The company that kicked off the eBay drop-off store phenomenon by raising millions of dollars and placing billboard advertisements on Silicon Valley highways has closed 4 of its 5 stores and laid off 20 staff members. AuctionDrop made the moves as its new Chief Financial Officer strives to move the company toward profitability this year.

AuctionDrop spokesperson Andrea Roesch confirmed the store closings and layoffs, which were completed last week. "Our business has evolved as we've learned about this industry," Roesch said.

Randy Adams, Bill Rollinson and Andy Jeffrey founded AuctionDrop in 2002. It opened its first store in San Carlos, California in March 2003, announcing it had received venture capital funding from Draper Associates and Mobius Venture Capital. Three months later, AuctionDrop announced it had completed a $2.5 million round of funding led by Mobius Venture Capital and Draper Associates, bringing the total raised to over $3 million.

By November 2003, AuctionDrop had opened its fourth store in the San Francisco Bay Area, and it secured an additional $3 million in VC funding from Mobius Venture Capital and Draper Associates in December. The new funding, which brought the total to over $6.5 million, was slated to be used to begin national expansion.

But AuctionDrop CEO Randy Adams told the Wall Street Journal in June 2004 it realized it couldn't profitably build and operate a large network of its own retail stores. Instead, AuctionDrop partnered with UPS to allow consumers to drop off items at the 3,400 locations of The UPS Store around the nation, making them the first drop-off store service to achieve significant national penetration.

Today AuctionDrop announced the appointment of George Northup to the new role of Chief Financial Officer. Roesch said Northup wants the company to have as lean a corporate structure as possible. The only corporate-owned store that will remain open indefinitely is the flagship store at corporate headquarters.

Roesch said stand-alone drop-off stores will never reach profitability, especially on a national model, in Randy Adams' opinion. Adams' original vision was to open a national chain of standalone stores, but almost immediately, Adams discovered that was not viable, and changed the company's strategy to a corporate-owned hub-and-spoke model. But over time, that was discovered by the company not to be the most efficient model.

"We still have a hub-and-spoke model, but our relationship with the UPS Stores makes it a more efficient model," Roesch said. She added that there may be stores that will succeed on a local level, ones who may add services to their eBay consignment offerings.

Everything else is moving forward at AuctionDrop, she said, and the goal is to be profitable by year-end. "We are also exploring other possible corporate relationships, but there is nothing we can talk about at this point."

The eBay drop-off store fad has become international, with stores in Canada, England, Germany, Australia and the Netherlands, but not everyone has been successful. Circuit City recently ended its brief experiment with drop-off consignment selling.

AuctionDrop's Roesch said most of the recent layoffs were store employees, with a small number of customer service staff laid off as well.

http://www.auctiondrop.com