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Guest comment: Better than eBay; creating an enhanced online trading marketplace

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By Harvey Sinclair

During its early years, eBay was lauded as a revolutionary concept. By giving buyers and sellers a common destination within which they could trade goods, the brand was able to capitalise on the growing number of one-to-one trade deals taking place online, while introducing a degree of regulation and assurance. Yet for all its benefits, eBay’s model remains flawed for a number of reasons. It seems unable to stop the sale of fake goods for example. And in the world of retail, eBay fails to offer a solution for retailers and buyers looking to trade goods of larger quantities.

All retailers are faced with the issue of what to do with excess stock, overstock and graded customer returns. Somewhat inevitably, this is an area of business where retailers operate at a huge loss. Once a product has reached the end of its shelf-life, or has entered the ‘reverse supply chain’, the retailer faces a much more difficult task of unlocking its value. Therefore, the opportunity to provide an avenue through which retailers can trade this excess stock and potentially make a profit from it is a hugely attractive proposition to all involved.

Indeed, the time seems to be ripe for retailers to capitalise on the potential of secondary goods. The UK’s secondary goods market is estimated to be worth in excess of £20 billion annually. Despite the obvious potential of making this market pay for retailers, however, the buying and selling of secondary goods has been limited by an inefficient and unregulated market model, where a small number of traders have been paying an abnormally low price on stock, while halting the ability of other buyers to access branded goods.

One will point to the online retail sector and websites such as eBay as holding the key for retailers to unlock this potential market. Indeed, the foundations of eBay’s business model – namely the creation of a large marketplace which has the ability to set a fair value for the goods being bought and sold – is, in principle, one which lends itself perfectly to the secondary goods market, albeit with a few enhancements.

For example, while in principle eBay provides a marketplace where millions of buyers are looking to purchase products, it is difficult for major retailers to harness this. The scales involved with eBay dictate that retailers are only able to sell to sellers on a small scale; each product has to be sold individually to a seller and therefore shifting large quantities of stock through the site is a difficult business.

Essentially, the process for retailers of selling excess stock through the eBay is highly time intensive and provides comparatively small reward for that investment.

To simplify it into two clear objectives, any offering in the sector aimed at helping retailers tap into this growing secondary goods market has to offer a large number of ready made buyers and also the potential to sell in large quantities. eBay is able to fulfil one of these objectives through its huge number of buyers and sellers. It fails, however, in providing an outlet to sell large quantities of stock.

Challengers to eBay’s throne must offer solutions to these problems. First and foremost, an offering should have as large a database of buyers and sellers as possible, whilst at the same time, offering them a viable community within which to trade large quantities of goods at a reasonable price.

To make it worthwhile for buyers, they must have access to consistently available stock from a range of top retailers and manufacturers. The offering should be mutual beneficial for buyer and seller, regardless of size. Having access to the overstock of the biggest retailers has obvious benefits to buyers; it’s an area that sellers have struggled to harness, which has had lasting implications on their ability to command a fair market value for any goods they might have sold, because a single destination with a significant number of active buyers didn’t exist.

This would create a more transparent, regulated and effective marketplace. It would also provide a flexible system of pricing, which essentially enables the market to set the price of goods being bought and sold. The problem faced by sites such as eBay in only being able to offer small quantities means an unrealistic value system is followed. Historically, the sale of secondary goods, has been hampered by inflated prices and retailers’ inability to identify the value of stock.

To see the potential of secondary goods, retailers must have access to a more accurate view of the value of stock. Equally, traders must be able to reasonably offer a price which they think goods are worth.

Recent research has shown that online shoppers return an average of 22 per cent of items purchased, which equates to online retailers facing potential losses upwards of £9.4 billion due to the impact of increasing returns. That’s a £1 billion increase year-on-year. The ability to quickly and efficiently trade these graded returns, let alone deal with overstock and end of line stock, shouldn’t be underestimated. eBay then can come into its own as a tool to enable traders to sell the stock they have purchased directly to consumers, operating on a scale which retailers themselves would find difficult and time consuming.

Such a marketplace essentially provides the opportunity for retailers to make a profit out of loss and negate the growing problem of excess stock and returns. Indeed, in these recession-hit times, that seems like one offer that is too good to refuse.

Harvey Sinclair is chief executive of Stockshifters.com

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