How can (eBay) sellers actually make a profit on extremely low priced NWT items?

[LA Guy]

Originally Posted by gentpax

Bought a wool/cashmere RLPL sweater two weeks ago for $199 at Marshall's marked down from $299. Occasionally you'll see things like this languishing at a discounter. Most of the other sweaters there are $20-$40, so even $100 looks freakishly expensive. I spent 20 minutes combing over it for flaws before pulling the trigger. Figured it was an overstock or a PSR.

I agree that many of the NWT items on eBay were likely shoplifted. Yet there are power sellers who are clearly buying big closeout lots.

The powersellers buy by the pallet, sift through to find the saleable goods, clean and press them, list them. When you buy from an Ebay Powerseller, you are paying for this service. Well worth it, imo, unless you want to buy half a million dollars of goods literally pressed into a pallet, and spend your days literally sifting through everything, which really, could include nearly anything, depending on the specifications of the pallet

Originally Posted by idfnl

I'm not surprised at all. I've always believed that most of this stuff actually costs 10 to 20% of the retail price to make.

The rest goes towards champagne parties.

You're pretty close re. the actual costs of production. The rest goes towards rent, salary, other operating costs, funding capital costs, etc... Champagne parties are infrequent, and are really marketing costs.

Originally Posted by holymadness

I'm sceptical that they're taking a bath. Consider that they either have to build an outlet store or pay rent on one, hire sales associates, checkout staff, and security, then ship the items from dozens -- if not hundreds -- of different retail boutiques to the location before repricing all of it.

Seems like much less effort and expense to just destroy the clothes or rip out the tags and give them to the homeless.

The costs of running an outlet store are factored into the margins. And there are different models for outlet stores. There is a reason there are relatively few Neiman Marcus Last Calls, and many, many, Ralph Lauren stores. Buying for a small boutique is relatively simple, buying for a large department store is a lot about fun with quickbooks.

Originally Posted by josh1233

Not directly related to e-bay merchants, but we have what would be considered a "high end clothing" store in my town, that has a separate shop across the street with items from the previous season for 70% off. Maybe there is just an incredible mark-up on some brands ?

Markup at a typical boutique is 2.3-2.5x the wholesale, depending on the brand and on the boutique. Before you start to complain, it's not all profit. People actually need to make a living, and it costs a lot of money to run a boutique. Previous season goods are essentially a sunk cost. The outlet store across the street is probably in a less desirable location, smaller, manned by many fewer people, has a more "industrial" feel, stock is usually not as attractively displayed, etc...

Originally Posted by calisanfran

Looked at the latest Saks quarterly report out of curiosity and their gross margin was 40%. Not sure what else they include in COGS (salaries of store personnel, etc? - maybe someone who follows the retail industry could opine), but that gives you at least a floor for the margins they make on their merchandise. However, the 40% is a blended number which not only includes clothing but also all other type of goods they sell. It would also include sales after markdowns. I suspect at retail, they probably put up most of their clothing merchandise at 75%+ markup.

Originally Posted by mohwld

Retail tries to confuse people by mixing terminology - what a retail store calls 50% is the same as 100% mark up (i.e., the retail price is twice the wholesale price). With Saks quoting 40%, they are likely getting ~70% of the original retail price on the merchandise, which is a 40% profit margin (70 / 50 = 1.4, or 40%)

Retail stores call it 50 "points", for a 100% markup. It's not confusing. It's just a term not meant to be used by the general public. Bookkeeping is in standard accounting terminology. 40% gross margin is just that. You can look it up in a freshman accounting textbook.

 

[vncrz]

Market segmentation. Luxury goods retailers can price their product with large mark-ups to customers with a more inelastic demand (ie less price sensitive), and sell the rest to the segments of the market with a higher elasticity of demand at a lower price insofar as they can still make an economic profit from doing so (not just revenues in excess of costs, but also considering the risk weighted rate of return on alternate investments).

Suffice to say I am in the second segment, and am grateful for the B&S thread which allows me to purchase PRL cashmere sweaters and RLPL ties at 75% discounts. Maybe one day I'll be rich enough that the opportunity cost of looking around online forums will be too high and I'll just walk into the Polo Mansion and buy whatever I fancy.

 

[LA Guy]

Originally Posted by vncrz

Market segmentation. Luxury goods retailers can price their product with large mark-ups to customers with a more inelastic demand (ie less price sensitive), and sell the rest to the segments of the market with a higher elasticity of demand at a lower price insofar as they can still make an economic profit from doing so (not just revenues in excess of costs, but also considering the risk weighted rate of return on alternate investments).

Suffice to say I am in the second segment, and am grateful for the B&S thread which allows me to purchase PRL cashmere sweaters and RLPL ties at 75% discounts. Maybe one day I'll be rich enough that the opportunity cost of looking around online forums will be too high and I'll just walk into the Polo Mansion and buy whatever I fancy.

More or less true, but until recently, it was pretty apparent, even to the casual observer, that different arms of Ralph Lauren were not talking to one another. It was never a secret that Purple Label staples were being overcut so that regular stockists could always order immediates, and because it could be sold at Loehmann's to the aspirational shopper. The marketing for the Purple Label line ensured that it would not lose its cachet despite it being ubiquitous at discounters. On the other hand, the RRL brand was marketed very differently, and yet loads of RRL staples (in the "Icon" range) made it into the outlets at the end of the season, and onto Ebay, even though they were never meant to be discounted.