How much for those used Jimmy Choos?

How much for those used Jimmy Choos?

How much for those used Jimmy Choos?

Moneybox
Commentary about business and finance.
March 21 2006 6:05 PM

How Much for Those Used Jimmy Choos?

The strange market for pre-owned luxury goods.

May I interest you in a pre-owned Manolo?
Click image to expand.
May I interest you in a pre-owned Manolo?

Historically, secondary markets have catered either to the high end—think Sotheby's or Christie's —or to the low end. Used-book stores and used-car lots, pawn shops, junkyards, and flea markets; even the language used to describe such secondary marts is downscale.

eBay and a gazillion other Web auction sites have revolutionized the mechanics, image, and economic structure of secondary markets. There's now a giant, robust Internet infrastructure to help manufacturers, retailers, and individuals clear and trade just about anything. And while most of the items for sale are still comparatively cheap, the online trading culture is now expanding to include luxury goods. Check out eBay's roster of pricey 19th-century paintings or these flashy diamond rings. Overstock.com is running closeouts on items like this $3,000 45-inch LCD television.

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Will online sites revolutionize the luxury market, as they have changed the market for used cars? That's what technology entrepreneur Daniel Nissanoff argues in his smart new book FutureShop. Nissanoff's insight: As wide and deep as the eBay user base may be, it excludes way too many people. He notes with dismay that auctions of Steuben crystal generate a meager 4.4 bids per auction. To sell a single vase, a prospective seller must set up an account, learn computer skills, take photos of the product, write a description, monitor the auction, ship it, and then deal with the collection process. Given these high transaction costs, which eat up time and money, "It makes no sense at all for most people to sell directly on eBay!"

Nissanoff has built a business, Portero, that offers well-off people who enjoy buying—but not selling—a one-stop solution. (Here's how Portero works.) And Nissanoff believes that it has the potential to be an eBay for the rich, and for those who like to act rich by splurging on select conspicuous luxury items.

Of course, there are plenty of other drop shops and eBay facilitators out there. But in FutureShop, Nissanoff develops the theory behind the business of secondary markets more fully. (Notice the healthy secondary market in FutureShop.) He believes that secondary markets in luxury goods have the potential to make us much more efficient, ambitious, and voracious consumers. "We will soon live in a world where the norm is to sell our iPods after using them for a year. Or you'll sell your $800 Jimmy Choo shoes after wearing them twice. ... We'll essentially be leasing Rolex watches instead of buying them."

Forget about the ownership society. This is the "leaser-ship" society. It's perfect for Generation Debt, since it offers a way for people who are unwilling or unable to save a way to indulge their seemingly bottomless desire for brand-name goods. "In the future, you won't have to be rich to buy an Hermes tie or a space-age stroller, just the way you don't have to be a millionaire to own a Mercedes today, unlike twenty-five or thirty years ago." In other words, secondary markets offer consumers more ways to fake being rich.

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There's certainly an appeal to becoming a nation of short-term shoppers. Young people who are newly engaged but strapped for cash could easily monetize unwanted but expensive wedding presents. And there are a large number of goods with defined life cycles that can be very expensive, like fancy baby strollers. Wouldn't you like to resell your Bugaboo?

But there are plenty of obstacles to the development of this FutureShop culture. To begin with, there's the ick factor. Used shoes? I don't think so. Second, there's trust—or lack of it. Some secondary markets (antiquities and fine art come to mind) are notoriously corrupt even when transactions are carried out in person. Online, the potential for mischief is much greater. Costco got burned when it was revealed that a Picasso doodle it sold on its Web site last year for $39,999.99 turned out to be a fake. The New York Times two weeks ago reported on extensive fraud and shenanigans in online home sales. In theory, online markets, with their feedback loops and ability to generate statistics, should efficiently ward off fraud. Burn a few clients, and you won't get any repeat business. But not all sellers are rational long-term thinkers, especially scammers.

Nissanoff argues that luxury-goods companies, many of whom seek to tightly control the retail channels through which their goods sell, should embrace secondary markets. But for companies that trade on exclusivity, like Tiffany or Prada, these markets present a double-edged sword. Companies are able to charge substantial markups at retail precisely because the goods can only be purchased in certain venues. High-end retailers are understandably reluctant to do anything that legitimizes the gray-market trade in knockoffs and fakes, which is likely to grow. Beijing's notorious knockoff market, Silk Alley, has reopened—bigger, better, and just as fake.

What's more, electronics account for a great deal of spending on high-end goods. Nissanoff foresees a brisk trade in slightly used iPods and cell phones. I don't. New, improved cell phones are frequently sold at sharp discounts with service plans, which every user needs. And the product cycles and price reductions are so rapid, thanks to Moore's law and intense competition, that there's really no point in buying a used computer or iPod. The new versions frequently cost less than the old ones.

Nissanoff offers manufacturers and retailers a road map on how to incorporate secondary markets into overall strategy. They can encourage return business by setting up programs for trade-ins and upgrades, allay concerns about quality by establishing certified pre-owned programs, offer to lease products instead of selling them, and encourage dealers to engage in secondary trading. Of course, he notes, the nation's largest retail business—the auto industry—pioneered many of these techniques a few decades ago. And car buyers have already become future shoppers, leasing and reselling cars without a second thought. Given the plight of Ford and General Motors, retailers and manufacturers of expensive consumer goods might want to think twice about following their strategy.