Friday, April 29, 2016

The "democratization" of philatelic retail - the impact of the internet on the philatelic marketplace....(Repost)

This is a repost of a blog posting I originally made on the 1.0 version of this blog on 28 October 2015

Over at the Stamp Community Forum there has been a lively debate going on regarding the impact of ebay and other online marketplaces upon the business side of the hobby.  The discussion started with the question "Can dealers compete with ebay?" and has ranges across several related topics, as is the want of a forum thread that is already eight pages long.

My reply to the question was that the question was asking the wrong thing. It's not a question of dealers competing with ebay, but rather "Should dealers consider using ebay as a platform for their business"  Ebay itself is simply a tool, a digital marketplace where buyers and sellers can meet in cyberspace and exchange goods.

Which raises a separate question. Is there a difference in the terms dealer and seller? 

A question of semantics to be sure. I would say anyone who is offering to sell stamps, in any marketplace, is a dealer.  Others would seem to prefer to "rarify" the term dealer by restricting it only to those who make a professional living from their business. For those who only do a little business on the side, they would argue that -seller- is a better term.  And in the end, the "sellers" on ebay are making it much more difficult for many "dealers" to make a living.

This observation then leads to the actual heart of the issue at question - the decline in value of most stamps over the past decade.  And here it would be wise to not separate the two groups into "dealers" and "sellers" because they are all doing the same thing : offering stamps for sale to buyers.

If we think about how the business of philately operated say back in the 1980s (yes I am sure that is ancient history for some readers of this blog, who may not have even been alive then.  Me I was a teenager, working on my stamp collection while listening to Bon Jovi, Miami Sound Machine and Heart on the radio). You had your local stamp dealers if you lived in a large enough metropolitan area. You had dealers who advertised in publications such as Linn's Stamp News.  But unless you travelled a great deal around the country, it was often difficult to find stamp dealers who might have the material you are looking for.  You could write to those dealers who placed ads in the various philatelic publications, but in general the total number of people selling stamps in the 1980s was fairly small, and in general the demand for stamps equaled the supply available (or seemingly only available) through dealers.  In that retail environment, most stamps tended to rise in price slowly, and some that would become -hot- issues could rise very fast very quickly, as anyone who remembers the US stamp bubble of the late 1970s can attest.  Philatelic retail was, I would argue, controlled by an "oligarchy" of dealers, many of whom were quite chummy with each other and would rarely move to undersell their product verses a competing dealer.

Then came the internet, and all the rules of philatelic retail were changed. Philatelic retail became "democratized" and the benefit has been to the buyer at the expense of the dealer.

Today, the ability of the buyer to "comparison shop" between different dealers of stamps is so much, much greater than it was in the 1980s.  And, with the ease the internet provides to allow anyone to become a purveyor of stamps (compared to the days when most dealers had huge overhead in the cost of a shop, the cost of advertising, etc) it means the potential for a large number of retailers to join the marketplace now existed  The result is that today there is now a lot greater supply of stamps in the marketplace for purchase than there was in the 1980s.  What might have been 20 dealers in the USA offering stamp X for sale via local channels and, perhaps, an advertisement in a national publication, now has become 200 dealers of offering the same stamp, and the buyer can compare prices with just a few keyboard clicks.

The one problem with this of course is that demand for many stamps has not kept pace with the increase in availability of supply in the marketplace.  This is especially true for the "meat and potatoes" type of stamps - those stamps that were always worth more than being packet material back in the 1980s, but they were not so rare as to be nearly unobtainable unless you had deep pockets.  It turns out that these "meat and potato" stamps exist in sufficient quantity that if you have more sellers offering to sell the item than buyers to buy them, the value of the stamp is going to decrease in the marketplace.  This is especially the case for the stamps of Western Europe and North America where demand is weak due to the lack of new collectors of the stamps of the West and the vast quantities of most stamps printed at time of issue. Many stamps are now selling at a percent below face value in the marketplace because they are so common and demand is so weak for them. Countries that were -hot- in the 1980s like Germany have in particular been hit hard. A perusal of the Scott Catalogs and comparing prices clearly illustrates this - most of the "meat and potato" stamps have either remained stagnant or declined in catalog value over the past decade.

Meanwhile those stamps that always have been rare due to limited quantity in desired conditions continue to this day to increase in value because there will never be enough supply to meet demand. High quality pre-1930 USA issues, for example, continue to rise in value if they are in above average condition.  And of course one can not forget the impact of booms and bubbles in in philately. While the Chinese stamp market did decline a bit over the past couple years due to China's own internal economic weakness, the days when Chinese stamps of the pre-1990 era sold just above face value are never going to come back either, as it seems the supply of these issues is much less than the demand even when you factor out speculation.

Dealers who do not make use of sites such as ebay, Delcampe, Zillions of Stamps and others here I think really are making a grave business error. These platforms provide an audience of millions of potential collectors from around the world that the dealer would never have been able to reach had the structure of the retail trade remained the same as it was in the 1980s.  The cold hard reality is that the marketplace is now much, much bigger than it was, and as the amount of supply has grown faster than the demand for stamps from collectors, the laws of supply and demand work to the benefit of the buyer. And this will remain the case until a new equilibrium between supply and demand is reached.  It is a whole new retail ballgame in philately, and the days of the stationary retail brick-and-mortar stamp shop are probably numbered. A dealer with the cost of overhead such as owning a retail space is going to find it difficult to compete with a dealer selling items from the comfort of his or her home.

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