J.C. Penney to Add Online Auction Service

Seeking some of the sizzle created by eBay Inc. and other online auction sites, J.C. Penney and Co. is adding auctioning to its Web site.

Industry observers said it's just the beginning of a retail auction boom, as e-commerce sites attempt to attract more customers.

The Plano, Texas-based company later this spring will launch an auction service that lets consumers bid on overstocked merchandise from J.C. Penney catalogs and retail stores.

"The whole idea of auction came about just from looking at how successful the auction concept has been online," said Richard Last, Penney's executive vice president of e-commerce. "We saw it as a way of keeping the site interesting - a reason for customers to keep returning to the site. It also encourages people to stay on the site longer."

The retailer also plans to add several other "specialty shops" to its site this spring to attract customers.

Penney's online sales - $100 million last year - remain a small part of overall revenue. Its 1999 catalog sales totaled $4 billion.

But in 1998, online sales were just $15 million, and Last said he expects the company to continue its rapid online growth.

The auction also provides another channel, in addition to Penney's 37 outlet stores, to sell overstocked merchandise.

"With overstocks, any company looks at how much [money] you can recover," Last added.

Industry observers said they weren't surprised by Penney's e-commerce strategy.

"We predict a lot of retailers on- and off-line will be adopting auctions this year," said Rebecca Nidositko, an analyst at The Yankee Group in Boston. "It's a great way to manage inventory generate excitement about an online site and test prices to find out what the market will bear."

The Yankee Group predicts sales at retail auction sites will reach $200 million this year and $2.1 billion by 2003.

Specialty item retailer The Sharper Image in San Francisco started auctioning off its returns, excess inventory and damaged items last February.

Other retailers, such as Dell Computer Corp., CompUSA Inc. and sports apparel and accessory retailer CBS SportsLine also have auction components on their Web sites.

"Variable pricing is going to take over and replace all but the most static of product categories," said Laurie Orlov, an analyst at Forrester Research Inc. in Cambridge, Mass. "It makes perfect sense to me, assuming they have the infrastructure support to handle it - the adequate amount of computer capability to have a lot of people bidding."

The auction's front-end operation will be outsourced to FairMarket Inc. in Woburn, Mass. Last said fulfillment will be handled by the five J.C. Penney centers already dedicated to catalog sales.

Other observers said branded auctions raise more channel conflict concerns.

"Does this diminish their brand if you can buy it from them at full price in one place, then the next day it's half-price [online]?" said Allen Bonde, an analyst at The Extraprise Group in Boston. "Traditionally, they would've funneled their merchandise through a third party - [and] that wouldn't have been directly tied to J.C. Penney."

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