Over the past several years, it seems as though eBay drop-off stores have been popping up as fast as Starbuck's coffee franchises. Something about the eBay drop-off store is attracting many willing participants and investors.
eBay drop-off stores promise to take the hassle out of selling unwanted items on eBay for consumers. But not a lot is known about how they are faring and whether it is a viable business model.
Earlier this month we sent an invitation to 100 eBay drop-off stores asking them to complete an online survey. Half of those stores completed the survey. This is a small number, but the total population is small as well, and the results are useful given the dearth of industry information.
We felt that a logical way to look at the results was to separate the respondents into two categories:
1) Independent consignment stores with one or multiple locations and
2) Franchises or stores that were part of a non-franchise chain with plans to go national within the next 12 months
76% of respondents said they were independent eBay drop-off stores with one or more locations. 22% said they were franchises or chains with plans to go national within the next 12 month. 2% chose "other."
The revenue stream for the majority of these stores came solely from their consignment business. A few offered sideline services, such as Web hosting, site design and shipping. The majority of respondents kept their stores open more than 40 hours per week, had 2-4 full-time employees and 2-4 part-time employees.
Most drop-offs spent in excess of $500 a month to market their businesses, with newspaper advertisements being the favorite method of marketing.
The majority of stores responded that they served between 1 and 30 customers per week, and each customer, on average, brought in between 1 and 10 items to be listed. The average selling price (ASP) per item varied a bit between franchises and independents. The weighted ASP for independents was ~$75/item. For franchises, it was higher at ~$91. The average sell-through rate (again, weighted avg.) for these stores was ~73% for independents and ~77% for franchises.
(Note: possible answers for selecting ASP topped out at "$145 or more," so the actual average selling price may be higher than stated above- see chart for actual results.)
Interestingly, there was a huge disparity in responses to the question, "Has this business met your original expectations?" Among independents, there was a split down the middle, with nearly 50% stating No, and 100% of the franchises answering Yes.
Some Conclusions
In evaluating the results from both independent and franchise drop-off stores, it was apparent how labor-intensive this business is, with an average in excess of 20 minutes to research, caption, photography and list one item on eBay. The question did not take into account the amount of time spent packing, shipping and answering emails about the items.
One could ostensibly take this data and build a model to see if the revenue from a store exceeds the operating costs, but the results were wide ranging and some data is not available. Other than the marketing costs and the number of employees per store, the survey did not address overhead costs, such as rent, utilities, franchise fees, etc.
Looking at the results of this survey, it is obvious this is not a get-rich-quick business, but rather a challenging, labor-intensive one. If you are not operating at peak efficiency, you are not going to cover your operational costs.
Two areas that jumped out as being different for the two types of stores were the satisfaction level and expectations for growth of the business. Franchises and chains planning to go national were much more satisfied and more optimistic about growth opportunities for consignment services.
There are many other interesting responses, such as the type of merchandise most often received, the busiest days and months for receiving merchandise and preferred shipping and payment methods.
