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One of the most reported trends in the online auction industry this past year has been the emergence of the eBay drop-off store. Billed as a simple and convenient way for people to sell their items on eBay, these services target customers who are not likely to turn on a computer and begin listing items themselves. Since March, drop-off stores have been scurrying to stake a claim in this market, with AuctionDrop, QuickDrop, and Picture-It-Sold just a few of the names caught up in the land grab (http://www.auctionbytes.com/cab/pages/consign).
The concept of selling consignment merchandise on eBay isn't new - there are over 28,000 eBay Trading Assistants who list their services in eBay's TA Directory. In 2000, a consignment service, MyEZSale, secured over $7 million in Venture Capital funding to set up shop in "pack-and-ship" stores in the New England area (http://www.auctionbytes.com/cab/abu/y200/m11/abu0025/s02). The company's premise was to outfit existing pack-and-ship stores with cameras, computers and eBay training. Customers would bring to their "eBayables" to a store, fill out a description and leave the item to be auctioned online. The fees for the service were a $6 non-refundable listing fee, plus a 6% commission. In addition, the seller paid for packing materials whether or not the item sold. MyEZSale ceased operations in early 2002.
The new generation of consignment stores charges fees in the neighborhood of 30-40%. Many of them will list for free and make their profit solely on commission.
AuctionDrop, a drop-off service based in the San Francisco Bay area, has emerged as one of the early leaders in this field. AuctionDrop has opened four stores since March 2003 and anticipates another two store openings by the end of February 2004. The company employs 75 people, including Customer Service Representatives, Drivers, Listers, and Photographers. (http://www.auctiondrop.com)
In addition to the drop-off stores, AuctionDrop also maintains a 20,000 square-foot "Central Processing Center" where items are trucked daily from the drop-off stores. It's in this facility that items are inspected, photographed and listed on eBay. According to AuctionDrop CEO and co-founder, Randy Adams, the processing center can handle 1000-1200 items per day, running a 3-shift operation, although only one shift is in operation right now. Adams estimates that one processing center could handle transactions from 30-40 AuctionDrop retail stores.
"You've got to have deep pockets to make this work," said Adams, referring to over $6.5 million in venture capital that his company has secured to date.
A customer who wishes have something sold by AuctionDrop brings the item into a drop-off center. The item is inspected for condition, and tested to see if it functions properly. It must also have an estimated eBay value of at least $50.
"There are two employees per drop-off center," said Adams. "They are there to correctly adjust the customer's expectations. They may go online and show a customer what a comparable item will sell for online."
Once the item has been processed at the drop-off center, it is put in a bin and trucked to the central processing center to be photographed and listed. If the item sells, AuctionDrop packs it, ships it to the winner and sends the seller a check minus fees. If the item doesn't sell, AuctionDrop returns it to the seller or donates it to charity.
AuctionDrop counts on repeat business, citing over 45% of their clients as repeat customers. Even eBay CEO Meg Whitman has brought more than a dozen items to AuctionDrop stores to sell.
AuctionDrop plans to expand to the East Coast - probably the New York Tri-State area - in 2004. Meanwhile, two eBay Trading Assistants are staking out their own claim in the New York area. Michael Banks and Rudy Stein opened OASIS (Online Auction Service & Internet Specialists) a drop-off consignment service based on Long Island. OASIS not only offers eBay consignment services, but web-hosting and web-design services as well. Often, Banks will make house calls to prospective clients to assess the items they wish to sell. "It's a lot easier if someone brings it to our store," explained Banks. "But we offer a very personal service." (http://www.nyoasis.com/)
Banks and Stein are hoping to establish their company before competing services crop up in their area. According to Banks, OASIS saw a tenfold increase in business during December compared to previous months. "The phone has been ringing off the hook," said Banks.
Although none of the drop-off consignment services is owned by eBay, the auction site is closely monitoring their development. The stores allow eBay to reach an audience that has eluded them so far: people who are not likely to sell online, or who may not even own a computer.
The question remains, however, is it good business sense to set up brick-and-mortar stores, incur the overhead of rent, insurance, employee wages, managerial salary, insurance and all of the costs related to running a business?
Former MyEZsale CEO Mitchell Schecter doesn't think so. "You cannot open a standalone consignment service and make it work. There simply isn't enough profit in commissions to cover expenses. I think the only way to make it successful is to take an existing business and offer eBay selling as a secondary revenue stream."
Schecter cited the main challenge being that of getting people to bring items in to sell. "It's a fundamental issue of inventory," and a matter of getting the right kind of inventory, according to Schecter.
AuctionDrop claims no shortage of inventory. According to Adams, they reject as many as many items as they take in.
But while getting consignment items may not be an issue for AuctionDrop, the company is keenly aware that certain items are more profitable for their service and analyzes what items have sold the best on eBay over the past year. AuctionDrop also targets higher-ticket items in their marketing and advertises items that have sold well the previous week in local newspapers. "Digital cameras, musical instruments - these items sell well," Adams said. "Average Selling Price (ASP) is the single most important aspect of this business."
According to Adams, whose company's commission averages about 35%, the total cost to sell an item including all overhead cannot be more than $15. "If it costs you more than that, you'll go out of business."
Adding to the challenge of maintaining a brick-and-mortar consignment business is the competition coming from eBay's own Trading Assistants and other consignment services that have opened. Trading Assistants are typically eBay PowerSellers who supplement their revenue stream by taking on consignment sales - often at commissions lower than a drop-off service can compete with, and with much less overhead expense.
Both AuctionDrop's Adams and OASIS' Banks view Trading Assistants as resources rather than competitors. AuctionDrop, in fact, employs several TA's in its central processing facility.
"We've emailed people on the Trading Assistant list. It's a wonderful source of real talent. I'd like to open up a whole new marketplace and have Trading Assistants work for us," said Adams, who also views TA's as a source of inventory for his service. "There are a lot of high-volume sellers that bring us items to sell. Our goal is to create a machine that allows people to bring us the items."
AuctionDrop hopes to raise 25 million dollars in early 2004 to open drop-off stores on the East Coast by Spring. Adams hopes to have the number of AuctionDrop stores in three figures by the end of the year.
Lofty goals, but Adams feel they are attainable. "This market has as much merchandise as eBay sells annually."
Consignment stores have some people scrambling to cash in on the craze. Others are worried about what such stores might mean for their own businesses. 2004 is likely to provide many answers, and may be the make-or-break year for entrepreneurs like Randy Adams and Michael Banks.
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