What is Gross Merchandise Value
Gross merchandise value is the total value of merchandise sold over a given period of time through a customer-to-customer exchange site. It is a measure of the growth of the business, or use of the site to sell merchandise owned by others.
Gross merchandise value is one element of an e-commerce site's performance because the revenue of the business will be a function of gross merchandise sold and fees charged. it is most useful as a comparative measure over time, such as current quarter value versus previous quarter value.
BREAKING DOWN Gross Merchandise Value
The gross merchandise value is calculated prior to the deduction of any fees or expenses. It provides information that a retail business can use to measure growth, often on a month-over-month or year-over-year basis. Generally, a retail business can calculate the gross value of all completed sales, though merchandise returns may need to be removed from this number to provide an accurate calculation.
Since retailers may or may not be producers of the goods they sell, measuring the gross value of all sales provides insight into the company’s performance. This is especially true in the customer-to-customer market, where the retailer serves as a third-party mechanism for connecting buyers and sellers without actually participating as either.
It may also provide value to retailers in the consignment sector, as they never officially purchase their inventory. Even though the items are often housed within a company’s retail location, the business functions as the authorized reseller, often for a fee, of another person’s or entity’s merchandise or property. Generally, they are never the true owner of the items, as the person or entity that placed the item on consignment may return and claim the item if they so choose.
Customer-to-customer retailers provide a framework, or system, for sellers to list items they have in inventory and for buyers to find items of interest. The retailer functions as an intermediary, facilitating the transaction, commonly for a fee, without actually being a buyer or seller at any point within the transaction.
In many of these customer-to-customer sales, the retailer facilitating the transaction never comes in contact with any of the physical merchandise. Instead, the seller will send the item directly to the buyer once the financial portion of the sale is complete. This model may differ drastically from other retail models in which the retailer purchases merchandise from producers, manufacturers or distributors and then essentially functions as an authorized reseller of goods the company has purchased.