Online Luxury: An Interview With Portero.com

As many in the luxury industry sit and ponder the far reaching ramifications of the recent rulings of two French courts against online auction site eBay (not to mention several other legal challenges currently working their way through the French legal system), luxury consumers could be forgiven for having cold feet where online auctions are concerned. Foremost in the minds of most consumers is the issue of authenticity. This is especially true given that eBay, a pioneer in the field of online auctions, has unfortunately let itself become the preferred distribution channel for counterfeit luxury goods. The Luxe Chronicles had the opportunity to sit down with Michael Sheldon, CEO and Founder of Portero.com and Stephaine Phair, Vice President of Merchandising for the online auction site dedicated exclusively to luxury goods. While Portero.com may at one time have been associated with eBay, they've since gone their separate ways and unlike eBay, Portero.com sells only authenticated luxury goods for which they offer both market valuations and an unconditional guarantee. They had valuable insights to offer on the do's and don't of online luxury. A summary of our conversation follows below.

Portero.com's Stephanie Phair; A selection of the vintage Chanel bags currently being auctioned on Portero.com; Portero CEO Michael Sheldon. All photos courtesy of Portero.com.

1. When Portero was first started, it relied on the eBay platform. Would it be fair to say that Portero grew out of eBay or is walking in a path forged by eBay so-to-speak?

MS: When I started Portero, my vision was to build a luxury solution for consumers online. I initially thought eBay was the right place to do that but along the way, I learned an awful lot about what eBay can deliver and what it cannot. The most important insight I gained from my experience with eBay is that luxury is a niche that requires special treatment and that eBay was just not equipped to offer that treatment. For instance, the sale of pre-owned luxury goods requires authentication. The eBay platform was simply not able to handle that.

2. What led you to sever your ties with eBay and develop Portero as a separate business?

MS: What happened is that even though Portero was dealing exclusively in authentic luxury products, there was so much counterfeit trade and fraudulent trade going on around us that consumers were understandably confused. It was complicating Portero's message to consumers. At its core, the eBay platform brings multiple buyers and multiple sellers together in one place and offers them a venue to interact. They are unable however to authenticate either the merchandise or the sellers which for pre-owned luxury goods poses a problem. Their model was not built for trade in luxury goods and so it is unable to accommodate trade in luxury goods in the way it requires. Luxury goods need to be curated and eBay does not have the ability to do that. So, about a year and a half ago, we decided to create an independent marketplace for pre-owned luxury goods where we could focus on issues of authentication and trust.

3. Were you surprised by the recent rulings of the French court against eBay in the Hermes and LVMH lawsuits?

MS: Based on our own experience, no. When we were operating on the eBay platform, we were sourcing products we knew to be authentic without a doubt yet our own auctions were being shut down periodically because of the particular system of verification put in place by eBay to curb the trade in counterfeit goods. That system frankly never worked. As a result, we witnessed a high degree of frustration on the part of both legitimate buyers and legitimate sellers. We came away from the experience convinced that the eBay platform and the eBay business model (putting together any buyer with any seller) was simply not equipped to treat luxury in the way it needed to be treated. The platform needs to be trusted by consumers.

SP: I agree - the VeRO system never worked. Just to offer an anecdote on that subject, one of our clients happened to be the wife of the CEO of a large luxury brand. She had accumulated a large number of handbags from that brand and came to us to sell them. Obviously we found the bags to be authentic - not surprising given their unique provenance yet, those very auctions were shut down by the VeRO system because the brand claimed they were counterfeit - the very brand whose CEO's wife had consigned the bags with us! We had to tell the customer that we could no longer list her bags.

The problem with VeRO is that it places the onus on the seller to prove that their item is authentic (through long, convoluted processes) rather than the brands to show that they are counterfeit. This results in indiscriminate shutting down of auctions where prefectly legitimate sellers are prevented from running their businesses. Everyone- good and bad- are brought down in a bid to eliminate counterfeiters thus squeezing out the legitimate sellers and creating a negative cycle.

4. Do you think that these recent legal developments will have a chilling effect on online auctions of luxury goods or do think it might actually help develop greater consumer confidence in sites like Portero?

MS: I don't think they'll ultimately have a chilling effect, no. eBay has legitimized to a large extent online selling. There is currently high growth in both internet adoption and online shopping. I think people will be better informed and know where to go to purchase their pre-owned luxury goods with confidence. Consumers will ultimately gravitate to those sellers who do it right. We believe we do it right and customers will recognize that.

5. Portero goes to great lengths to certify or authenticate the pre-owned luxury products sold on its site. You even offer an unconditional guarantee - that's probably more than Christie's and Sotheby's offer (they each have disclaimers in the fine print at the back of their sales catalogues). How significant is this policy to the growth of your business?

MS: Unlike Christie's and Sotheby's who have live sales that require buyers to preview the merchandise prior to the actual sale and then partake in the auction process, at Portero, we use a continuous auction format whereby the auction takes place over the course of days or weeks. While our customers don't preview the product prior to the sale, they review the product once purchased and shipped to them. Obviously, in this context, if they're not happy with the product, they need to be able to return it. We want them to be happy with their product and to come back again. Offering our customers an unconditional guarantee is an important part of that. So far, that seems to be working as we're seeing a significant degree of repeat business.

SP: We do indeed see a high level of repeat business. Approximately 50% of our clients return. We've also noted that when customers return, they often purchase in difference categories of goods. So, for instance, if a customer purchases a handbag and is happy with their experience, they will then come back and purchase a watch or a piece of jewelry.

6. Where do you source your products?

SP: One of our beliefs at Portero is that luxury, like art, needs to be curated and edited. So, we proceed very much like Christie's or Sotheby's in that we build relationships with collectors. Often times, a collector will want to liquidate or cull their collections either to collect more or to collect something else. We sell their collections for them. We also work with people who consign their goods to us to be sold and purchase from estates. Our approach may also depend on whether we're preparing a sale either by theme or by brand. Our current auction of vintage Chanel bags is a good example of an auction built around a brand. We then source accordingly.

7. There seems to be a cult that's grown around vintage fashion and accessories. How does one distinguish between an item that is "vintage" and one that is "second-hand" or "pre-owned"? Do you have policies regarding what does or does not constitute "vintage"?

SP: The term "vintage" is a bit like the term "luxury" - it's used to describe all kinds of things. At Portero, our vintage policy varies by category of products. For example, when we're dealing with watches, we refer to a watch as "vintage" if it is 20 years or older or if the model has been completely discontinued and is no longer available. For jewelry, we make a distinction between signed pieces and unsigned pieces, etc. It depends on the category of product.

8. You have a representative from Groupe Richemont on your board of directors. Would I be correct in interpreting this as an endorsement of sorts by a key luxury industry player? Did you feel you needed that kind of endorsement for legitimacy?

MS: Actually, our relationship with Groupe Richemont goes further than that. In addition to having Frank Vivier of Richemont SA on our Board of Directors, we have Jon Brilliant and Martha Wikstrom of Atelier Fund. Atelier Fund is owned by Richemont and happens to be our largest investor. We view our relationship with Richemont as a strategic one - luxury brands understand that the secondary market is important to the luxury industry and they view us as good custodians of the luxury goods in that market.

9. What kind of relationship do you have with the other luxury conglomerates such as Chanel, LVMH and others?

SP: We do cultivate good relationships with various luxury brands. We're determined to be "brand friendly" and to be seen as good custodians for those brands in the secondary market. Luxury brands have been somewhat slow in adopting the internet but we've witnessed a shift in their thinking in recent years. Luxury brands have always been comfortable with the trade in archival pieces and the vintage market. Now that the internet has made the middle market (pre-owned luxury goods) available to all, they're slowly coming around. At Portero, we're determined to do it right. I think luxury brands understand that.

10. You sound fairly bullish about Portero's ability to ride out the current economic climate. Do you not think the economic slump will impact your business?

MS: Well the internet itself is growing and and demand for online shopping is growing. So, even if overall demand for luxury goods may be shrinking in some segments of the market, we still feel the prospects for Portero's growth are good overall. Also, while the aspirational market may be feeling the pinch, we don't deal in so-called "aspirational luxury". Rather, we specialize in the very high end products. We don't believe demand for luxury goods ever goes away but rather savvy consumers are becoming selective and are looking for greater market value. Wealthy consumers are very interested in pre-owned luxury goods and we're experiencing the benefits of that.

11. Do you think any of the illusive magic associated with the luxury experience is watered down somewhat by the fact that the items for sale were pre-owned?

SP: I actually don't think that's the case. There is strong interest in vintage and pre-owned luxury goods generally. We see it in Japan for instance where shops dealing in pre-owned luxury items are hugely popular. I think this is in part because these shops have reproduced the luxury experience for their customers. We feel we've done that online at Portero as well. Also, pre-owned luxury has taken on a cachet that it didn't have before. It is perceived a having an investment value - consumers see that the item has kept its value over time and can be resold.

MS: Luxury and the luxury experience means different things to different people. It's a matter of offering the right service or product to the right clientele. For instance, Cartier has recently launched it's online site in Japan where they sell their products at full price. They've experienced real retail success at full price on the internet. They've realized that different distribution channels appeal to different clients. While some people love the brick & mortar shopping experience with all that it entails, I myself prefer to shop at my computer. It's my preference. Luxury brands are coming around to that view.

12. How would you personally define luxury?

SP: These days, the term luxury means anything and everything. I think that true luxury is time and access - having access to the things you want in the way you want to experience it. For some people, that means having access to their favorite luxury brand online.

Thank you both for accepting our invitation to discuss your company.

Thank you, it was a pleasure.

For more information about Portero and their policies, please visit their website at www.portero.com. Just don't succumb to auction fever!

Sincerely,

The Luxe Chronicles