EBay benefits from 'drop-off' stores
By Greg Wiles
Bloomberg News Service
Rick English sold a tuxedo for $240 through eBay Inc. in November without clicking on its Internet auction site. Instead, he took it to a consignment store near his home in Nashville, Tenn.
The store, named Snappy Auctions, photographed the suit, posted the listing on eBay, and sold and shipped it for English, a 59- year-old shopping-center developer.
"Snappy takes all the brain damage out of it," said English, who doesn't know how to upload digital photos to the Internet or sell items on eBay, the world's largest online auctioneer.
Snappy runs some of the 100 or so stores in the United States that cater to people willing to pay a third party to sell their merchandise on eBay. About 650 more so-called "drop-off" stores are planned this year.
Although eBay doesn't own or control them, it stands to benefit as sales of technology and sporting goods alone through the stores may reach $10 billion, according to a company estimate.
"We're excited about this," eBay Chief Executive Meg Whitman said two weeks ago at a Goldman Sachs investor conference in Phoenix. "Clearly, they are getting an incremental customer that would have never come to eBay on their own."
EBay, which collects fees from sellers who pay to list and conduct business through its online marketplace, got more than 7 cents from each dollar of merchandise sold on its site last year. At that rate, $10 billion in consignment sales would yield $700 million in revenue. EBay's 2003 revenue was $2.17 billion.
The drop-off stores, which write listings, respond to questions from potential buyers, process transactions and ship items, are projecting growth, piggybacking on the success of eBay, and may represent a windfall for the online auctioneer should they succeed.
That remains to be seen, though.
A pioneering effort by MyEZSale.com, a Framingham, Mass.-based firm backed by $8 million of venture capital, shut down in 2002 after offering the service at 200 locations.
"All of these companies are rushing after this land grab, and we're still not quite sure it is a business model that works," said David Steiner, who helps run AuctionBytes.com, a Web site that tracks the online auction market.
Sellers who receive poor service at a store or aren't satisfied with the results of an auction might blame eBay, said Heidi Roizen, a managing director at Mobius Venture Capital, which has invested in consignment stores. Roizen said Whitman has told her that eBay isn't interested in opening its own stores.
EBay, based in San Jose, Calif., rewards drop-off stores that sell enough listed merchandise. Some companies may qualify for advertising reimbursements under a program for large sellers, spokesman Hani Durzy said. The company is trying to determine other ways to work with the stores, he said.
Shares of eBay gained 91 percent last year as net income jumped 77 percent and sales rose 78 percent.
"The bottom line is that all of them help eBay," said Matthew Kelmon, who helps manage $600 million of assets at Palo Alto, Calif.-based Kelmoore Investment Co., including eBay shares.
Kelmon recently sold CDs through AuctionDrop Inc., another company offering consignment services. "I don't want to set aside time to monitor an auction, pack and send."
Whitman, 47, visited San Carlos, Calif.-based AuctionDrop six weeks ago, learning that about one-sixth of its customers don't have e-mail addresses, AuctionDrop spokeswoman Andrea Roesch said.
It wasn't the first time she saw the drop-off stores in action. Last year, Whitman made two unannounced visits to AuctionDrop locations to test the operation.
She consigned more than two dozen items, ranging from a Coach belt to a Samsung PDA mobile telephone, Roesch said. All of the items sold for undisclosed prices.
The drop-off stores' fees cover those paid to eBay as well as their own costs and margins. In general, they sell only on eBay and take consignment items worth at least $50 while charging a commission ranging from 20 percent to 40 percent.
Some of the stores are operated by longtime eBay sellers who have branched out to offer their services to those not familiar with the process. EBay said there are 34,000 such "trading assistants" registered on its site to help people sell goods.
"Our customers range from retired people who don't know what a computer is, to eBay sellers who know what a pain in the neck it is," said Debbie Gordon, a former software consultant who operates Snappy Auctions out of a former clothing boutique near Vanderbilt University in Nashville.
Gordon recently signed a licensing agreement for a Manasquan, N.J., store and six franchises on the East Coast.
AuctionDrop, which has $6.5 million of financing from Mobius and Draper Associates, said it may have more than 100 locations by next year. The stores are spartan in appearance, with not much more than a counter where customers leave consigned goods and fill out forms.
PostNet International Franchise Corp., a Henderson, Nev.-based franchiser of postal- and business-service stores, said it will start expanding its eBay consignment service to 450 U.S. locations April 1. Your Auction Stop, a Norcross, Ga.-based company, plans to open at least a dozen stores this year.
