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A Dot-Com Success: eBay Apparel Volume Heads for $1B Mark

NEW YORK -- Wal-Mart, Gap, Louis Vuitton -- and eBay.<P>Welcome to the new world of apparel retailing. While the brick-and-mortar retailers all have some presence in apparel on the Internet, the pure play dot-com also is growing stealthily in the...

NEW YORK — Wal-Mart, Gap, Louis Vuitton — and eBay.

Welcome to the new world of apparel retailing. While the brick-and-mortar retailers all have some presence in apparel on the Internet, the pure play dot-com also is growing stealthily in the category. In fact, eBay believes it can easily be a $1 billion apparel retailer within the next 18 months.

“Apparel and accessories is one of our fastest-growing categories, and I think in the next three to six quarters it will also be a $1 billion business on eBay,” said Meg Whitman, the company’s chief executive officer, who added that this spring apparel accounted for $500 million of annualized gross merchandise sales. That would make eBay a significant player in the online apparel business given that consumers spent $5.3 billion on apparel and accessories on the internet last year, according to online research firm comScore.

Hitting the $1 billion mark would bring the apparel division up to par with other booming categories on the site, such as motors, computers, consumer electronics and books, movies and music. While two categories, collectibles and sports, are currently on deck to reach the $1 billion mark later this year. Already competing directly with Amazon.com in those categories, the two companies apparently will go further head to head following reports that Amazon will move further into apparel later this year.

The site’s apparel division, which was formed in February of 2001, is growing at an explosive pace. The company’s apparel revenues for the first quarter of this year grew 22 percent over the fourth quarter of last year. And year over year, the category’s revenues shot up 110 percent. As eBay executives see it, those numbers will only continue to soar. EBay has garnered significant notoriety of late as a dot.com mega-success based on auctions that run the gamut from such unsavory items as bone chips and Sept. 11 debris (later pulled), to higher-ticket items like fine art and cars. But the Web site also has become a favorite cyber stomping ground for rabid fashionistas on the hunt for the latest de rigueur designer handbags, shoes, pants or head-to-toe ensembles. Scores of sought-after items like Balenciaga cargo pants, Birkin bags, Marc Jacobs military jackets and Yves Saint Laurent Mombasa bags in mint condition, brand new with tags or `gently used’ are bid on savvily by eBay shoppers who cruise the site daily for fabulous finds. This week, Prada brocade pumps were bidding at $275, a new Mombasa bag for $775 and a Bon Jovi t-shirt for a mere $8.99. The company estimates that on average, approximately 50 percent of all apparel items are new.

For the first quarter of 2002 eBay posted total revenues of $245.1 million, a 59.1 percent increase. This drove reported profits up more than 125 percent to $47.6 million, or 17 cents a share. On a pro-forma basis, however, net income leaped a milder 65 percent to $50.6 million, or 18 cents a share.

Whitman is eager to grow the company’s apparel sales and with Daniele Levy, director of category management, they have implemented several elements to enhance the user experience. In January, Hollywood stylist Phillip Bloch began providing content on the site, such as a column of what’s hot and what’s not. As eBay’s resident fashion expert, Bloch highlights the season’s main trends and gives users tips on how to wear them.

“It helps our buyers looking for the hot stuff and helps our sellers to know what it is that they should be offering that particular season,” said Levy. “So by having Phillip on the site, we are really trying to convey the element of fashion and make it much more than just buying and trading a piece of cloth. Traditionally, eBay hasn’t really focused on providing a lot of content on the site but in this particular community for the apparel folks it has been tremendously successful.”

Another measure of eBay’s success clearly lies in Whitman’s moxie. Instead of applying the same formula for growth in each category, she takes a hands-on approach to each and sees the value in tweaking the apparel category in order to appeal to fashion-savvy shoppers. “Part of our strategy is that we need to create marketplaces that are relevant to the users in those categories — what those users really want,” said Whitman. “And in fashion we think they want a little bit more content than just in and out, thank you very much. So while we are just beginning to experiment with that, we’re committed to being relevant to our buyers and sellers in a category and becoming part of that community.” EBay will expand on its relationship with Bloch by hosting a contest in which the winner will receive a free fashion makeover with the stylist at the end of August.

Last November, the company also created a Designer Boutique area, which is “a special micro-area within eBay where you can go to find over 350 designer brands aggregated in one place,” said Levy. “Really the reason we created that was because there was a big user demand for those brands.”

The designer brands, listed in alphabetical order, make for an easy search if a user is interested in looking at all of her favorite designer’s items listed on the site. The number-one designer searched for is Gucci, which pulled in about 1.5 million searches in May alone. Prada and Kate Spade came in second and third, respectively — there were over 775,000 searches for those brands during the month of May as well — while Coach and Burberry rounded off the top-five list, according to Levy.

The advent of the Designer Boutique was so well-received by eBay users that the company followed it up with a Fashion Outlet Mall sub-area in which national brands such as Polo Ralph Lauren, Abercrombie & Fitch and Tommy Hilfiger are clustered together. (This is how eBay differentiates them — the Designer Boutique area is for high-end designers, while the Fashion Outlet Mall is for national brands like Nautica, Gap and J. Crew.)

“The majority of our sellers use eBay as a liquidation channel for excess inventory, which allows them to price very competitively. On eBay, they can turn stale assets into cash while acquiring new customers in the process,” said Levy. Some of the brands do supply the site, but most often through third parties.

With the wealth of products listed on the site — over 600,000 items of either apparel, shoes or other accessories — and 100,000 new items added daily, it can be a challenge finding what you’re looking for. But the company has addressed user needs by fine-tuning the search engines. “We spend a lot of our product development resources making it easier for sellers to place their merchandise in the right spot and making it easier for buyers to find the items that they are looking for,” said Levy.

A prime example is their `favorite searches’ feature in which users can enter an item to search, say `Prada brocade,’ and the site then e-mails the user regularly when new items matching the search are listed. That way, you don’t have to continually make the same search; eBay does it for you.

“It’s much like a store, if you’re looking for say a Mexican peasant blouse, just type it in as one of your favorite searches, and they’ll e-mail you when it’s in. It’s just like a sales person calling to tell you your blouse is in,” said Michael Macko, director of publicity for Saks Fifth Avenue and avid eBay shopper. “Except they don’t always do that in such a timely fashion, whereas eBay is like clockwork.”

Savvy handling like this has helped business. EBay sells approximately 36 apparel-related items every minute and about $44,000 dollars per hour in gross merchandise sales, according to Levy. Across the whole site, eBay has 46 million registered users and 6 million people who visit the site daily.

The majority of shoppers in its apparel division are women aged 25 to 50 with household incomes of $55,000 and above. “Mostly it’s fashionistas and folks who get turned on by the hunt and by finding a good bargain,” said Levy.

EBay shoppers agree. “It’s the thrill of the hunt, it is a very primal thing,” said Macko. “Also, you can shop anytime, day or night and the customer service is terrific. You find things that you didn’t need, but once you find them you don’t know how you can live without them.”

One of the elements that makes shopping on eBay easy, especially if you have an intimate knowledge of a particular designer’s clothes, fit and signature trimmings is that you easily tell through pictures if a piece is authentic.

While fashion hounds are clicking away buying on eBay, those selling on the site and actually driving revenues are primarily small and medium-sized retailers, wholesalers and liquidators. They range from merchants who sell merchandise out of their home, to small stores that use the site to get rid of their post-season merchandise to major liquidators with outsized warehouses in towns across the country.

David Hardin, owner of D & D Shoe Company, whose eBay store name is Shoetime, has an 180,000-square-foot warehouse in Mayfield, Ky., filled with shoes. Two years ago, a “young kid in town” told him he could sell some of his shoes on eBay. Hardin gave him five pairs of shoes to start, and they all sold. So, Hardin hired him and started putting shoes on eBay. “Before I knew it, I had 25 people working for me. Word of mouth got around and it was successful,” said Hardin. Now the company sells an average of 1,000 shoes a week on the site and its eBay sales make up approximately 10 percent of its business. Hardin hopes to knock the percentage up to 50 within the next two or three months. The shoes range from factory and inventory overruns to distressed merchandise from brands like Joan & David, Anne Klein and Charles Jourdan.

Linda Mitchell, co-owner of usbluesware, a seller of high-end women’s and men’s designer clothing in the Berkshires, has been in business for five years, but has been selling on eBay exclusively for the last two and a half. Mitchell and her partner Giora Witkowski have earned a gold level power seller seal on eBay based on their quality merchandise and stellar customer service. While eBay has yet to land a big name retail company for its apparel division, Sears, Home Depot and IBM sell other merchandise on eBay. But to Whitman, it’s only a matter of time before large retailers make the leap to apparel. “The success of the small retailers attracts the attention of big brand names. And often they will get started with us by testing eBay as a distribution channel.So I think we’ll have a fair amount of interest from apparel manufacturers as well as retailers. My sense is that over time, that will come,” said Whitman.

What sets eBay apart from other e-tail sites is almost everything. “One of the reasons it works so well is that eBay is not a retailer,” said Thomas Underwood, an analyst at Legg Mason. “All that eBay does is provide a platform that offers liquidity for buyers and sellers. In other words, sellers know they will have a liquid market on eBay for whatever good they are selling and that is extremely important. Also the liquidity enables them to achieve the best market price available.”

This is how Whitman explains it: “The way we think about eBay is as an online marketplace that our job is to provide the best possible venue for buyers and sellers to get together and do business. In some ways eBay is a bit more like the New York Stock Exchange and the Nasdaq in that we don’t take titles of the inventory, we don’t manage the products that get bought and sold. But we create an incredibly efficient forum for people to get together that reduces the barriers of geography and the barrier of time, so that individuals, small businesses and big businesses can all get together and do business on a global basis.”

More importantly, while eBay would like to bring more major retailers online to sell apparel, there’s no special treatment for big-hitters. The company charges all of its sellers the same fees, meaning Sears and IBM pay the same as those mom-and-pop outfits who sell out of their living rooms.

Furthermore, while some cite Target’s association with Amazon as competition for eBay, Whitman doesn’t see it that way. “The major differences between Amazon and eBay, is that we could have thousands and thousands of merchants, whereas Amazon has only a few tabs. There is only enough shelf space if you will at the Amazon Web site to support a very small number of big manufacturers. They can do Target, but they can’t do six or seven others. We can have as many comers who want to access the eBay market as possible. They can all have storefronts, and they can all list items.”

To list itself as a storefront on eBay costs retailers large and small a paltry $9.95 a month. Listing on eBay is effective for retailers not only because they can liquidate post-season overruns, distressed merchandise or returns, but also because it gives them access to eBay’s 46 million registered users.

“They have the e-mail address of the winning bidders and they can direct market to those people — we have no problem with that at all. We’re just strictly not in the business of shifting traffic out of the marketplace to their own store,” said Whitman.

Another element that sets eBay apart from other e-tail sites is the extensive eBay community. Not only do sellers pride themselves on customer service due to the rating system that exists on the site, which chronicles every buyer-seller interaction, but flurries of e-mails are often exchanged regarding the condition of a product, its history or even care instructions. Interestingly, the human element is somehow not lost shopping on eBay. If buyers want to chat with their sellers, they can.

“They’ve really created a market for luxury secondhand clothing,” said Jared Blank, an analyst at Jupiter Media Metrix. “Part of the strength of eBay is that they’ve built a sense of trust among people who buy and sell on eBay. And that’s obviously necessary when buying secondhand clothing, especially when there is no physical store to return it to.” Shopping for clothes on eBay, however, is not without its drawbacks. With vintage items, it’s often a gamble as to what you’re going to get. Which is perhaps why vintage store owners are rather dismissive of eBay as a competitor.

“I’ve had more clients get burned buying things on eBay,” said Cameron Silver, owner of Decades, a vintage store in Los Angeles.

“People are very leery of vintage clothing online,” said Glenn Beyus, manager of Sophia’s, a vintage store in Greenwich, CT. “They like to try it on and feel it, it’s a very three-dimensional purchase.”

Silver, however, is quick to emphasize that while he neither buys nor sells via eBay for Decades, he does great business with eBay for his consignment shop Decadestwo.

“It makes it accessible for women who seriously love Chanel and buy up Chanel pieces, but aren’t as interested in the emotional buy of a vintage couture piece,” he said.

There is also the issue of what some consider high prices without the luxury of a discerning eye or the tactile lure of buying luxe vintage items.

But that doesn’t mean that vintage treasures can’t be found for a song on eBay. “The fashion mood right now is all about a great vintage piece, and these are clothes with an instant history,” said Macko. “People are paying a lot of money for antique leather belts and on eBay you can find an old trucker in Kansas that’s selling them for three bucks as opposed to the $250 they cost at retail.””