eBay's Very Merry Catalog

I know the holidays are coming soon without looking at the calendar. Just a visit to my mailbox is proof enough. My offline mailbox, that is. Catalogs from L.L. Bean and specialty retailers like Sharper Image (Nasdaq: SHRP  ) are flooding in this time of year. Another one on the way is the 2004 holiday catalog from eBay (Nasdaq: EBAY  ) .

The 32 pages list more than 100 products, each with color photos and an average selling price. The catalog features everything from computers and electronics to jewelry and watches, and, of course, toys. But wait, I thought eBay was an online auction site?

The company is still the premier place for buying and selling stuff, but eBay has decided to do some direct marketing via the U.S. Postal Service. In line with more traditional retailers, eBay's catalog is intended to augment the popular auction site. According to a study of consumers by Shop.org, more than 50% of consumers consider catalogs a key factor in deciding where to shop online. Potential buyers still must go to eBay.com to make a purchase. This venture could have far-reaching implications, as eBay takes a page from Amazon.com (Nasdaq: AMZN  ) and e-tailerRedEnvelope (Nasdaq: REDE  ) . Both companies started mailing catalogs during the 2000 holiday season. Amazon sent millions of the 40-page color editions to pump up interest in its free-shipping offer.

This is a Foolishly smart move by eBay. Why?

Because customers are accustomed to multi-channel shopping -- by fax, by phone, in stores, online, and through catalogs. According to JupiterResearch, online retail holiday sales for November and December 2004 will reach $22 billion, up 19% compared to the same period a year ago. With 86 million U.S. residents expected to make holiday purchases online this year, eBay is betting customers who are comfortable ordering through catalogs will visit eBay.com to bid on gift items. Oh, did I mention gift certificates are also available for those hard-to-buy-for people on your list? Goodness, eBay has everything!

Investors seem to think eBay's heading for a strong holiday shopping season, too. For the first 12 trading days of November, eBay is up 9% to a new 52-week high. Although not cheap by conventional standards, the company's metrics are strong. Usually a Foolish investor would shy away from pricey stocks with PEs over 100, but eBay is a name-brand, top-notch Internet company with a plan that works. Catalog advertising will likely increase sales, which will, in turn, boost profit margins. If this first attempt proves successful, the company will publish catalogs throughout the year.

Although the full results won't be known until the Christmas shopping season is over, my bet is that the company's financials will reflect the success of this smart marketing strategy in the months to come.

eBay is aMotley Fool Stock Advisorpick. Check out the service risk-free for six months to determine what other stocks make the grade. Or, chat about eBay on our eBay discussion board.

Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.


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