One year on since the launch of its fashion Outlet, eBay has emerged as an unlikely ally in offloading end-of-line and clearance stock. Charlotte Hardie reports

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What a difference three years can make. Even as recently as 2008, the now-indomitable eBay was seen as a scourge on retailers’ landscape. The online behemoth encouraged people to buy second-hand instead of new off the shelf, it was the place where retailers’ stolen goods might wind up for resale, and it was the source of retailers’ counterfeit angst. In July 2008, luxury jeweller Tiffany lost a four-year legal battle after arguing that the online giant should be held liable for the sale of fake jewellery on its site. Put simply, retailers didn’t like eBay.

Fast forward to today, and that perception has changed as many retailers have discovered that eBay does in fact provide them with some business benefits. Retailers are finding that by opening outlet destination pages on the site, they can shift clearance stock quickly and effectively.

This week marks a year since the launch of eBay’s designated fashion Outlet - part of its concerted effort to shift the focus away from it being an auction site in recent years towards that of a fixed-price retailer.

Nicholas Illidge, vice-president of enterprise sales for eBay Marketplaces Europe, says: “This is our store on eBay and we’ve proudly embraced it. We’ve deliberately tried to understand retailers’ pain points and we know that clearance is not a success for them. This is proving our ability to be a solution for retailers.” And, with a website that attracts 17.7 million unique users every month, “the economics are compelling”, he argues.

Clearance via eBay

  • The retailer has control over clearance. EBay provides the IT platform and the retailer populates it with SKUs – brand, pricing and fulfilment is controlled by the retailer.
  • When a retailer signs up, they are assigned a dedicated account manager. Each works to help the retailer select the right products and sell them at the right price to ensure profit margins are met, while ensuring the best customer experience is delivered.
  • EBay then manages the day-to-day trading activities on the site. EBay Marketplaces Europe vice-president of enterprise sales Nicholas Illidge says: “We know better than anyone else what sells on eBay and we work hard with the retailers to make sure they put the right sort of inventory on the site that will appeal to eBay users at a price that will sell”
  • A ‘Daily Deal’ arrangement enables retailers to advertise specific products on the outlet site home page and therefore shift large volumes of a particular product

Out with the old…

Several years ago, the idea of retailers partnering with eBay might have sounded preposterous. But talking to retailers about their experiences of selling clearance goods on the site clarifies the multiple advantages. Shoe retailer Office started selling its surplus stock in this way in the last quarter of 2009, and joined the official Outlet site when it launched. Office ecommerce channel manager Al Gerrie says he has been an online seller on eBay for nine years, when he started his own small retail business. “I’ve seen it evolve,” he says. “It’s fast becoming a fashion destination and we were keen to target them.”

One of most fundamental and obvious benefits is the revenue it generates. Illidge says: “This is incremental growth. These are sales that are adding to the bottom line.” The sheer volume of people visiting eBay’s site means it shifts end-of-line stock quickly and effectively and often at profit - however small that profit might be. Many other clearance options, such as clearance stores, involve shifting stock at cost at best. Illidge says Schuh is one example of a retailer that has been able to significantly improve its recovery rates from excess stock via selling on eBay, having improved its overall recovery rate by 15%.

Argos started clearing product on eBay around four years ago, and set up its own dedicated eBay outlet site seven months ago. Business development director Adrian Burleton says that in terms of the amount of product Argos used to clear via other clearance methods (see box), “we’ve transformed the relative profitability of that product”. EBay’s ‘Daily Deal’ offer with retailers guarantees high visibility to site visitors and is particularly effective at shifting large volumes of a certain product. Illidge says some retailers are able to sell as many as 10,000 of one product in one day by employing this tactic. Burleton says Argos can sell more of one product in one day on eBay than it would in its entire store network throughout the country in a week. Meanwhile, Gerrie says it has cleared “in excess of 1,000 pairs of shoes in one day several times” through using the daily deal: “That’s the level of exposure it brings.”

Saving all year round

Cost savings that eBay affords retailers is another advantage. Office has some clearance stores, and traditionally it would have stored end-of-line products in a warehouse until the appropriate time of year for it to be sold. But eBay provides an all-year-round selling option, explains Gerrie. Its international customers mean that seasonality is no longer an issue, and because it can shift stock quicker it no longer has the cost of storing goods and moving them around.

Burleton agrees that cost savings have been considerable. Argos runs three Clearance Bargains stores, but because its volume of surplus stock is increasing because of direct sourcing (see box overleaf), it has used eBay as an alternative to opening more clearance stores. “We would probably need two more clearance stores at the moment if we didn’t use eBay,” he explains. “The costs associated with it are much less, and we get a much better level of return.”

Illidge says another upside is that eBay is “embedded in the English language”. He adds: “One of the great things about it is the community.” Thus, retailers are being exposed to new types of customer in this vast and avid online shopping community. Gerrie says Office has acquired a 50,000-strong new customer base that it didn’t have before - some live in areas where it doesn’t have stores and data that eBay has shared also show it is attracting an older demographic on eBay that it does in its stores. Furthermore, he adds, Office is known on the high street largelyfor its women’s ranges. On eBay it is witnessing stronger sales in its men’s and sports categories.

Verdict consulting director Neil Saunders says selling clearance goods via dedicated channels on eBay also helps maintain a clear brand proposition. “One advantage for retailers is that brand eBay is very successful. Yes, retailers could do it alone, but it’s complicated and confusing for customers.” Burleton agrees: “Our shoppers on eBay get the fact it’s end-of-line product, still good quality and generally three months out of date.”

Despite eBay’s evolving reputation in the retail world, there are caveats. Among them is handling increased number of customer queries. Gerrie adds that many will be from international customers and in a foreign language. “It’s quite labour intensive in terms of the questions we get from buyers,” says Gerrie. Burleton adds: “You have to remember that eBay is working with a number of people and has a development agenda for a lot of different retailers. They’ve been dynamic and flexible, but decision making isn’t all that quick.”

Some Retailers selling clearance goods on eBay

Argos Barratts Bertie Dune Figleaves Jigsaw Kaliko Kookai LK Bennett Littlewoods Office Schuh Soletrader Superdry Tesco

Profitable partnerships

Ultimately, retailers are also handing over a degree of control. Saunders says: “There’s probably a degree of concern from some retailers because eBay is a dominant name. It’s a very visible brand to partner with. If anything were to happen - a data leak for example - it could have a negative impact on your brand.”

And while it’s a profitable partnership, it’s not without its investment demands, either. In addition to investing in a dedicated eBay customer support team to manage such queries, Office has also relocated one of its warehouses to accommodate its eBay designated stock and staff, and invested in an inventory management tool called e-seller pro.

So what does the future hold for retailers’ relationship with eBay? Illidge says it has retailers who are looking to sell in-season items and Argos, for one, is experimenting with putting products on to the site earlier. Traditionally, it sold the stock on its eBay outlet site that was at the end of its lifecycle, but is considering whether it can sell product that might not necessarily even be on Sale yet. “If we think we’re going to have high levels of stock on certain ranges we can send it to eBay earlier, sometimes at the same price as in catalogue,” says Burleton.

Saunders says the shaky economic climate could make the eBay trading model particularly advantageous: “Because of the type of trading environment we’re in, some products just won’t hit with the consumer and there will be excess stock. It’s an attractive way of clearing that without depleting margins.” Generally, says Saunders, the way eBay has transformed its reputation in recent years is impressive. “It’s now a credible portal for retail goods and it’s managed to diversify successfully. It’s evolved into a much more professional proposition with a more traditional retail operation.”

The price is right

It is also employing technologies on its fashion Outlet that shoppers might find on high street retailers’ ecommerce sites - such as a visual search function, which allows browsers to find similar looking items of clothing.

Will eBay ever be viewed as anything more than a discount retail channel by retailers and shoppers alike? Burleton doubts it. The eBay customer is, he says, incredibly price sensitive. “Price will drive a lot of what you sell and don’t sell, and if people think that the future for eBay is going to be about range and choice, that’s going to be difficult to overcome.”

But the online giant nevertheless plays a central role in many major retailers’ multichannel operations, and eBay expects its 100 biggest sellers will account for $275m of its income for 2011, rising to $400m the following year. Proof if ever you needed it that in every perceived threat there also lies a major opportunity.

Argos and eBay

Argos has increasingly moved towards direct sourcing in recent years – five years ago less than 15% of its stock was sourced directly, today it accounts for 40%. While this brings cost benefits, there is the problem of what to do with surplus stock because there are no return-to-manufacturer agreements on products that are sourced directly. The retailer used to opt for ‘jobbers’ – effectively traders who would buy excess stock in bulk and take it off Argos’ hands – but the downside was a low level of return. Selling clearance stock via eBay has, says Argos business development director Adrian Burleton, “transformed the return level”. The process of clearing stock in the past often meant it was shifted at less than cost. The eBay route instead means that it is sold for some profit – however small that may be.