|Mon Aug 16 2010 23:33:37|
Would Fulfillment Service Make Sense for eBay?
By: Ina Steiner
After hearing that eBay surveyed sellers about their interest in using a fulfillment service, I reached out to eFulfillment Service, which was reportedly linked to by the eBay survey (we're waiting for confirmation from eBay). President John Lindberg said he knew nothing of eBay's interest in his company, but would be delighted if the marketplace expressed an interest in working with him.
Lindberg has 400 ecommerce clients who process less than 2,000 orders/month, a few of whom sell on eBay. He does $8 - 8.5 million in billing from a 2,000 square foot warehouse, half of which is leased to other companies on a short term basis to allow for growth of his business. The following is a summary of my interview with him about fulfillment services for online sellers (it is not a verbatim transcript).
Does it makes sense for eBay to offer a fulfillment service to its sellers?
It depends on the scope and scale of the business - Amazon.com's FBA fulfillment service is insignificant relative to their core business. Amazon is not building 13 new distribution centers for FBA, but for their own core business.
We'd be delighted to partner with eBay in a referral arrangement as we do with shopping cart systems. If eBay did own an in-house fulfillment service, it would be a competitor of ours, which would not be such great news.
However, it takes operating efficiency and cost control - margins are paper thin in the fulfillment business, and it may not be a great exercise for a big corporation to get into. Amazon had spent millions of dollars trying to break even.
Are there certain products and categories that are ideal for fulfillment outsourcing, and are there others that are not suited for outsourcing?
We call it the Diamond versus Coal problem. You have to look at the retail value per pound, or the profit margin per pound.
High shipping and handling cost is the number one reason shoppers abandon purchasing a product online. Shoppers compare the S&H cost to the retail price. Most will be comfortable if S&H is within 10 - 15% of the retail price, and most shoppers will be uncomfortable if it's above 10 - 15%.
All postal systems basically use a "pound per mile" system. So the starting point for merchants is to consider the value of the product divided by the pound. If you're selling diamonds, you will have no problem with cart abandonment, so you can outsource fulfillment. If you sell coal, and you take the retail price divided by the pounds, it would be impractical to outsource fulfillment.
Does your company offer integration into merchants' order systems?
We use a term "push-pull." It's easy to push the orders to a fulfillment system through a CSV or XML file, or to do it manually - once a day, pull orders out of the auction management service or shopping cart system and upload it to the fulfillment service.
Pull means pulling the data back from the fulfillment service into the merchant's system with data such as tracking information. eFulfillment Service does both push and pull, but not all services are able to pull the data back. It's not the end of the world in that case, since eFulfillment Service will ship confirmation emails to customers.
John said he gets frequent overtures from venture capital and equity firms interested in acquiring his business, but he expressed satisfaction with the business - it's his third company in a 40-year career. ("Weekends are long for me," he said.) About $14-15 million in gross billing will be about the right size for eFulfillment Service, he said, and while the recession slowed growth, he doesn't care how long it takes to get there. And what about eBay sellers? He said hewould have to carefully study the unmet needs of the eBay seller.