Groups of entrepreneurs are planning to open hundreds of competing stores where consumers can drop off their cast-offs for sale on eBay.
By Paul Demery
One thing that almost everyone agrees on when it comes
to the phenomenally successful eBay Inc.: Don’t underestimate its
ability to continue to generate sales. The latest sales engine comes from
outside the company.
Several groups of entrepreneurs are competing to
establish chains of eBay drop-off stores that do all the work for consumers
who want to sell on eBay. “Only one out of 250 people know how to or
want to sell something directly on eBay.com, so we’re going after the
other 249 to make it easier for them,” says Russell Grove, president
and CEO of Nashville, Tenn.-based NuMarkets, one of about 20 young
companies that have emerged with plans to dot the U.S. with eBay services
stores.
In a fashion that has become the hallmark of eBay, the
stores are getting encouragement from eBay itself, which is allowing some
to co-brand with eBay while remaining separate entities. “This is yet
another way for people to become a part of the eBay community,” a
spokesman says. “Anything that brings more members and more items for
sale just strengthens the overall eBay experience.”
The stores, with names like Snappy Auctions,
PictureItSold, auctionValet, iSold It and AuctionDeuce, say they are
already showing fast growth from a ready audience of consumers looking to
sell on eBay without going through the trouble of setting up their own
listings or electronic stores on eBay.com. But some are growing
faster than others, and some entrepreneurs say they’re competing to
see who can emerge as the leading national chain. “The race is on to
see who of us will be the McDonald’s of this industry,” says
Grove, who plans to expand NuMarkets from two to 50 stores in the
southeastern U.S. this year and have 2,000 coast-to-coast by 2008.
EBay has made great strides in making buying easier
for the general population—it claims 41.2 million active users and
94.9 million registered users, most of whom are buyers, not
sellers—but many people find it too confusing to post listings and
set pricing, says Neil Stern, a principal with retail consultants
McMillan/Doolittle. “It’s hard to identify, but there’s a
huge segment of the population who don’t sell on eBay but who might
be enticed by drop-off stores,” he says.
EBay itself commissioned a consultant to study the
potential market of gross merchandise sales generated by drop-off stores
and concluded that it was $5-$10 billion annually. Entrepreneurs have
bigger dreams, however; Randy Adams, co-founder and CEO of AuctionDrop,
based in San Carlos, Calif., estimates the potential at $20-$25 billion,
equal to eBay’s 2003 worldwide gross merchandise sales of $24
billion. “It’s a big market,” he says. “We expect
to have 500 to 1,000 stores in addition to what others have.”
While NuMarkets and AuctionDrop have venture capital
funding—and the most ambitious growth plans—many smaller eBay
drop-off companies also have plans to grow. “Our eventual goal is to
have a chain across the country,” says Dan Cowles, a principal of
Lake Forest, Calif.-based auctionValet, which opened its first store in
southern California in January and plans to open a second this year.
Co-branding
The buzz created in the industry has also led to
speculation that leading courier services UPS and FedEx Corp. might play a
role as eBay drop-off centers. UPS operates the chain of UPS Stores
(formerly MailBoxes Etc.) and FedEx has agreed to buy Kinko’s Inc.,
which operates 1,200 copy and business services centers. Spokeswomen for
both companies say they know of no such plans for their companies.
The drop-off stores are a brick-and-mortar extension
of eBay’s Trading Assistants program, under which eBay has certified
more than 30,000 of its best sellers to assist new sellers in developing
eBay stores or placing listings online. Although eBay had not anticipated
the rise of drop-off stores, it sees the stores as a natural extension of
its Trading Assistants, some of whom have used their homes to meet with
client sellers and to receive products for eBay listings. Now eBay is
experimenting with a Trading Post program designed to certify
brick-and-mortar operations as eBay consignment shops.
The new source of customers could help eBay satisfy
Wall Street, where some analysts have been wary of eBay’s ability to
build new revenue streams to maintain a lofty stock price. As of mid
January, its stock traded in the mid $60s, about 96 times earnings per
share.
But some industry experts, including some of the new
store owners themselves, say the eBay drop-off market faces a lot of
challenges and uncertainty. For one thing, the stores are in the business
of selling a convenient way to sell something on eBay at a time when
selling directly on eBay is easier than ever, says Scot Wingo, CEO of
ChannelAdvisor Corp., which provides software and services to eBay’s
online sellers as well as to drop-off stores. “Selling directly on
eBay isn’t hard,” he says. The widespread use of digital
cameras is simplifying what has been the most difficult aspect of selling
on eBay—posting product photos online, he says.
Wingo adds that, with most drop-off stores charging
20-30% commissions on auction sales, clients will probably avoid selling
items valued at $100 or more. “At that point, paying a 20-30%
commission begins to outweigh the convenience,” he says.
Diversity
Some store owners say their experience shows the
market for drop-off items is too small to be a store’s sole line of
business. Daniel DeYoung, CEO of DropSmart, which operates a
2,000-square-foot store in Orlando, Fla., says long-term success of eBay
drop-off stores will depend on their ability to diversify. “I think
some are doomed to fail just doing drop-offs,” he says.
DeYoung says he hopes to open four to six additional
stores in Florida by year-end, but only if he can secure enough business to
complement his eBay drop-off service, he says. He’s already building
a business selling used automobiles and real estate through eBay, and
expects to land one or more deals with major footwear marketers to
liquidate large amounts of excess goods on eBay.
Especially with a number of cases recently of
criminals who were caught trying to sell stolen goods over eBay, drop-off
stores should take steps to guard against becoming fences, says Adams of
AuctionDrop. AuctionDrop videotapes everyone who drops something off for
sale and requires sellers to produce a driver’s license for
identification. “This scares some people from dropping things
off,” he says, noting that about 2 out of 5,000 declined to proceed
with a drop-off when asked for identification.
The new breed of eBay services entrepreneurs differ
widely in their use of technology and their financial
resources—differences that could set them apart as they seek to
dominate their market either nationwide or in local or regional areas.
Although they all say they advertise in local media
outlets to drum up customers, some are more active as advertisers than
others. DeYoung, for instance, pays about $1,500 per month for a mixture of
media exposure in newspapers and flyers, plus $2,400 per month for his own
weekly one-hour radio show that advises listeners on how to use eBay.
Adams, the CEO of AuctionDrop—one of only two
store operations along with shipping services firm PostNet testing the eBay
Trading Post designation—takes an approach opposite that of
DeYoung’s by avoiding diversification. “We think the way to go
is to focus on one thing, serving eBay drop-offs,” says Adams, whose
past ventures include founding and then selling the Internet Shopping
Network to HSN.com and setting up financial backing for the startup of
Yahoo Inc.
Centralize—or not
AuctionDrop is also one of the most highly capitalized
operations among the new eBay services companies, having secured more than
$6 million from Mobius Venture Capital and Draper Associates. AuctionDrop
currently operates four stores in the San Francisco Bay Area and plans to
open more this year in the Los Angeles and New York metropolitan areas,
with each geographic grouping of stores served by a regional service
center.
AuctionDrop employs two or three auction consultants
in its stores to advise customers regarding what can sell on eBay and at
what price. It picks up dropped-off items at its stores each day and takes
them to a regional hub, where products get photographed, written up with
listing descriptions, stored and then shipped once they’re sold on
eBay. In addition, AuctionDrop operates a separate customer service center
to handle the large amount of e-mail messages it gets for each listed
product. Each of its five stores averages 30 to 60 items dropped off each
day, and each item generates on average more than two e-mails per listing
period. “We originally thought we could do all this out of
stand-alone stores, but we’re processing more than 2,000 e-mails per
week,” Adams says.
Grove of NuMarkets figures his company has the edge
for long-term growth because of its technology infrastructure that supports
quick service through a centralized web-based e-commerce platform that can
process up to 300,000 auctions per day. “We think we’ll break
away from the pack,” he says. “We can take an item in the door,
and three and a half minutes later have it for sale on eBay.”
Each NuMarkets store, including franchises, enters
item listings directly onto eBay and operates its own warehouse for
shipping. The NuMarkets company processes purchases for all listings in a
central location, integrating transaction information from eBay with its
central order management system, then automatically printing out the order
and shipping information to the warehouse in the pertinent store. Smaller
drop-off companies process all listing and order-taking at each store
location.
Grove, who has a background in logistics systems, says
one of the in-house-developed tools is a database of product descriptions
designed to let store employees quickly write listings on eBay. The system
also coordinates the descriptions with digital photos NuMarkets employees
take of sale items. And by hosting the knowledge base and e-commerce
platform on central web servers, it realizes economies of scale that enable
it to offer lower rates while handling larger items for sale than its
competitors, he says.
NuMarkets’s e-commerce platform, which it
developed in-house, takes order information from eBay’s PayPal online
payment system and places it into an order fulfillment application that
prints out an order at the pertinent store’s shipping department.
With financial backing from the Southern Appalachian Fund, Grove says
NuMarkets has the capital now to build 500 stores, with plans to extend
soon into Chattanooga, Tenn., and several locations in North Carolina and
Georgia.
AuctionDrop counters that it isn’t speed in
getting a listing on eBay that matters as much as planning a listing for
the right category, which is why its business model is based on a
spoke-and-hub network designed to have auction listing specialists in each
hub service center. It would be too costly to employ listing specialists in
each store, Adams says. “This is a deceptively easy business to look
at, but one that’s hard to execute well,” he says.
paul@verticalwebmedia.com
