Where do we begin with the fiasco that was the Target Missoni collection? You know, the one where the items sold on eBay for zillions of dollars? Except that eBay is flooded with items that have no bids, that are selling at list price, a good four years after the line was released. There have been about 14,000 completed sales of Missoni for Target items on eBay – and about
35,000 items still for sale.
But wait, weren’t there all those news stories about how people where paying huge amounts on eBay? Well, yes, there were. Because a very small number of people are stupid, or they really really really loved a particular style. Or they lied and told their husband that they were at Target when really they were with their outside man and they needed to produce evidence of a trip to Target.
Who knows? But that “People pay lots of money for Missoni for Target on eBay” story caught on, even though it is not true.
And there’s another factor at play: regular Missoni merchandise is very expensive. Hardly anyone interested in Missoni for Target could afford regular Missoni, because hardly anyone can afford regular Missoni. The regular versions of the cardigans that went for $30 or so at Target are over a thousand dollars. The Missoni for Target line offered a way for people to access a look that they could not get otherwise. That’s why there was a small aftermarket on eBay.
Lilly Pulitzer is not a particularly expensive line. It’s attainable for many more shoppers than Missoni; dresses that sold for $35 or so are about $200 at LillyPulitzer.com. The differences in accessory prices are even smaller: the Target wristlets were $20 versions of $38 regular items; the Target flip-flops were $16 versions of $32 items. Why would anyone pay $40 for the Lilly for Target flip-flops online?
They won’t. Some of the sellers will wise up and return everything to Target. Others will be stupid and hang on to them, using the good old sunk-cost fallacy. A very few Target items have no equivalent in the Lilly Pulitzer line, namely the plus-size clothing and the patio furniture. The rest is for sale on the Lilly Pulitzer Web site – and will probably be marked down as we get further into the summer season.
Here are just a few of the mistakes in reasoning that led to this ridiculous situation:
- Failure to do cursory market research. That would have uncovered the facts that eBay is flooded with Missoni for Target selling at list prices and that price differentials between the Target and regular versions of Missoni and Lilly Pulitzer were very, very different, limiting the potential mis-pricing.
- Buying items for resale at full price. Target didn’t pay $16 for those flip-flops. They paid quite a bit less, which I’d estimate at anywhere from $8 to $10 (and I would not be shocked if the cost were closer to $2). Target gets volume discounts, and the company needs to build in room for markdowns. Even if Target sells an item at the end of season below cost, the company can make money on other items that the customer buys on the shopping trip. The eBay seller does not have that luxury. Only a sale above the tag price is profitable.
- Not considering taxes. Target does not pay sales tax on its inventory purchases, because its retail customers do. All those items listed on eBay were purchased at retail, with tax included. If the eBay buyer lives in a state with high sales taxes, then he or she is already at a disadvantage relative to folks in states with low taxes. Also, Target will owe income tax on its sales, something that is included in the cost of an item when the company sets the retail price. Ebay sales are subject to income taxes, which cuts into the seller’s profit even more.
- Not considering inventory carrying costs. If those Missoni sellers paid cash, then they have not been able to use that cash for about four years now. If they used their credit cards and did not pay them off, they have been paying very high interest rates. Sure, a few may have used their credit cards, received points, and then paid them off that month, and that may be the equivalent of a 1% to 3% discount on the price. But that’s still not a lot of wiggle room in pricing.
- Not considering sales costs. Target has all those costs of sales, marketing, storage, sales people, and shopping bags included in the cost of an item for sale. The eBay seller has to pay all of them, in either cash or time. And that cuts into the profit.
The bottom line is this: a bubble formed because people had bad information and chose not to look for better data. They believed what they wanted to believe: that people paid a huge premium for Missoni for Target on eBay, and that they would do the same for Lilly for Target, so therefore the smart money would grab everything possible to sell on eBay.
Really, the smart money was at home in bed, and will consider making a purchase on the LillyPulitzer.com sale at the end of the season, especially if the company offers one of its super-good Mystery Print sales or has a good gift with purchase offer.
The crash will follow when people realize their mistake. The items will drift back to Target or will sit in people’s cellars for twenty years or so, when the would-be eBay tycoons (and/or their family members) will admit defeat and give it all to Goodwill.
Traders like to say that pigs get fat and hogs get slaughtered. Maybe Lilly Pulitzer should come up with a hog print to commemorate this fiasco.
