FutureShop: How to Trade Up to a Luxury Lifestyle Today

INTRODUCTION

I was visiting with my friend Anna, a twenty-nine-year-old interior decorator, not long ago on a warm summer afternoon when the doorbell rang unexpectedly. Anna disappeared to see who it was, and I continued to chat with Jamie, her new husband, about their Caribbean honeymoon until his wife interrupted us.

Jamie, we got another one, Anna called, resignation audible in her voice, from the hallway, before she returned carrying a heavy box with large Crate and Barrel labels prominently displayed on all sides. They opened the package with none of the excitement one might expect of a young couple surveying their spoils to discover that Anna’s cousin David and his wife, Sara, had sent them a portable cast-iron grill. Jamie quickly closed the package up again and carried it to the closet, where he added it to a teeming collection of similar boxes from Tiffany, Williams-Sonoma, and Target.

Most of the couples I know who register for wedding gifts think of the process as a fabulous shopping spree on someone else’s account. They let their imaginations run wild. Should we get napkins in blue or green? Should the hors d’oeuvres platter be gold or silver? Birch or maple salad bowls? Put us down for the stainless steel version…make that two! No longer just for place settings and linens, wedding registrations have evolved to the point where couples can now add tents, lumber, and stereos to their wish lists.

Anna and Jamie, however, had a different kind of wish list. They’ve been into gourmet cooking for years, so their kitchen is already stocked with coordinating plates, and all the spring pans, Italian bottle stoppers, microplane zest graters, and professional-quality slicing, grinding, and pureeing appliances they could ever need. They’ve lived together for a couple of years, so their bathroom already has matching plush towels, and they’re very happy with their Egyptian cotton sheets. They simply didn’t need most of the wedding gifts they received, as much as they appreciated the generosity of those who sent them. What they really wanted, instead, to get their married life off to a good start was something different.

Anna and Jamie didn’t want crystal. They wanted a condo. But of course, there’s no real trade-off there, between wedding gifts and the down payment it takes to buy an apartment—or is there?

Anna’s original plan regarding wedding gifts was to forgo the registry process altogether and tell anyone who asked them what they’d like for their wedding that their preference would be cash. Jamie’s mother hadn’t liked that idea and convinced her future daughter-in-law that registering was the right thing to do. It would be risky not to register because inevitably some people would prefer to give an actual gift and they were likely to get stuck with a bunch of things that they would never have chosen for themselves.

So Anna was persuaded—and a month after the wedding her closets were filled with things she’d chosen but didn’t really need, or even want. And to add insult to injury, she and Jamie had finally stumbled across a new development downtown with an apartment that was just what they were looking for.

Why couldn’t they just take the presents back? I wondered. Certainly, their friends would understand, and be happy that they’d helped them afford the one thing they truly wanted.

Of course, they’d thought of that, but most retailers that provide wedding registries will accept returns only if you’re making exchanges, or for store credit, they told me.

What they hadn’t thought of—probably because they didn’t know—was that, today, there’s a brisk market for store credit to prominent national retail stores if you know where to go. Store credit may not be as good as cash to the stores that issue it, but it might be worth just that—cash—to someone else.

An analysis of thousands of gift card transactions on eBay reveals that store credits to popular retailers fetch very close to their face value in the secondary market, where they usually sell for 80 to 90 percent of their original cost, depending on the store and the amount. A quick search found that just the day before Anna, Jamie, and I were talking, a card for $500 of store credit at Target sold for $450, a $175 Tiffany gift card fetched $135, and a $200 Crate and Barrel exchange credit receipt got $188.99, shipping included.

In the booming world of secondary markets—dominated by eBay—buyers are actually competing vigorously for store credit in order to save a few dollars on purchases at their favorite stores. In some cases, the buyer pool is so robust that store credit on eBay is just about as good as cash, and generally, the higher the dollar value, the lower the proportional discount will be, so that, in fact, the discount is substantively not that much different from paying a commission to a currency exchange when you change your money in a foreign country.

Would they, I asked Anna and Jamie, be willing to exchange their presents for cash on the secondary market if they could get eighty cents on the dollar?

Indeed they would.

The three of us set out on a reverse shopping spree. Anna’s cheeks reddened at one return counter when the clerk asked why she wanted to return all her gifts. Caught off guard, she mumbled something about the wedding having been called off (Jamie was waiting in the car), after which the clerk obliged and issued her a card worth $4,500 of store credit. By the time we got to the next store, she just said she was moving to LA and wanted to buy directly from the local branch when she got there. It worked.

We ended the day with more than $15,000 in store credit cards.

Anna has an eBay account, but she had previously only bought a few hard-to-find household items through the site over the years and had never even thought of auctioning anything herself. Because she was such an infrequent user, she didn’t have any so-called customer feedback ratings from the site, which would assure her potential customers that she was a trustworthy seller who would deliver the goods as promised and in a timely manner. The kinds of shoppers who frequent eBay have enough experience to know that they’d rather buy a $4,500 item from someone who’s sanctioned by other users through positive feedback, so Anna wasn’t likely to get maximum value for her gift cards if she posted them on her own. So I suggested she let a more proficient (and well-reputed) middleman deal with it for her. We took the gift cards to a popular local dropshop, a store that takes your items and sells them for you in online auctions. Anna filled out some quick forms, which gave the store’s employees—experts in the orchestration of online auctions—a license to arrange and execute the processes.

A few weeks later, Anna called to tell me that her cards had sold for more than $12,000. She and Jamie were thrilled. And significantly closer to having the money they’d need for a down payment. Once Anna saw how easy it was to sell the cards through the dropshop, she looked through her closets to see what other unwanted or neglected possessions she could sell for even more cash to put toward the condo. The following week, she made three separate trips to the dropshop, bringing in everything from seasons-old pieces of clothing to the electronic organizer she’d never learned how to use to her childhood Barbie doll collection.

I had created a monster.

WHAT WAS MOST surprising to me about the whole process was how novel the concept of selling their unwanted possessions was to my friends. Anna and Jamie are young and intelligent and ambitious people. They read the papers and have wide social networks filled with like-minded professionals. Jamie is always suggesting that we try the new restaurants that, two weeks later, are booked solid for months, and Anna always knows what colors will be in next season. But even so, though they’d certainly heard of eBay and had bought books online at Amazon, they were almost completely unaware that there was such a robust marketplace out there, just waiting to let them turn the things they owned but didn’t want into other things that they did. They were almost entirely oblivious to the phenomenon that I’ve spent most of my professional career trying to exploit.

There are a lot of reasons why so many people haven’t even dipped their toes into the world of eBay, or any of the many other online secondary markets, yet. I’ll take a hard look at those reasons in a bit. But the first point to make is that it’s time for those who haven’t explored the opportunities of the online auction world yet to plunge in. And for those who’ve been avid eBayers for years, or are in any kind of retail business, or who track consumer behavior, it’s essential to know that a remarkable transformation in the secondary markets is now well under way.

A PARADIGM SHIFT

This is a book about how we behave as consumers today, and how we will behave in the future. Right now, in this moment, we live in an accumulation nation, a consumer culture based on a system of legacy values that was forged by our ancestors in a different time. These values have taught us to acquire new things and then grow old with them. We are socially engineered to think that used is inferior or bad. And, with a few very specific exceptions, we are generally loath or unable to purge our possessions, even as their value or utility begins to wane. Our cluttered attics and garages tell this sad story of how our society lives today in its archaic ways.

But we’re changing.

From Main Street to the upper echelons of society we are beginning to accept and will soon vigorously adopt a new lifestyle, one predicated on the norm of temporary ownership and marked by the continuous replacement of our personal possessions. Owning and selling things secondhand will become second nature. I like to think of this practice as auction culture because it’s the auction platform that’s so far been the catalyst for this behavior. But whatever label ultimately sticks to it, this transition will have a profound impact on our culture and values. It will not only shape the future of consumer behavior, it will also have tremendous implications for the business world.

We often think that we’ve already been through one social revolution—the digital revolution—and that we’ve probably experienced enough sweeping change for our lifetimes. The Internet has, of course, had a meaningful impact on our lives, in the way we gather and process information, in the way we communicate with each other, but it’s not yet had a significant impact on our ethos as consumers. Sure, we can buy things online and we might save a little bit of time and money, but has that convenience really affected our society and culture? Ask anyone who works in the consumer sales force from Saks Fifth Avenue to Wal-Mart and they’ll assure you that it hasn’t.

The next generation of digital marketplaces, led by eBay, is about to change that. To date, eBay has made a lot of noise. Offering millions of products in hundreds of categories ranging from antiques to video games, eBay has created a venue for buying and selling previously owned items that is miles wide. However, despite attracting more than 212 million users and processing more than $130 million in daily transactions, eBay’s marketplace is still only inches deep. While novel, convenient, often fun to use, and even addicting to some, eBay has barely made a dent on our mainstream culture as consumers. The fact is that so far it has failed to offer the kind of true liquidity needed to fuel a cultural revolution, meaning consistently efficient trading that yields true market value for the goods sold. The stock market is the model of liquidity; thus far eBay is far off that mark.

But the critical inflection point is upon us. As eBay approaches new levels of depth and breadth, it is beginning to create a new ecosystem—along with its subsidiaries, competitors, and off-line complements—that will rapidly accelerate the liquidity of the consumer-to-consumer marketplace and make it easier for mainstream society to access it. The multitude of valuable services created by freshly minted start-ups feeding on this ecosystem will fuel a new level of buying and selling activity at a higher rate than we’ve seen before. It will ripple throughout the global economy.

The aftershocks of this phenomenon will cause a dramatic shift in behavior whose repercussions will be stitched into the fabric of our society, culture, and business for years to come.

This shift will redefine socially accepted norms for consumer buying and selling behavior. 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. Cell phone companies will automatically send us the newest, most high-tech mobile phone every six months. We’ll essentially be leasing Rolex watches instead of buying them. The new paradigm will change the very meaning of brand value and alter fundamental methods of marketing across the range of most consumer products.

In the same stroke, auction culture will create a universe of new business opportunities. Unprepared companies, no matter how old or lofty their pedigrees, will fall behind while companies that creatively embrace the new inclinations will surge ahead. A new breed of facilitators will emerge to provide an array of innovative services that will lubricate the newfound market. Some of them will partner with the world’s largest companies, helping them manage and protect their brands while navigating the treacherous waters of the used-goods markets. Other facilitators will become trusted sources for consumers, acting as personal lifestyle consultants while disseminating information on when and what to buy and sell.

This new system of checks and balances will shine a bright light on how consumers choose brands. It will reinforce the importance of a brand in a virtual mall where reading the label on a digital photograph becomes the closest thing to touching and feeling what you buy. Yet at the same time, it will shake up the status quo by reshuffling brand values according to how well a product actually sells in the secondary market. As an informed consumer you will choose the brand of your new handbag based on how much it will fetch on eBay next year, which corresponds to how much it will really cost you to own it up until then.

Corporate culture will seal the fate of many organizations as they square off to deal with the various forces of change. Brave companies will embrace them and benefit. Pompous brand owners will fight them and lose to forces of nature bigger than they are and too powerful to resist. Stubborn corporations will ignore them and wake up in the not too distant future to find that their brands have eroded. Organizations that understand the new dynamics between the secondary and primary markets will strengthen their products inherently, and in so doing increase customer loyalty.

In the end, anyone who understands how to maximize the value-to-utility life cycle of their possessions will be rewarded with a more prosperous but less costly lifestyle. Plainly, we’ll live better, cheaper—the incidental but significant benefit of a more efficient world.

I’m convinced about how dramatic and profound this shift will be because I’ve spent the last two years working to build a business that’s at the center of this new world. Portero, the company I co-founded in 2004, is a service business that facilitates participation in the online secondary markets for sellers of luxury-class items, such as jewelry, watches, designer clothing, fine housewares, art, and collectibles, who don’t want to go through the hassle of selling on eBay or any of the other marketplaces themselves. We emphasize convenience, visiting our clients’ homes, appraising and authenticating their items. And we help them capture maximum value for their goods by professionally managing the sales processes and merchandising the items in a high-end manner to potential buyers. It’s a service similar to the one Anna found at her local dropshop, but with a particular expertise and for a specific market. An explosion of such facilitator businesses is under way, and many more kinds of innovative businesses that will make trading online easier, more reliable, and more lucrative are soon to come. I’ll describe these developments in more detail later in the book.

I’m also convinced of the magnitude of change to come because of my previous experience building a B2B Internet company called PartMiner. That experience taught me that the power of facilitating the trade of items that one party doesn’t need or want anymore to another party who is seeking them out is an economic juggernaut, once you get the mechanism right. When I founded PartMiner, my first thought was that a digital secondary marketplace could make certain kinds of manufacturing businesses more efficient, so I created a business-to-business Internet exchange called the Free Trade Zone, which served the semiconductor industry. From my experience working as an attorney and advising companies in corporate reorganization, I knew that one of the most debilitating problems facing many manufacturers of technologically sophisticated products was that they weren’t always able to buy the very specific electronics component parts that they needed to build their products when they needed them. I also knew that other manufacturers were often left holding large inventories of parts that they couldn’t use and no longer needed. By creating a trading platform on which the two sides could find each other, we could solve both their problems, and that’s just what PartMiner did. And we did it so well that by 2000 we had raised more than $100 million and reached a valuation in excess of half a billion dollars.

You might read that and conclude that the manufacturers were just bad businessmen. How could a multibillion-dollar cell phone maker like Nokia be caught short of a crucial component or a behemoth manufacturer like Intel be stuck with too many of them? Why couldn’t they agree to make and buy the right amount in the first place? In a perfect world, they could. But in this world, chip makers require long lead times to fulfill large orders, which have to be placed months in advance of delivery. Nobody, not even Nokia, can know exactly what its needs will be six months out. A new, better chip might come onto the market from someone else in the interim and Nokia decides it needs to buy that one instead, or Intel could find a way to produce a similar chip more cost effectively and migrate its resources to that one, discontinuing the previous model.

People are like manufacturers in this way—they don’t always know what they’re going to need or want in the future. Their tastes change, unpredictably over time, and so does their corresponding demand for stuff. They find themselves stuck with old things they can no longer use, and they search desperately for new things they feel they can’t live without.

What eBay and the host of other online exchanges do, fundamentally, is help bridge the gap between supply and demand among people. As these exchanges continue to evolve, more and more buyers have come to these markets to compete with each other, prices have