How online is changing the outlet model

It was a property conference for property people. Yet in the plush hotel on the outskirts of Milan’s city centre, the man holding court was Patrick Munden, eBay’s head of seller communications in the UK and Republic of Ireland.

The audience at the ICSC’s annual outlet conference in early October was nervous. Munden had graphs and tables claiming that eBay’s Fashion Outlet site would, in fact, have a minimal impact on sales at designer outlet centres in Europe.

He pointed to a German study that showed net cannibalisation of high street sales by online sales was just 3%. Munden also talked warmly about increasing the awareness of the designer outlet concept through eBay’s massive marketing campaigns in the UK and Germany, therefore growing the whole sector.

Touch and feel

“We don’t consider ourselves to be taking away a large slice of the retail pie; rather we feel that we are growing the retail pie. People still want to visit physical stores to touch and feel goods such as fashion and we remain just one of a number of routes to market for brands and retailers to redistribute unsold goods,” Munden affably told delegates.

They did not look convinced. During the past two years online auctioneer eBay has, almost by stealth, reinvented itself under chief executive John Donahoe. While global online sales make up 5% to 6% of global sales, eBay believes this will increase to 15% to 20% in the next five years and wants its piece of the action. That doesn’t sound like good news for the outlet retail sector.

While its name remains synonymous with the idea of the world’s biggest garage sale, eBay has flipped its model to the extent that at its earnings update on October 20 it confirmed that 60% of sales now come from fixed price goods, up 4% in a year.

To accomplish this, eBay has implemented significant changes in two areas: revising the merchant pricing structure to broaden the selection on its site, and taking steps to address shortcomings in usability after it recognised that its site was not user-friendly enough for retail - rather than auction buyers - and that its payment structure was too complicated.

During Christmas 2009 online competitor Amazon surged ahead in terms of site visits and as a result eBay went back to the drawing board. The most significant embodiment of its reappraisal is its Fashion Outlet offer, which is being

promoted in an autumn advertising blitz that encompasses ads in the fashion glossies and branding on buses and billboards and at train stations.

The arrival of eBay on its patch has left the outlet sector in some flux. On the one hand the marketing might of eBay is seen as a positive for an industry that still suffers from some consumer confusion, but on the other something that is a clear competitor.

So what does it mean for bricks-and-mortar stores? “Online outlets may be viewed as competition by some but they are not substitutes,” says Neil Thompson, chief executive of Fashion House Developments, which specialises in outlet developments in Central and Eastern Europe.

“True outlet centres provide a tactile experience of shopping as a leisure activity for good brands at a reduced price. Brands will always use several different methods of liquidating excess stock but what they are focused on is doing that in high-quality shopping environments where they can communicate the values and the heritage of their brands,” says Thompson.

“The industry cannot be complacent about online competition, but neither do we consider that it signals the demise of traditional shopping or factory outlet shopping.”

Dedicated category

Fashion Outlet launched in April and now has more than 30 brands and retailers including Debenhams, Office, Superdry, Ted Baker, House of Fraser and Karen Millen selling products at discounts of 30% to 70% as part of its first dedicated category site. Jigsaw is the latest to join.

The system is quite simple and mirrors the approach taken by designer outlet centre operators. In the physical version, tenants pay turnover-based rents, with all sales transactions fed back into a central system, giving the operator precise information about how each of its tenants is faring.

The increasing number of retailers using such schemes to dispose of excess and past-season product pays testament to its effectiveness and, vitally, gives the brands a high degree of control over how their clearance stock is presented and sold.

In the eBay model leasing agents are replaced with what Munden dubs “enterprise sales teams”, which work with a brand or retailer to establish whether they have the stock and systems in place to fulfil anticipated demand, using eBay as the platform.

“We make our money by charging a nominal per-item charge for listed product of, say, a penny or cent,” says Munden. “Then we take a commission of typically 8% to 10% on every sale generated through the site.”

The brands gain the benefit of eBay’s massive marketing muscle but otherwise are left alone to merchandise and sell their clearance stock.

In the first instance eBay has chosen to create separate “vertical retail hubs” for fashion and motors but intends to diversify into other areas, with technology and home and garden next to be added in the coming months.

Navigation aids

Fashion Outlet features include a visual search function to let shoppers find similar looking items, a gallery view as the default, a quick-look layer to ensure only the most relevant information is shown and the category home page highlights the most searched for brands, most watched listings and best-selling products.

“We wanted to create dedicated sites so that our users didn’t have to start from the main home page and navigate their way through,” says Munden. “This way buyers get straight to the brands.”

He stresses that the site focuses on “what consumers want - fast delivery and great returns policies”, while eBay supports the proposition with stand-out deals through its weekly and daily deals programme. In September outlet sellers sold more than £1m worth of products in just one week.

EBay can also track searches - Munden says that in one month there were 4 million searches for Next, 1.5 million for New Look and 750,000 for Marks & Spencer.

EBay has also been developing its mobile commerce proposition. In early 2009 it launched the eBay iPhone app integrating PayPal. In June it launched a Blackberry app and mobile is now the fastest growing channel, with British shoppers accounting for approximately 64% of the items bought through the eBay mobile app across Europe.

“The Apple iPhone has created massive market penetration,” says Munden. “In the next two years m-commerce growth is going to be huge.”