, fueled by double-digit gains in apparel and accessories,[5] key eBay markets.

eBay also continues to attract bargain-hunters, who’ll be out in droves this holiday season if the economic recovery continues to falter. And it will benefit from the growth of mobile payments. PayPal and MarketPlaces will each handle $10 billion in mobile payments this year, well above earlier estimates, according to the company[6]. That’s a long way from Beanie Babies.

Jonathan Berr does not own shares of stocks mentioned here. Follow him on Twitter @jdberr.

Endnotes:
  1. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  2. company announced that: http://www.ebayinc.com/content/press_release/20120717005374
  3. Bloomberg News: http://www.bloomberg.com/news/2012-07-18/ebay-templates.html
  4. MarketPlaces business: http://www.ebayinc.com/content/press_release/20120718006665
  5. apparel and accessories,: http://www.emarketer.com/PressRelease.aspx?R=1008956
  6. according to the company: http://seekingalpha.com/article/733231-ebay-earnings-impress-on-marketplaces-growth-paypal-s-surge

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