March 4, 2004, 12:00 AM

While hardly trying, eBay moves into the neighborhood

(Page 2 of 2)

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 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.

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