May 31, 2006, 12:00 AM

Life after eBay

eBay sellers are taking off on their own in growing numbers - and thriving thanks to the lessons learned on the auction site. "EBay was a great launching pad in e-retailing that let us dip our toe in the water at very low cost," says one graduate.

By Peter Lucas

Think eBay is just the largest online marketplace for buyers and sellers? Think again. The auction site also happens to be a major training ground for Internet retailers to launch their own online stores.

Just ask Donald Cohen, managing partner for Tool King LLC, who used eBay as a springboard to build one of the largest tool and home improvement businesses on the web. In 2001, Cohen began selling tools on eBay on a whim. At the time, Cohen, who operated five retail tool stores in Colorado, casually suggested to his teen-age son, an avid eBay shopper and seller, that he put a couple of tools up for sale on the auction site. The items sold in no time and Cohen, who netted $7.50 on the sales, was hooked on e-retailing. Within six months, business was so brisk that Cohen decided to graduate from eBay and launch his own storefront.

Today, Cohen generates 85% of his company’s business through Tool King’s online store, has consolidated his five stores into a 10,000-square-foot superstore, and set his sights on becoming a $100 million company, up from a projected $35 million in sales this year.

“EBay was a great launching pad into e-retailing that let us dip our toe in the water at very low cost,” he says. “It taught us a lot about what customers expect when shopping online, how to build customer relationships and drive traffic.”

Into the big time

Cohen is just one of many online retailers who have made the jump from the off-Broadway world of selling through e-Bay into the big leagues of online and multi-channel retailing. While the exact number of online retailers that have made this transition is unknown, e-commerce platform providers say they see a steady year-over-year increase in the number of eBay sellers coming to them that want to launch their own storefronts.

“A few years ago, eBay sellers considered launching their own storefront once they hit $300,000 in monthly sales, now that barrier is down to about $150,000 and dropping,” says Scot Wingo, president and CEO of e-commerce platform provider ChannelAdvisor Corp. “EBay is an excellent training ground for online retailers.”

Still, making the move away from the cozy confines of eBay, which spends millions on search engine marketing to drive traffic to its site and promote its product categories and the items listed within them, is no small decision, even for the savviest of eBay sellers.

It takes a significant investment of time, money and research for an eBay alumnus to select the right e-commerce platform that will allow the seller to shift traffic off the auction site and into an independent online store.

The most sophisticated Internet retailers start by purchasing an e-commerce platform that allows them to integrate their new storefront into their eBay store or individual listings and vice versa. “The inventory from both channels needs to be integrated, because there is a high cost to start-ups for customer acquisition,” explains Rodrigo Sales, CEO of e-commerce platform provider Vendio Services Inc. “Retailers moving off eBay that don’t follow this integration path are incredibly inefficient.”

Keep the umbilical cord

The most common technique used by eBay graduates is to link their shopping cart to their eBay store or individual listings. The aim is to introduce eBay shoppers to their storefront at checkout and collect their contact information for future e-mail promotions. That information is of even greater value during the initial transition away from eBay, as online retailers are figuring out whether their search engine and affiliate marketing strategies work.

MovieMars.com, a retailer of movies, CDs and books which offers more than 1 million SKUs, subscribes to such a theory. “Our initial aim was to get the functionality in place so that people buying through eBay could learn they can also buy direct from us,” says Daniel E. Yen, CEO of Movie Mars Inc.

Movie Mars, which launched an eBay store with the intent of striking out on its own, started with what Yen describes as a basic e-commerce platform without many bells and whistles. Subsequently, the company has done little search engine or affiliate marketing, relying instead on eBay for the majority of its sales. As for external marketing, Movie Mars displays a banner ad on its home page promoting prices 15% lower than those found on eBay or Amazon.com

The conservative start is due in large part to a lack of capital. Yen says he found it more prudent to keep eBay as a major component of his business model, serving as a potent marketing arm while he builds consumer awareness for his site. “EBay will always be a big revenue driver for us because they spend millions to market their brand and site,” says Yen. “Most start-ups can’t afford that.”

Cautious steps

With the majority of small businesses failing in the first year, eBay adolescents aren’t always willing to spend tens of thousands of dollars on sophisticated e-commerce platforms. “We had several friends who launched online stores only to go down inside a year,” says Bette Esposito, co-owner of Denim & Daisies, a multi-channel retailer of children’s clothing that started selling on eBay and now operates its own site at DenimNDaisies.com. “We figured we could always upgrade our platform after a year.”

Esposito, a retired school teacher and principal who launched Denim & Daisies on eBay with her daughter in 2001, spent $1,000 on software to build a template-driven web site in late 2003. “I learned how to build a storefront from a colleague,” she recalls. “Once we selected a program to build the site, we ended up working with the manufacturer, which provided us with a lot of training over the phone and tech support.”

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