Life after eBay

Guide to E-Commerce Technology

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.”

Within a year, the modest investment had blossomed into a thriving business. The company upgraded the quality of its site to allow for richer graphics and opened a brick-and-mortar retail store. The diversification away from the online channel has made it possible for Denim & Daisies to extend the selling season for much of its inventory. “One thing we learned is that if an item does not sell in season online, you have to mark it down significantly to move it,” says Esposito. “In the brick-and-mortar world, the selling seasons start later than they do online, so we have a place to continue marketing the items as the online selling season comes to a close.”

The company recently moved into an 1,100-suare-foot storefront and plans to integrate the inventory between its virtual and retail stores to automatically reflect changes in the number of units per item available after each sale. That’s another retailing practice that the former eBay-er has had to learn. Currently, when an item sells in the store, inventory online is adjusted manually. Adjustments are automatically made for sales through the online store. “Occasionally we goof and forget to make the adjustment in the case of the former,” acknowledges Esposito.

Eventually, Esposito says she plans to add analytics capabilities to the site and other more sophisticated features to the shopping cart that can aid shoppers in making changes to what’s in their carts. “It’s a step-by-step process,” she adds. “We’ve only been in the new physical store a few weeks and we’re still focused on ramping up that location.”

While stories of such modest investments in infrastructure are not uncommon, most eBay graduates can get a quality storefront for $3,000 or less. Typically, these are hosted sites, which relieve the retailer of many start-up IT headaches.

“One of the things I ask retailers launching their own storefront is do they want to be a programmer or a merchant,” says Barney Stone, president of Stone Edge Technologies Inc., which offers an entry level storefront for about $1,500. “No start-up ought to be writing their own software platform.”

It is also advisable to avoid having a custom platform built. While the idea may look attractive on the surface, it can be costly down the road to add features and functionality because of incompatibility with other open-coded applications, provided the programmer that wrote the code for the storefront in the first place is still in business.

Nor should retailers be seduced by low cost do-it-yourself applications that run $50 or less, experts say. While attractive in price and made to sound user friendly, such applications are beyond the IT skill level of most eBay graduates, they say. Consequently, what looks like a bargain can end up costing the retailer more time and money than if he hired a third-party to build and host the storefront. On average, it takes about three months for a retailer to fully test a storefront prior to roll out.

“EBay graduates can’t afford to take shortcuts when building their storefront,” affirms Robert LaGarde, CEO of e-commerce platform provider LaGarde Inc. “Mistakes can slow roll out or cost sales. There is a cost to doing it right, but it is not onerous.”

Besides, eBay graduates agree that any eBay seller not willing to spend a few thousand dollars to purchase an off-the-shelf storefront package is nothing more than a casual player in retailing. “To make the transition to Internet retailing, you’ve got to pay attention to the core business, which is marketing and merchandising,” says Tool King’s Cohen. “EBay creates a lot of expectations when it comes to online retailing success.”

Diversify sales

True, eBay can be an intoxicating environment for sellers looking to open their own online stores because of its marketing muscle and the extent of its reach into today’s online economy, which is about 25% of all e-commerce sales, according to ChannelAdvisor’s Wingo. As a result, many sellers moving off eBay expect to enjoy the same level of traffic in their own stores as they did through eBay. When they don’t, the urge is to emphasize the eBay store at the expense of their own storefront.

“Most retailers moving off eBay keep a presence on the site, but we counsel them to diversify their sales and bring eBay’s contributions to sales in line with the industry average of about 25% of total sales,” says Wingo. “The transition away from eBay doesn’t happen overnight, but eBay must be viewed as an additive to the business, not the backbone of the business.”

Even after they move off eBay, many retailers continue to find it highly useful for selling overstocks, discontinued items and used items. It is not uncommon for eBay graduates—and even some large, well-established retailers—to test market such items through an eBay store before stocking them in their own store.

“We have made some very opportunistic buys from our suppliers for items we thought might never fly, but worked well on eBay and ultimately sold well through our online store,” says Cohen, who adds Tool King plans to grow its online inventory from 20,000 items to 100,000 items by year’s end. “It’s a way to test products that convey uniqueness to the marketplace.”

EBay graduates also tend to be well schooled in customer service. Consumers shopping through auction sites not only harbor skepticism about the retailers they deal with, but are extremely demanding when it comes to fulfillment and service, and rightly so, according to eBay graduates. The reason is simple: There are eBay sellers that do not deliver the goods as promised and then neglect the buyer. It is for this reason eBay created its feedback and rating system to guide shoppers when selecting sellers with whom they do business.

Keep up the refresher course

“There is a high level of trust among online shoppers in the auction environment and if a seller runs afoul of it, it kills them on eBay,” says Yen. “This insight into the consumer psyche forced us to maintain the high standards expected of us on eBay in our own store. It has been an asset.”

Last but not least, eBay grads never forget the marketing and merchandising lessons learned. “EBay taught me how to enhance product presentations, the brands shoppers look for, how sales cycles work throughout the year and why customers come back,” says Esposito.

The latter is arguably the most important, because as eBay graduates know, without repeat customers there would be no life after eBay.

Peter Lucas is a Highland Park, Ill.-based freelance business writer.

eBay’s fixed-priced site offers more to retailers who want to stay

With its launch in April of eBay Express, eBay Inc. took a big stride toward offering shoppers a more sophisticated online experience. EBay Express, a web site within the eBay marketplace, allows shoppers to find new items at fixed prices from qualified eBay merchants and buy them immediately. “EBay Express is for buyers who prefer a more conventional online shopping experience,” says Bill Cobb, president, eBay North America. “We think eBay Express will attract new buyers to eBay and inspire existing eBay buyers to use eBay even more.”

EBay is providing everything a retailer needs to sell on eBay—including a shopping cart, the first in eBay’s history, with a single order and payment interface so shoppers can check out from several merchants in one process. The site also has a new search engine that returns search results based on relevance and learns based on user selections. Users can also browse within categories.

For retailers who have been successful on eBay and are looking to spread their wings, eBay Express offers an incentive to stick around: It’s open only to eBay merchants with a history of selling successfully on eBay with a positive feedback score of 98% or better and total accumulated feedback of 100 points or more.

But it’s hard to say if eBay Express will entice any merchants to stay around longer than they might otherwise, observers says. “It’s true that this will be a hard experience for individual retailers to replicate,” says Michael Effle, executive vice president of sales management for Vendio Inc., which provides software for eBay sellers. “But retailers also need to turn initial contact and purchase into repeat business and that’s easier to do on their own where the web site and the marketing expenses are scalable.”

EBay Express could be a boon for eBay and eBay merchants, experts say. “EBay has 192 million registered users and 75 million of them are active,” notes Scot Wingo, CEO of ChannelAdvisor Corp., which also provides software for eBay sellers. “There’s definitely a big discrepancy—there are a lot of people who try eBay but less than half become active. We’re hopeful that eBay Express will help narrow that gap.”