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GlacierBayDVD rose to become one of eBay's top PowerSellers, achieving 268,198 unique feedback ratings and making $4.6 million in GMS (the value of items sold) in 2004. But something went terribly wrong, and in February 2006, GlacierBayDVD's status changed from PowerSeller to NARU (not a registered user).

Randy Smythe, owner of GlacierBayDVD, now wants to share his story. In a post on Associated Content (which he dramatically titled "What is the E! True Hollywood Story About EBay's Former Top Seller Glacier Bay DVD?"), Smythe explained why he decided to speak out now, 8 months after his company's demise.

"I've been observing eBay over these past 8 months and I've come to the realization that they are a ship without a rudder, and it is affecting a group of people that I care a great deal about: EBay Sellers. So I thought I would lend my voice to the discussion. I have a unique perspective on eBay, and since I no longer sell online I can speak freely."
http://www.associatedcontent.com/article/66123/what_is_the_e_true_hollywood_story.html

AuctionBytes interviewed GlacierBayDVD owner Randy Smythe this week to see what lessons could be learned from his journey to the top and subsequent plunge to bankruptcy. (Interview has been edited for length.)

AB: Give me some background on GlacierBayDVD - what did you sell, how many employees did you have, how long were you selling on eBay?

RS: I sold DVDs and CDs, I had at the time I closed 6 employees, a 5,000 square foot warehouse and had been selling on eBay since 1999 and started the business in 2002.

AB: Were you using an auction-management software program?

RS: I used AuctionRover, then ChannelAdvisor Pro. I was one of the first to use ChannelAdvisor Merchant.

AB: What was the effect of that on your business?

RS: It gave me so much more control, it allowed me to scale some aspects of my operation and it allowed me to grow probably faster than I could have at ChannelAdvisor Pro.

AB: Were you drop-shipping, or did you carry inventory?

RS: Well, I guess I can tell that model now. (Laughter) We had a hybrid of drop-shipping. We carried some inventory if we got deals on product, but very little in-house inventory. We hooked up with our vendors and got data feeds of their inventory. Then we had a little rule: if inventory at a vendor was X (for example, if the vendor had a quantity of five or more of a title), we could list (that title) on eBay. I took all the order from Tuesday, and submitted them to my vendor on Wednesday morning, and Wednesday afternoon, I had the items in-house and shipped them.

AB: You got the items the same day?

RS: My vendor was in close proximity. Initially, that's how I started. I wanted control of product, I didn't want to leave it in the hands of someone else. When I did the numbers, it was a wash. Either I paid them or I did it myself. When I got into the warehouse, that's probably when I should have got into drop-shipping, but that's another story. We added a couple of other vendors so that we had a broader mix of products.

Editor's Note: some sellers use drop-shippers that fulfill the items so the seller doesn't actually ship the items to the customer, the drop-shipper does the shipping.

AB: So it was the advantage of drop-shipping in that you didn't have to buy inventory until you had orders, but you knew you had access to it.

RS: Right.

AB: And you were doing well?

RS: I made the determination I wanted to grow to $10 million. In 2004, we did $4.6 million in GMS, including S&H, and 90 percent of that was DVDs. Everything was going along swimmingly. I spent the money to grow to $10 million. We decided we wanted to have our own systems so we wouldn't have to hire additional people. All those expenses added up. But the cash flow was there, the sales were there. Everything was going just perfect. We had our best month ever in February of 2004, $480,000 in sales in a short month, and I was just jazzed, because I thought this was going to be great.

And then, eBay - and I had been pushing for this, so I can't blame eBay - eBay came out with Pre-Fill for the media category. And I had been pushing for it because I had wanted to sell CDs. I didn't have the database for CDs. We had already built our own database for DVDs, we had spent $60,000 to build our own database of DVDs. So we had that covered, and as long as our competitors didn't have that data, we always had some kind of advantage over them.

So when they released Pre-Fill, I thought this was great, because now I can expand quickly, because I can get CDs up there without spending another $60,000 or more to create that database. The problem I didn't consider at the time, is that, this makes it easy for everyone coming in. That's when a big competitor came in. My whole point had been about competitors was I didn't believe anyone was going to spend the money we were spending. We were doing a lot of auctions, because we were building our brand, and we were building the company at the time, and we were spending a lot on auctions. I didn't think anyone would challenge us.

But this big competitor didn't shy away from spending money. At the time, eBay Stores were just becoming a big thing, and this big competitor took a different approach than we did that I didn't pick up on for a while. They basically lowered the price in Stores and had higher-price auctions, and drove everyone to stores because it was a lower insertion fees. We had the exact opposite. We had lower prices in our auctions and higher prices in our Stores.

It was working well, but our sales had flattened. I had attributed that initially to summer, every summer is a little slow, and it was very much down. That's when I realized, there might be a problem. That's when I realized I might have to look at changing the model. A lot of other people got in thinking it was a quick buck. Part of the thing about me being successful and being talked about, a lot of other people thought this was easy and they got in. And every new seller that comes in the marketplace that discounts because they don't have any overhead brings the marketplace down total. The prices started to plummet. in order to keep your sales going you either have to discount, or list ten times more than anybody else.

AB: Do you think eBay was actually going out and actively recruiting sellers in this category?

RS: It's a two-part answer. Yes, they were, but not necessarily for the reason you ask the question. This is the time they were gong shut down Half. So they were trying to move everyone from Half to the eBay platform. We were flooded with all the Halfsters. Price is everything for those guys. So that's when the pricing started to just - we used to sell things at what Best Buy used to sell them. Now people sell low and make it up on S&H. So when eBay decided not to shut down Half, they (the Half sellers) didn't go back. I mean, they stayed on Half, but they stayed on eBay too.

AB: What was the biggest challenge you faced in terms of profitability? Was it sourcing? Overhead? Selling prices? Competition?

RS: Our biggest cost on the P&L outside of our product costs was eBay. Our biggest problem, and this was a problem that to this day they have not dealt with, which is why you see the big guys going away, or falling apart like I did, or never growing past a certain point - they hit a wall. eBay doesn't provide a mechanism for you to scale your fees. Every other aspect of your business you can scale. I can get better pricing from my distributor, I can get better pricing from my shipper, I can get better pricing from my packaging guy, all these things you can get better pricing on. With eBay, you can't get better pricing, and the more you list, the worse your conversion rates get. Your sales go up, but your cost of sales on eBay goes up too.

AB: The more you list, the more your conversion rate goes down?

RS: Yes. There's probably a selection of 5,000 - 7,000 titles that should be core titles. And there's over 40,000 titles out there. Well, if you're listing 5,000 - 7,000 items and they're only closing once a week, you've hit a wall in terms of how much sales you can make, because the conversion rate's going to be 25 - 30 %, or 30 - 35% at that time and the numbers work. But you want to grow sales, so you're going to list another 2,000 titles, well you don't necessarily want to throw up the same 2,000 titles again. So you throw up another 2,000 titles that are not in that grouping of titles that are good, so your conversion starts to decrease. Or you put more of the same title up, and you're just at the hit or miss. So you list more, and your conversion rates start to decrease, you're spending more with eBay, your sales are going up, but they're not going up at the same rate.

Ultimately that was the problem I had to address. I had sales, I built up a lot more overhead than I should have, and I should have addressed the overhead issue, from a business standpoint first. I was concentrating on finding how I could get eBay fees down to 10% of sales as opposed to 17%. I didn't really want to run my business on less money than I was running it on, I felt eBay was where I should get the money back from. In retrospect, it was harder to get the money back from eBay in fewer fees than it was to cut so I probably should have cut overhead.

AB: What kind of overhead? I mean, overhead is overhead, what could you cut?

RS: Well I could have cut employees. The other overhead - I got into a new building, and I went from $300/month to $4,500/month, so that's a huge number, and I got a 3 year lease, so it's not like you can change that easily. These are all decisions I made right around the time sales started to flatten out.

AB: You talk about two things going on, one is competition, and the other are the eBay fees. If only one thing had happened, could you have survived, do you think?

RS: I believe my brand would have allowed me to continue to grow my sales. I had to pull back on auctions, so in essence, I'm pulling back on revenue-generating because I'm pulling back on auctions to see if that's it. So I went to 7-day auctions. I had 500 - 1,000 titles that were big sellers for us that we were doing 1-day auctions for, and killing on it. But as competition came in, we didn't do as well on the 1-days, so I had to go to 7-days, so now you are stretching that. You know that the day things close in Core is the day you get the most sales. We pulled back on our 1-days, our sales started to level off, and so I tried to work on the fee structure and make that work, and sales flattened out.

AB: Instead of?

RS: Instead of - if I could have scaled it in some way, I could have continued to grow, and list, and not been in that position. At the time, we couldn't scale the fees and we had this increased competition. But we were still the guy. But because we had a big competitor come in, he cut our upside. Because he came in and cut our ability to grow past a certain point. Since that point, I could have grown, and I should have at the time, and I should have looked at doing the website. And looking at other venues, instead of relying solely on eBay. But again, I felt more comfortable with eBay, and I didn't want to spend the money on the website.

Continued:
GlacierBayDVD Interview Part 2: eBay and Multi-Channel Selling:
http://www.auctionbytes.com/cab/abn/y06/m10/i02/s02

GlacierBayDVD Interview Part 3: "eBay - A Ship Without a Rudder"
http://auctionbytes.com/cab/abn/y06/m10/i04/s02

Comment on this interview series on the AuctionBytes Blog at http://digbig.com/4nden

Editor's Note: Bear Stearns is hosting an Internet Conference Call with Randy Smythe for clients on September 29 at 1pm, hosted by Robert S. Peck, CFA, entitled, "#2 All-Time eBay Seller’s View on the State & Future of eBay." (http://www.bearstearns.com)

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About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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