Will EBay's Drop-Shops Transform Retailing and Consumer Lust?

Feb. 9 (Bloomberg) — Not long ago, I found myself lusting after an iPod. So I clicked onto EBay Inc.’s Web site and placed a bid.

That act made me a participant in what Daniel Nissanoff calls the coming “auction culture” in “FutureShop” (Penguin, 246 pages, $24.95), an intriguing though not always convincing look at where U.S. retailing may be heading.

As Nissanoff sees it, U.S. consumers are adopting “a new lifestyle,” one based on “temporary ownership and marked by the continuous replacement of our personal possessions.”

Tired of that $820 Louis Vuitton bag? Take it to your local EBay drop-shop, a storefront that specializes in putting goods on the block for the Internet auctioneer. The same goes for your MP3 player, cell phone and digital camera.

Nissanoff believes manufacturers will eventually become partners in the trade-up game: “Cell-phone companies will automatically send us the newest, most-high-tech mobile phone every six months.”

The move from a culture of accumulation to one of temporary ownership, Nissanoff says, will underpin a societal shift in which many consumers will gain access to luxury goods they once couldn’t afford.

Overflowing With Goods

Nissanoff’s argument makes some sense. U.S. households overflow with an average $2,200 of unused yet valuable, resalable goods, he says. And EBay now ranks among the country’s top retailers — No. 11 in terms of sales in 2004. The success of “pre-owned” vehicles and the continued popularity of auto leasing seem to presage a broadening auction culture.

Nissanoff points to the auxiliary services springing up to feed EBay and other online auction sites. One is a company the author himself founded: Portero, which handles online sales of pre-owned luxury items outside the EBay sphere.

Other auction “facilitators” are coming, and they’ll help previously unmotivated consumers to sell their goods and ensure they get paid. Established businesses, including Circuit City Stores Inc. and Hewlett-Packard Co., are already setting up trade-in and trade-up programs, Nissanoff says.

Protecting against counterfeit goods remains a major issue. Tiffany & Co. has sued EBay, charging the online company with facilitating the trade of fake Tiffany products. If Tiffany prevails, EBay may be forced to make fundamental changes in its policy of not directly policing the goods on its system.

Liquidity Challenge

Another challenge lies in making online auctions more liquid and efficient. As things stand, EBay prices on iPods made by Apple Computer Inc. are all over the map, running from as little as about $135 to $202 for the popular new Nano. Secondary markets will flourish only if sales volumes increase and prices start moving in narrower bands, Nissanoff says.

EBay “must offer broader liquidity if it is going to reach the next level of economic efficiency that will drive auction culture,” Nissanoff writes.

The question is, how? EBay is a sensation with buyers. Yet only about 5 percent of them have ever sold anything on the site, Nissanoff writes. The shift to auction culture “won’t happen until that balances out.”

For that to happen, the author says, consumers and companies alike will need to catch what he called “auction religion.” If luxury-goods companies start allowing trade-ins, a new relationship will develop between consumers and products, he says. As consumers get to sample more products, they will become “true believers” in certain brands.

Trading Up

What’s more, trade-in and upgrade programs will actually help manufacturers control secondary markets, because customers will become so locked into trading up that they will turn less and less to outfits like EBay, Nissanoff writes.

Will any of this really come to pass?

In truth, Nissanoff tends to forget a simple reality: Americans are couch potatoes. It’s hard to picture large numbers of U.S. consumers happily hauling their pre-owned consumer products down to the local drop shop — especially when there’s no guarantee EBay will buy it when you get there.

I recently failed to sell my old exercise mini stepper at the EBay drop shop in my corner of Brooklyn, in New York City. A manager turned me down flat because the stepper weighed so much that shipping costs would have deeply into any potential profit.

As for the iPod I craved, my EBay bid flopped. It seems that there are millions of people lusting after the gizmo. Sometimes it’s just easier to buy new.

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