eBay Drop-off Business Auctioning4u Outlines Reasons for Demise
By Ina Steiner
Auctioning4u co-founder and CEO Christian Braun told AuctionBytes over the weekend that the business was closing and included a letter that outlined the reasons (see below). Auctioning4u is one of many eBay drop-off store chains and franchisors that have closed, finding it more than a little challenging to operate eBay consignment businesses.
Braun said on Sunday that Auctioning4u has gone into administration, "similar to your Chapter 11 or 13 with an administrator in charge." He said the administrators will decide what to do. "We have called the administrators in since after the planned fundraising the company was insolvent. However, administrators have various choices and I cannot speak for them." According to Braun, the administrators have the following options: Sell the business via a share sale; Enter a Company Voluntary Arrangement and continue trading; Sell its assets; Enter into Liquidation; or Strike the company off.
In the letter, Braun pointed to eBay VeRO issues and also wrote, "Non Paying Bidders also added to our problems rising to 15% in the last few months." Similarly, drop-off franchisor QuikDrop, which closed in December, cited issues with eBay as major challenges in running an eBay drop-off business. Jack Reynolds cited higher fees that resulted from eBay's Store changes in 2006; tougher VeRO rules in 2006 and 2007; changing policies that weren't communicated to sellers; and lower selling prices achieved on the site.
In May 2007, Auctioning4u's Braun said his company had raised $8 million to date. In July 2007, it closed its stores and went to a pick-up ("home collection") model, and it sold the brand Auctioning4u at the end of the year to the operators of Serial Sellers. In the letter below, Braun outlines the challenges that the company faced in their three major segments: consumer, charity and business.
Today ClockWorx Ltd. (best known under one of its trading names Auctioning4u) has gone into administration. I was the company’s co-founder and CEO over the last five years. There is a lot of discussion of franchised versus company owned – I believe that discussion to be beside the point; the real question is if one can run a commercially viable trading assistant business (we know if works as a hobby from home). I thought it of interest to outline an overview of the company and its history, the reasons of its demise and possible lessons for survivors in the industry.
Our Consumer Segment
The initial idea was to help consumers sell unwanted possessions on eBay. We started the business almost at the same time as Auctiondrop in America and Dropshop in Germany. We became a Trading Assistant business in April 2003 and soon opened our first shop in West London. At the height of our consumer activity we had 13 locations; 11 in Greater London, one in Manchester and one in Brighton. Some of these were 3rd party locations in storage companies, some company owned stores and two were franchised. We also had a fleet of four home collection vans. We exited the business in 2007, the shops in the summer and the vans around October. We sold the brand Auctioning4u at the end of the year to the operators of Serial Sellers who trade on a smaller scale from South London.
In our experience there are principally two groups of users: those who don’t want to pay for a service they could provide themselves (even if more often then not do not follow through) and those who value their own time and therefore have no problem paying for services. The latter group however is time poor and/or cannot be bothered to bring their unwanted possessions in. The only attractive consumer segments are those that undergo a life changing event such as a move, relocation, death in the family or children leaving the house. Most of these are hard to market to; we found only the relocation market to be attractive – the target market is affluent, time poor prior to the move and everything has to go before leaving the country.
The current VeRO programme (eBay’s programme to allow brand owners to stop sales of counterfeits and trademark infringing items) makes it impossible to run a sizeable trading assistant business. The combination of the sheer size of the problem (more than 18,000 firms monitoring eBay for alleged infringements), the lack of any incentives of those firms to show restraint in their take-down actions and eBay’s three strikes out policy are lethal. eBay closed our main eBay shop four times over the years meaning almost unbearable pain and costs for a trading assistant. As an emergency measure we had to stop taking fashion items in the summer last year making the shops unviable. But even non-fashion items will become a problem over time.
I believe that as a matter of policy auction sites such as eBay need to be put on the same footing as ISPs; i.e. brands should be allowed to serve take-down notices but sellers should equally be able to defend themselves by declaring the item to be genuine or not infringing a trademark. If the brand feels strong enough they then ought to take the seller to court but leave the auction site outside. With the current legal framework it is just a question of time until general auction sites will have to close due to legal risks (try selling a Tiffany product these days on eBay and you will understand what I refer to). Unless the VeRO issues are going away I do not think that it is possible to offer services to consumers on a commercial basis.
Our Charity Segment
With Blue Ocean Solutions we had a strong partner in the charity segment and at our peak served more than 200 charity shops. However, the value of donations was never sufficient and training the charities proved too difficult (our charity shops had an average of 18 employees, most with very little IT skills). The fact that being a trading assistant is labour intensive and charities principally do not pay for their labour did not help. We started to close our programme at the end of 2006 and I do not believe that a charity programme can work on commercial terms.
Started in 2005 this segment soon became the most important part of the business. This month alone we sold more than £500,000 of eBay GMV. That being said we believe that the VeRO problems also impact this business. We have had significant problems selling fashion items or other luxury products for a number of our clients including department stores and jewellery companies (we even tried to sell a product for one brand owner only to be stopped by one of the same brand owner’s employee through the VeRO programme) and were so worried that we sold off all non consumer electronic and IT clients to XS Items, a competitor in late 2007. Another problem is the fact that eBay is only a partial solution for companies’ problem stock (returns and overstock); most of the times clients will have stock that either has no market on eBay or cannot be sold due to its low value. The high number of Non Paying Bidders also added to our problems rising to 15% in the last few months (eBay sellers should be able to insist on immediate payment, which would be no different to any other ecommerce site).
This segment made profits for the company; particularly once we had specialised (in consumer electronics and other IT equipment through our brand Clocktronix and in vintage and collectible toys through our brand The Toy Auctioneer).
In the end our overhead costs put in place when we had wanted to built a national network, in particular our 45,000 sq.ft. processing centres and marketing costs to built the Auctioning4u brand and the relative low margins on the business segment made new investments into the company an unappealing choice and leave the board no other choice than to close.
"eBay Drop-off Auctioning4u Acquires Assets of iSold It UK," May 9, 2007
"eBay Drop-Off Service Shuts Stores in UK, Goes to Home Pick-up Model," July 17, 2007
"QuikDrop Closes eBay Drop-off Store Franchise," December 20, 2007
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 email@example.com.
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