EcommerceBytes-NewsFlash, Number 1513 - April 10, 2007     1 of 2

iSold It Suspends Franchise Sales of eBay Drop-Off Stores

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iSold It has stopped accepting applications for its franchise eBay drop-off stores as it focuses on helping existing franchisees, according to the company's president and CEO Ken Sully. iSold It is focusing on what makes some franchisees do well and makes others say it's too hard and too much work. The model is complicated, Sully said, and "everyone is trying to figure out what works best."

Sully referred AuctionBytes to a letter he wrote to franchisees, which can be found on a website called FranchisePick.com (http://franchisepick.com/is-isoldit-a-great-franchise-opportunity). It reads in part:

"After 18 months of operation, the 100th iSold It store was opened, and no stores had closed. Today, while encouraged by system-wide sales exceeding $4 million per month, the distribution of sales by store has proven to be a bell curve ? with top stores exceeding $80 thousand per month and others struggling to attain $10 thousand per month. Compounding the situation, average selling prices and labor hours per item also vary significantly by store, creating a wide range in store contribution margins. This has resulted in a significant number of stores operating below break-even, and has contributed to over 60 stores closing. Tragically, many individuals who believed passionately in the potential for the category have lost sizable investments, including homes and retirement savings. We personally find this unacceptable and, despite continued interest in this category, we do not feel comfortable selling any new franchises until we get the failure rate lower."

A website started by two former iSold It franchisees that is highly critical of the franchise model have been reporting rumors about iSold It for weeks (http://www.amitheonlyone.org). Gene Bowen and Karen McGinn's claim that the company is trying to sublease its 15,000 square-foot headquarters in Monrovia is true, according to Sully. He said iSold It has reduced costs through outsourcing and has downsized as a result. Sully said the rumor that he is leaving the company when his contract expires in June is false, and said he has renewed his contract.

Bowen and McGinn bought five stores and opened the first in Georgia. They paid iSold It 4 percent of gross sales, which translated into 16 percent of their commission (drop-off stores take a percentage of sales, the rest goes to the consignor).

Like any bad breakup (iSold It terminated Bowen and McGinn in 2005), there's a lot of "he said, she said" about what went wrong. Bowen said there were hidden fees that iSold It had not told them about. "Every time you turned around, there was another cost we weren't expecting."

Sully said Bowen and McGinn were the only people they've ever terminated, saying the pair refused to follow the system and are now "obsessed" with iSold It. He said all of the franchise fees and royalties have been put back in the company, and no shareholders have taken money out.

Both sides agree that software issues have been challenging. iSold It started using Andale auction management software with a custom-built front-end to track consignors. After encountering issues, iSold It spent millions of dollars to create its own software, and Sully said franchisees rushed him into switching them to the new system too soon. Now, iSold It is moving franchisees to a third-party system from Infopia.

But, "it's not about the software," Sully said, reporting that he has a bunch of stores making money. The issues are the people, the demographics and the location (many franchisees don't listen to the franchiser's advice, Sully said), but that software is being blamed.

The company is trying to identify processes that contribute to better sell through rates, how to do better research up front, and how to find enough product, Sully said. He also said a lack of consumer awareness about eBay drop-off stores is a challenge, estimating that awareness of the model is no higher than 1 - 2 percent.

Sully admits the company moved too fast during the frenzy of 2004 when he says no one was content to buy a single store. But, he said, iSold It has the best brand awareness out there today.

Bowen said the model just doesn't work - for any franchisors, not just iSold It - and has filled his site with reports of why he thinks this is so. According to Bowen, he and his partner McGinn attempted arbitration with iSold It, LLC after mediation failed, but could not pay the $25,000 fee for the judge.

Not surprisingly, Sully is more optimistic about the eBay drop-off store model. "I think we can readjust things and this will be fine," and believes with time, consumers will get used to "buying and not hoarding things." However, according to Sully's letter to franchisees, serious challenges for the company remain:

"The third and most significant challenge is addressing the claims of a group of franchisees who regrettably have each suffered significant financial losses. While we all feel very badly for anyone who lost money, we believe we presented this concept fairly from the beginning and it is unclear if we will be able reach a conclusion without litigation, reorganization or insolvency."

http://www.i-soldit.com


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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