PRESS

A brand-new future for second-hand

Patti Waldmeir and Ben Bain, December 29, 2005

FROM an economic viewpoint, giving gifts ranks as one of the most wasteful of human activities. The reason is simple: most gifts are not quite what we would choose ourselves - so we value them at less than their purchase price.

But now the internet has a solution for the wanton destruction of human wealth that takes place every Christmas: online auctions. People have been recovering value from an unwanted gift since the dawn of time, by re-wrapping it and giving it to somebody else who probably also does not want it. But selling gifts online is far more efficient - the goods end up with someone who values them, and the original recipient gets cash to buy the thing he wanted in the first place.

Over the next few weeks, thousands, and possibly millions, of people will be selling off their unwanted Christmas presents online - and buying things they really want instead.

EBay, the world's largest auction site with 168 million registered users, says the post-Christmas season is traditionally busy.

A survey, released by the company last week, found that over half of Americans say they "re-gift" presents they do not like, will not use, or do not fit. A large number, 11 per cent, say they have previously sold an unwanted gift online. In the 25-34 age group, that number doubles to 22 per cent. Re-gifting presents is a new trend as millions of people around the globe are set to engage in a new kind of commerce this week - selling unwanted Christmas presents online and buying things they really want instead.

In Britain, a recent Nielsen/Net Ratings survey says 15 per cent of online shoppers plan to sell unwanted Christmas gifts online, and a further 35 per cent are considering it, with women more likely to do so than men.

Re-gifting online is just part of a much larger cultural phenomenon, says Daniel Nissanoff, whose book, FutureShop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell and Get the Things We Really Want, will be published in January. He says Americans are increasingly unlocking the value stored in their possessions by trading them in secondary markets, and that has important implications for the makers of new goods. Trading second-hand goods on eBay, Amazon.com, Craigslist and other online sites has risen sharply in recent years. EBay itself, where many of the goods are actually new but sold outside primary retail channels, now has 168 million registered members. EBay says 750,000 people use the site as a primary, or secondary, source of income.

Nissanoff predicts that, as online secondary markets grow in popularity and liquidity, they will transform the US from an accumulation nation to an auction culture. It's already happening, says Nissanoff, who runs a secondary market for luxury goods at portero.com. "We are beginning to accept, and will soon vigorously adopt, a new lifestyle, one predicated on temporary ownership and marked by the continuous replacement of our personal possessions," he writes.

In much the same way that many Americans own their cars only temporarily, through popular leasing arrangements, they will also buy and use electronic, fashion and other retail goods, and then re-sell them once they tire of them, outgrow them, or covet a newer version, he adds.

That, in turn, will motivate consumers to choose higher-end items, with better resale value, much as they now do with cars, where there is a highly-liquid secondary market. And that will give manufacturers an incentive to design goods that last. "We will be able to buy more of the things we really want, because we'll also be regularly selling off the things we no longer want, or need," he says.

Austan Goolsbee, economics professor at the University of Chicago and an avid trader of high-end used racing bikes on eBay, says: "There is something to the notion that new prices have the potential to start rising because people start saying, 'now there is a well-functioning used market on eBay, so I am willing to pay more for the new thing'." For goods like that, he says, where the market is too thin to sustain a store, eBay is where all the transactions take place. And that could drive up prices for new bikes, he says, noting he is far more likely to pay a higher price for a new bike, if he knows he can recoup 30 per cent of the purchase price at resale.

Nissanoff says the recent pre-holiday period is the perfect example of how temporary ownership works. In the last week of November, after the release of Microsoft's Xbox 360, about 30,000 Xbox units were traded on eBay for $US25 million ($34.5 million), an average of twice the retail price.

But the auction culture will not get off the ground, he says, until there's a better balance between buyers and sellers. He estimates that only 5 per cent of eBay users are sellers. And more sellers will emerge only when there is better infrastructure to facilitate selling: what he calls "drop shops" that charge a fee to handle auctions.

The best thing about trading gifts, say eBay fans, is that you can sell one without offending the giver. You can do it with pretty good confidence that you are selling to someone who isn't anywhere near your social circle.