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Tue Apr 10 2007 23:08:12

eBay Drop-Off Store Musings

By: Ina Steiner

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AuctionBytes readers probably already know that I believe eBay drop-off stores are a challenging model because of the added cost of overhead, but some have reported success, such as those who add ancillary services or a B2B component.

Adding the cost of a franchise on top of an already challenging model is tough from a profitability standpoint. Buyers of a franchise surely believe they are getting something of value in return, such as brand awareness, training and advice, and a smoothly-running system (in the case of eBay drop-off stores, that includes software that tracks sales and consignors and manages everything from listing to fulfillment).  

I'm told by franchisers that I'm negative and critical when I say things like this. As always, I try to look at things from the sellers point of view.

What do you think?

And if you have any updates for the AuctionBytes consignment chart, please let me know.

Comments (18) | Permalink

Readers Comments

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by: PS

Wed Apr 11 07:12:40 2007

As usual, Ina, I think you portray the drop-off business accurately. Of course franchisors will not be happy with an objective perspective on their industry. They have an agenda: TO SELL MORE FRANCHISES

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by: oz

Wed Apr 11 09:14:51 2007

The concept is fantastic and there’s unquestionably a HUGE market need.  The market is in the hundreds of billions annually.  It’s that big imho.

However, implementation is extremely challenging in so many areas.  Success requires expertise in sales (customer and product aggregation), customer service, multiple product areas, personnel, logistics, marketing, software and cost management.  All areas that can be major hurdles and consume each other’s resources.

I think the best way to do it is via a franchise or large provider of integration services and a very focused, methodical growth plan.  eBay offers so many options, paralleling them by offering too many of these services for new drop off store businesses is possibly a fatal early blow unless the services are a fully-developed part of the integration services mentioned above.  Most franchises & systems I’ve seen are also too early in their development to offer what eBay itself offers.

I think if the approach is more like opening a multi-channel, sales, product aggregation, logistics and distribution systems business, and the owners have that kind of expectations and ideally background, success is much more likely than for someone who wants to own something like a UPS store. The difference is addition vs. trig or matrix calculus depending on your backend support and experience.  If you’ve never owned a business before, and don’t have either the experience or funding to make up for areas you don’t have expertise in, I’d try a more developed business.  If you have the experience, noted resources and ability to take the blows of a totally new market with unlimited potential, I think the opportunities are there.  Feels a lot like the wild west to me.  A lot of people did very well, a lot heard the rumors and went without the resources and paid the price.  Many planned and executed steadily and made it.  Others did as well and still were arbitrarily shot or stricken with disease, weather or other fatalities.

Most important is to go into it with eyes open and awareness of what the business really is.  Following that, you’ll need as many previously noted resources as possible.

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by: Debbie

Wed Apr 11 10:15:13 2007

I think this:

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by: Darin

Thu Apr 12 05:57:50 2007

Great website & info - thank you very much!  The problem with an ebay store is the scalability factor.  There is a limit to the amount of auctions 1 person can do - from beginning to end.  To increase sales beyond current limitations one must either sell higher ticket items, work more efficiently or hire more workers.  Problem with higher ticket items is that the store will only "cherry pick" the best items.  Maybe 1 out of 10 items - what is the customer to do w/ the other 9 that only sell for less than the minimum?  Not too many customers have items that all sell for over $50.  Hiring more employees - another potentially profitable yet risky step.  More employees - higher insurance costs, overhead, training etc.  The constant pressure to increase the sales to cover the new employee is always there.  

Another big problem is the wide variety of items that walk through the door.  Research is key but takes a lot of time & of course, time is money.  

I had thought about opening a store (not a franchise) but after crunching the numbers I feel you must charge at least 40% to make any decent amount of money - ebay + paypal is a minimum of 10% of final price. PLUS you definitely NEED to charge an upfront cost PER auction - $3-$5. This forces the customer to bring in items of value PLUS covers your listing fees & part of workers salary.  

Just my thoughts.  Thanks a lot!

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by: MW

Thu Apr 12 09:14:44 2007

You are right on the money, Ina.  Making profit on eBay is tough for any seller.  Adding the fixed costs of a storefront and employees is a big disadvantage.

The stores rarely sell more than $40K per month which translates to $12K in revenue.  Subtract the rent, insurance, wages, equipment and franchise fees to see the net income.  You would be better off relaxing and investing your money in a PayPal money market earning 5%.

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by: Jerome Harvey

Thu Apr 12 12:37:00 2007

Consignment is a tough business. The biggest problem we see is customers expecting too much $ for their items. Prices are so depressed in some eBay categories, and that makes it tough for both the consignor and consignee.

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by: Clutter to Cash of New York, Inc.

Thu Apr 12 19:19:10 2007

Having been in business for three years as of this April, Clutter to Cash of New York, Inc. have been confronted with the eternal question of whether or not to franchise Clutter to Cash of New York, Inc. It seems lately that many budding entrepreneurs are continuously mulling over whether or not the purchase of an already established franchise is a worthwhile investment opportunity as a means to run a successful and profitable eBay® drop-off enterprise. For this matter, in our strong opinion based on several years of experience in this industry, an eBay drop-off consignment franchise is neither viable nor practical.

At one time, we had seriously thought about jumping on the bandwagon ourselves and franchising our business. After having completed a tremendous amount of research, speaking with people in the industry (including a plethora of vendors, franchisors and franchisees) and “crunching the numbers”, we realized that the only real beneficiary to this exercise would be that of the franchisor. Through our analysis it was the franchisee that would be losing out financially (not that to say that this would be an inexpensive proposition for the franchisor, considering the legal costs involved as well as the many applicable state and federal laws and disclosures that are required). In effect, we would be trying to sell a concept that we ourselves neither bought into nor accepted in the first place. For this reason, in good conscience and a matter of principle, we decided not to pursue this strategy.

In our strong opinion, eBay consignment drop-ff stores are NOT AT ALL conducive to franchising. It is our belief that one can start their own independent eBay drop-off consignment business without having to incur the substantial costs of franchising (including initial fees and royalties) and be more financially successful and happier without having to report to a franchisor situated in a remote location.  But I must be honest, this business is extremely challenging and the profits are razor thin!  

Taking into consideration the considerable costs of starting a business, the working capital involved and time being a precious commodity, we would highly recommend that anyone seriously considering starting a business of this kind, that they do their homework first. This means preparing a thorough business plan with proposed profit and loss statements, balance sheets, cash flow projections, budgets and a realistic preview of your costs and expenses. You may also want to ask yourself what you may need insofar as an initial cash outlay. Hint: You do NOT need to spend hundreds of thousands of dollars or more getting into this business!! If you do, more likely than not, you will never recoup your initial investment unless you have additional streams of revenue off-setting the costs of your eBay drop-off business or your subsidizing the business, in which case I would suggest that you look at other opportunities. For that matter, it makes absolutely no sense to throw good money after bad. In our book, each business must stand on its own or it is clearly not a worthwhile venture. We would also recommend retaining the services of a competent business attorney and accountant from inception and throughout the life of your business - They are worth every penny, especially during the critical phase of start-up where you are most vulnerable to failure! We would also advocate the negotiation of a short-term lease (preferably one-year with options or month-to-month). If you are fortunate to own your own commercial real estate you may have the luxury, through stabilized rent and CAM expenses, to leverage this opportunity as seed capital for initial growth and expansion (This is actually how Clutter to Cash of New York got started). But you have to be careful so as not to go overboard and purchase, build or settle in a stately palace (anything more than 3000 square feet is way too much) or it will most certainly become your mausoleum. We’ve known many businesses, including competitors, who expand in anticipation of growth and immediately falter due to insufficient funds, excessive overhead and severe financial debt load (And this MAY be the very reason why a company has started to franchise in the first place; either they are in need of fast cash or they are not successful running their current business themselves.). Just as a brief aside, we are constantly amazed at how many eBay drop-off consignment businesses that are starting to franchise and have run fewer auctions with substantially less feedback and have only been in business for a year or less.  

Before you franchise, we advise you to do your homework and also contact other independent eBay® auction consignment businesses and find out what has made them successful.  And also ask yourself if eBay consignment is the right business for you.  An eBay drop-off store is NOT a ''get rich quick'' enterprise and can end in financial ruin if you are not careful.

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Fri Apr 13 16:37:58 2007

Hey Ina, just wanna say I'm always reading your articles and pieces on eBay and the online auction industry.  This is my #1 source for news.  

Just want to say that our operation in Austin, Texas is still surviving.  Our overhead is extremely low and we all run off an entrepreneur spirit.

Unfortunately, Austin is very competitive when it comes to eBay.  At least 7 stores have come and gone since 2004.  We are proud to still offer our services to what is becoming a small niche for us.

I just want to say that I think this ''revolution'' of drop off stores is about to reach a point where only specialized, low-overhead trading assistants will come out ahead.

There is an Isold It that just cropped up back in March and their location is very nice compared to our little office.  However, it will be interesting to see how long they will last before putting up the popular ''For Lease'' sign over their sign.

Thanks Ina and keep up the good reporting.

Founder, Vendelo, LLC

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by: Ian Montgomery

Sat Apr 14 07:26:10 2007

Hi Ina

I think this is becoming more and more of a burning issue, particularly with ISoldit's recent announcements.  Here in the UK we run a successful drop off business and have started franchising the concept.  We feel that there are a few crucial aspects that some of the larger franchise set ups have ignored.  1.  Makes sure the people developing and running the franchise understand the eBay drop off business inside out. 2.  Makes sure you have efficient software, ideally developed by the experienced individuals.  3.  Don't take on high overheads particularly premises cost and exorbitant franchise fees.  4.  Don't wait for people to come in the store; market, network and get out there.  5.  Only expand when you create the demand. 6. Don't rely on just over the counter trade; look at business stock, estate sales and sourcing your own product.  This is no different from any other new business - you need to work hard at it and what you put in, you should get out - however it is not an easy way to make a buck (or a pound in the UK!)

Thanks and keep up the excellent coverage.

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by: Sue

Sun Apr 15 07:24:38 2007

Hey Ina, I thought long and hard about becoming a trading asst when the concept first came up way back when, I decided I had much too much of my own stuff to sell and if I were concentrating on putting someone else's stuff on, when would I ever sell my own, plus I already own my inventory so profit is 100% there.  A drop-off store recently opened and closed down the street, I never got a chance to stop in and check it out...I've heard they skipped out on their consignors, taking their money and items.  I guess its just too hard to make a go of it.

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by: John in Amsterdam

Wed Apr 18 02:35:48 2007

I think the problem with eBay drop-offs is the amount of work per article. Especially shipping.
Selfserve consignment works better: for example, the chains: in the States or with 20 years of experience and 180 stores in Europe.
A succesful chain is also with 200 stores.
You can also mix selfserve with shipping using software like:
Marktplaats Handelspost

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by: Jacob

Fri Apr 20 02:11:28 2007

I owned a Snappy Auctions franchise. I would highly recommend that you stay away from franchising. You can do it yourself for far cheaper. Also, the margins are thin and it is a challenging business. You need to have your own sources of merchandise like I did.

Snappy Auctions terminated without notice because they did not like my conversations with other franchisees (nearly 25% of the franchisees contacted me with their concerns about how the franchisor was acting).

I was selling mainly my own items and I am now selling far more than I ever could have without the headaches and hassles.

Think long and hard about opening an ebay drop off store. Stay away from the franchises.

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Wed Apr 25 09:14:52 2007

I was in the drop-off business for over a year as the store manager. All I can say is I'm glad I wasn't the owner - I saw how much we had to pay in fees to eBay, PayPal, and overhead and it just didn't add up after I saw what we were taking in in commission. It's a tough business to be in, and I cannot conceive of how any franchise could survive when they have to ALSO pay franchise fees. Plus, there's no reason to buy into a franchise for a dropoff store - opening a dropoff store can be done independently just fine.

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by: Ross McCulloch

Thu Apr 26 10:31:26 2007

Ina you're not being overly critical at all, there really is no justification for the over the top franchise fees that are being charged. What's more, as Trevor Ginn has demonstrated, the franchise drop-shop model only works on a huge scale with a centralised hub.

In essence, this business should be carried out by big business (such as Auctioning4U) or by highly skilled individuals working from home, who don't have huge overheads.

Incidentally, I'm currently working on a Web2.0 development that will streamline the whole eBay Trading Assistant process, aimed at individuals the software/website could also be utilised by drop-shop owners.

You'll be the first to know once we're ready to launch Ina.

Keep up the good work!

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by: Snappy Mgr

Tue May 22 11:23:03 2007

I can tell you Snappy Auctions is no better off than ISoldit and their CEO is no more forthcoming that ISoldit's CEO. Both say things are just fine, but both are experiencing high close rates.

Face doesn't work. The model was not thouroughly tested and the CEOs fit the mold of "sell it now, fix it later."

I wonder when the lawsuits will start.

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by: Christian Braun

Sun May 27 13:20:16 2007

Further to Ross and Trevor's post some more infomation about our purchase of iSold It UK franchise database and approach to eBay drop-off shops:

Christian Braun

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by: Eric Pepper

Tue Sep 18 18:54:27 2007

The eBay Drop Off store in and of itself is impossible to sustain strictly on its own merits.  You will never succeed in getting enough consignment business and the customer attrition rate is enormous.  Your cost to acquire the customer for the items that you will sell is quite expensive.  If you sit there behind the counter and believe that people will come in droves, you will deplete your bank account very quickly.  We work on a multiple sales channel approach.  We specialize in a particular product, which we inventory, we aggressively pursue customers, and promote B2B relationships.  We have also aligned with numerous consignment shops and religious houses of worship.  The work load is tremendous, but it beats working for somebody else.  If you are doing what you enjoy, who cares if the profits are slim?  We just have to make it up in volume.  Good luck all.

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by: asap-sells-it

Wed May 7 17:53:27 2008

I agree that the cost of an eBay Franchise is too much.  Storefront (especially in NYC) and employees.  Starting small without a storefront is the best way to go in my opinion.

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