EBay’s Fashion Vault could be game changer

The online auctioneer is hoping fixed priced selling will boost sales and profits.

By Jamie Dlugosch Apr 5, 2010 8:42AM

Jeans © 7 for all mankindAttention eBay (EBAY) shoppers: The on-line auction powerhouse is making a big push in the new clothing market with last week’s opening of the EBay Fashion Vault.

 

The new strategy moves the company further away from its roots of rummage and garage sales held on the Internet.

 

Will eBay enthusiasts embrace the new model? More importantly for investors, will the strategy boost sales and earnings at the company?

 

 

Traditionally, eBay made its money by charging fees to its 90 million active buyers and sellers. Ironically, its huge success has made the company vulnerable.

 

With so many products and offerings on the site, a common complaint comes from users having difficulty navigating the site. Personally, I’ve never used eBay, but not without trying.

 

A few years ago I tried selling some old personal items on the site, but was unable to figure out how to use it properly. Granted, I’m technically challenged, but I know enough to identify a site that is easy to use versus one that is difficult.

 

EBay’s site is difficult to use and thus opens the door to competition. Upstarts offering niche focus on particular products or easier use and navigation could certainly start eating into eBay’s massive profits.

 

The Fashion Vault is an attempt to mitigate the risk of losing customers by offering great prices on new products. Over time fixed price selling will be a larger and larger percentage of total sales for eBay.

 

Of course moving away from its core business of auction selling puts the company at risk for losing customers. In addition the company faces competition from other on-line sites that already sell new fashion cheaply.

 

The hope is that the company can leverage its huge audience in a way that gives the company an edge against other sellers. Think of eBay like WalMart (WMT). With so many customers the company can negotiate better prices with its suppliers.

 

EBay will pass along those deep discounts to its customers in the Fashion Vault.

 

It will also start selling new clothing items in a sort of electronic outlet mall format. The company has lined up names like Hugo Boss and Lord & Taylor to sell on its site.

 

The greater emphasis on fixed price selling marks an important chapter in the life of eBay. Investors crave growth and, if successful, eBay could find a whole new audience of customers.

 

Shares of eBay have essentially doubled in the last year. It will need more growth to keep that positive momentum going. The idea of fixed price selling is alluring for that reason alone.

 

EBay trades for a reasonable valuation today whereby big growth opportunities will accrue to new investors. If the Fashion Vault works the stock has more room to move higher.

 

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