As eBay becomes a retail shopping destination, sellers are looking for new types of inventory. Why sell $5 items if you can sell items that can net $500 or $5,000 apiece? Even though the listing fees and Final Value Fees will be higher, it takes the same amount of time to list an item, right?
But purchasing large quantities of higher-priced items brings increased risks. The experts say, do your homework before you fork over your money to a wholesaler, liquidator or drop-ship company. The same advice that applies to consumers also applies to eBay sellers looking for inventory: if a deal looks too good to be true, it usually is.
How can you protect yourself?
There are several things you should do when exploring a new business opportunity or industry. Make sure there is demand for the product; make sure you can purchase at prices low enough to make you a satisfactory profit; and make sure the supplier is reputable and will deliver goods as promised. It's up to you to manage your risks.
Some of this sounds obvious, but if you aren't reading about your new industry, researching pricing and demand, and breaking out your calculator to run numbers, then you may be giving short shrift to the preparation stage. If you make a $2 profit on a $10 item, don't assume you'll make $200 on a $1,000 item! In consumer electronics, for example, margins can be extremely tight.
Demand for an item changes over time due to fads, fashions and innovation. Factor that into your decisions about how many items to buy and store. The urge to buy items in excessive quantities because "the price is right" can get you into trouble if demand falls. (It can also cause major problems with storage space.)
Once you've done your research and decided to proceed, your next step is to research suppliers. Delores Gardner Thompson, an attorney in the FTC's Division of Marketing Practices, said the standard advice applies. "Be careful and make sure you are dealing with a reputable business, the same way you would in the real world." Thompson advises people type the name of the business into Google and see what comes up. Get a telephone number and name of a person, and call the company.
Large corporations hire librarians to help executives do research. You've got the next best thing: your local reference librarian! College and university libraries can also be of assistance. Some libraries have resources that can be accessed from your home/office computer. Reference librarians can help locate directories that list suppliers. They can also identify industry trade associations. If your supplier is not a member of a trade association, you should find out why.
FTC's Thompson says you can check to see if there have been any complaints lodged against the company by checking with the Better Business Bureau and the attorney general's office in the state where the business is located.
"Auction sellers should remind themselves that they are actually consumers in a way, and they have to protect themselves in the same way."
Holly Cherico, spokesperson for the Better Business Bureau (BBB), said there are reports for 2 million U.S. businesses on the BBB.org Web site. A member company will have either a "satisfactory" or "unsatisfactory" rating. (If there is no report, that simply means the BBB has no information on the business, which is not necessarily a warning sign.)
"You have to do your homework if you are buying large quantities," Cherico said. "If it sounds too good to be true, that's a red flag. If the business is pressuring you to make an immediate decision and giving you no time to check their credit, it's time to walk away."
Cherico said sellers should check the credit of the company with whom they are considering doing business. She said Dun & Bradstreet and Hoovers are two examples of companies that offer credit-checking services (for a fee).
You should also get the physical address of the business, not a post office box, according to Cherico. "If the company is reluctant to give you a physical address, walk away."
Drop shippers can be a particular risky way to do business. Thompson said sellers need to disclose to consumers in their auction listings if they do not have possession of the merchandise they are selling so potential buyers are aware of all the risks. There have been cases of eBay sellers under investigation or who have been arrested because they were unable to deliver goods to buyers when their drop-ship companies failed to deliver. Paying for inventory with your customers' money before you have possession of the goods is not a good way to do business. If something goes wrong, you won't have the money to refund to your customers. You risk suspension from the auction site, not to mention criminal prosecution.
A reputable supplier will want to check you out, but you can also ask them for credit references and for names of satisfied customers. Follow through and call them, and listen for signs of hesitation or dissatisfaction. You will also want to ask your supplier if they sell on eBay; the last thing you want is to be competing with your supplier for sales!
Use common sense, listen to your instincts and always remain skeptical. It pays to do your homework!
Check the reputation of your supplier
- Make sure you get a physical address
- Check credit references
- Call the supplier's other customers
- Check with the Better Business Bureau
- Check with the state attorney general's office
- Check with state consumer protection offices (check the blue pages of the phone book under county and state government)
- Check the company's credit with Dun & Bradstreet, Hoovers or other research services
- Ask questions
Research Resources
Better Business Bureau
http://www.bbb.org
FTC
http://www.ftc.gov/bcp/conline/features/onlauctions.htm
List of State Attorneys General
http://www.statelocalgov.net
(Go to http://www.firstgov.gov for more government-related information)
Dun & Bradstreet
http://sbs.dnb.com/default.asp
(For fees, click on Membership Plans under Membership Services)
Hoovers
http://www.hoovers.com
Wholesales Sources
Book: "Wholesale Buying and Selling System" (Vision-One Press)
This book is both a "how to" guide and wholesaler directory.
http://www.auction-sellers-resource.com/products/wholesale.shtml
Article: "How To Buy Wholesale for Your Auction Business"
http://www.auctionbytes.com/cab/abu/y201/m03/abu0034/s04
Directory: Thomas Register
http://www.thomasregister.com
Search Service: Wholesale411.com
http://www.wholesale411.com
Auction Management Services: Some AMS may offer resources for their customers. For example, Vendio set up a page for customers to list their wholesale inventory http://wsacp.vendio.com/my/acp/acquire_inv.html. And Zoovy has a relationship with AllDropShip.com http://www.zoovy.com.
Auction Sites: Auction sites are another way to find wholesale inventory, here are just a few.
Bid4Assets
http://www.bid4assets.com/channel/index.cfm?fuseaction=03&category=10
(The Inventory category can be found on the left navigation bar under Personal Property.)
eBay
http://www.ebay.com/wholesale
Liquidation.com
http://www.liquidation.com
Other Sites
Luxury Brands
http://www.luxurybrandsllc.com
Overstock
http://www.overstockb2b.com
