Consign of the Times EBay drop-off stores could be the next big thing.
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EBay's popularity is spawning a new niche: brick-and-mortarstores that help people who are too busy or confused by eBay'ssystem to sell their goods on the site. After all, selling on eBayrequires time and effort. Sellers have to take digital photographsand write descriptions of the merchandise, arrange to get paid,package their goods, and bring the packages to a shipper.
In the past year, many companies-including AuctionDrop Inc.,AuctionWagonInc., Picture It Sold, QuikDrop Inc. and SnappyAuctions-have launched eBay drop-off stores to help with thesehassles. Most of these are in California and focus on individuals,but plan to expand throughout the country and to the B2Bmarket.
EBay drop-off stores are similar to traditional consignmentshops in that they charge sellers a commission for selling an item.They don't charge upfront fees for their basic service, insteadearning commissions based on an item's final sale price.Customers usually pay separate fees charged by eBay, ranging from1.5 to 5.25 percent of the final price.
One of the most successful companies in the market is SanCarlos, California-based AuctionDrop, which has opened five SanFrancisco Bay area stores since March 2003 and plans to open 15more California locations and 20 East Coast stores this year.AuctionDrop has raised more than $6 million in VC financing, saysCEO and co-founder Randy Adams. So far, the 75-employee company hasprocessed more than 15,000 items and earned annual revenues of over$1 million, by charging a commission totaling 20 to 38 percent ofthe final price. The percentage drops as the selling price rises,and the company's customers pay eBay's seller fees.
The key to AuctionDrop's success is its hub system-all goodsare shipped to the company's 30,000-square-foot processinglocation, where an automated conveyor system routes goods tospecialists who determine the value of items and prepare them to besold. The company plans to open regional hubs in 2004. "Weapply the economies of scale and the process engineering that makeit inexpensive to put things up on eBay," says Adams, 51.
Meanwhile, Los Angeles-based AuctionWagon, founded last year byJoshua MacAdam and Devin Bailey, both 24, was self-financed forless than $1 million and will not set up a processing hub."Keeping overhead low is essential," says MacAdam."By staying local, we're able to maintain low commissionrates." AuctionWagon, which offers door-to-door pickup, takesa 20 percent commission off the final sale, with a $15 minimumcommission. AuctionWagon's only store opened in November 2003.The 10-employee company projects sales of more than $1 million in2004 and will have its second location in Los Angeles operationalthis quarter.
Anyone contemplating entering this business should be aware thateBay drop-off shops are complex, expensive to start and can betechnologically challenging. "This is an operations-heavybusiness," says Rhonda Abrams, president of Palo Alto,California-based The Planning Shop, a publisher specializing inbusiness planning. "You're taking physical possession ofand handling many types of products. That's different fromhaving a sandwich shop."
Those who nail the concept, however, could find themselves atthe lucrative forefront of the next big thing. Launchingindependently isn't the only option, either: AuctionDrop,AuctionWagon and Snappy Auctions plan to offer franchises soon.
