EBay drop-off stores--physical locations that let consumers drop off merchandise to be auctioned on eBay.com--are a relatively new phenomenon, but that’s not stopping some enthusiasts of the concept from predicting big things for the nascent industry. The potential market for e-Bay drop-off stores is $20 billion or more, says Randy Adams, CEO and co-founder of AuctionDrop, one of about 20 businesses formed recently to serve the market. “EBay had estimated this market at $5-$10 billion, until they saw what we were doing, and re-estimated it at $20-$25 billion,” he says.
Adams, a veteran of Internet commerce who sold the Internet Shopping Network to HSN.com and was involved in the initial financing of Yahoo, says he expects to grow a chain of 500-1,000 AuctionDrop stores throughout the U.S. AuctionDrop, based in San Carlos, CA, currently operates five stores in California and has plans to open eight more over the next two months in southern California, then 10 in the New York-New Jersey-Connecticut area this spring. AuctionDrop, which began operating last year, handles 30 to 60 items per day in each of its stores and is operating at annualized gross revenue of $1.5-$2 million, Adams says.
Among the 20 or so other businesses that have begun serving this market, several are also planning to expand nationwide.
But the market has substantial challenges to overcome before it can prove its potential, other experts say. Scot Wingo, CEO of ChannelAdvisor Corp., which provides software and services for companies that conduct eBay sales and counts drop-off stores among its clientele, says drop-off stores must prove they can get a large number of consumers to pay extra for what they can do at less cost by selling directly on eBay. “The challenge is finding people willing to pay for the convenience of dropping off merchandise,” he says.
“Selling directly on eBay isn’t that hard,” Wingo adds. The biggest challenge for most small sellers on eBay, posting a product photo, is becoming easier with widespread use of digital cameras, he says. And with the drop-off stores charging commissions of 20-30% for the sale price of auctioned products, he adds, drop-off stores are probably limited in the value size of products consumers will be willing to sell on consignment. “If you’re selling a laptop for $1,000 and paying a 20-30-% commission, the cost outweighs the convenience,” he says.
Daniel DeYoung, CEO of DropSmart, which operates a single 2,000-square-foot store in Orlando, FL, 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 hopes to open 4-6 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
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