eBay Auction Drop-Off Stores: Part I

By Frank Fortunato | Posted June 17, 2005

Part I: An Inevitable Development

A novel business idea a few years ago, auction drop-off stores now number 7,000 across the United States, with no end to their explosive growth in sight. The largest franchise players, with locations ranging from under a hundred to thousands, include, AuctionDrop, iSoldit, ePowerSellers, PostNet, PictureItSold, AuctionMills, Bidadoo, QuikDrop, Snappy Auctions and NuMarkets — all aimed at the eBay auction venue.

Hot does not necessarily translate into profitable. The phenomenon is so new that no one really knows whether the drop-off stores will be profitable in the long term. Nevertheless, there are some large companies throwing their hats into the ring.

AuctionDrop, which had just a few storefronts a year ago, has recently reached a deal with United Parcel Service to provide walk-in auction consignment service in the 3,700 nationwide UPS shipping stores, making it the largest franchise drop-off store chain. But iSoldit, based in Pasadena, California, currently has 500 franchise stores under contract and claims a goal of opening 3,000 stores in 50 states. PostNet, which has 500 copying and shipping stores nationwide, just added auction-hosting services, and expects to have 100 of its stores selling on eBay by year's end.

Perhaps equal in number to the franchises, are the thousands of independent auction drop-off stores, such as Bob's Neat Stuff, elot, eLOTS, ad infinitum, in every state and increasingly, in Europe and Asia.

Why Now? The Transparency Factor
The "sudden" rush into the auction consignment market is not an accident or happenstance. With eBay and other online auction sites showing the prices realized for products and commodities, as well as the popularity of the Antique Road Show and other programs educating people on the worth of their possessions, the values of merchandise have become increasingly transparent. This results in an increasingly savvy public less willing to give up their possessions at wholesale prices (or less) to dealers. This, in recent years, has shrunk the available market in collectibles and all auction-able merchandise for venders, creating a situation where many eBay sellers are compelled to accept consignments — in order to stay in business.

How Does It Work?
The principle — consignment — is simple enough. The owner of an item consigns his or her property to the auction house or consignor, who, for a percentage of the sale price, handles the sale, collection of monies and shipping to the buyer.

Nor is the idea new to eBay. For years, thousands of eBay sellers, including this seller, have regularly handled consignment sales for third parties — in and out of the antiques trade — who are too busy, inexperienced or disinclined to do the work necessary to sell on eBay. In exchange for a percentage of the sale price, the consignee photographs, writes up and posts the sale on eBay, collects the money, ships the goods to the buyer and pays the consignor.

Traditionally, the general "street price" or standard consignees commission between individuals for eBay auction items selling for several hundred dollars and up has been 25 percent of the selling price plus eBay listing and closing fees, with lesser-valued items commanding up to 50 percent commission, plus or minus the eBay fees.

Moreover, eBay sponsors and encourages a Trading Assistant program numbering over 50,000 sellers (in 2003) who will sell other members merchandise for a commission on the auction site. Consignors key in their zip codes and categories of their consignments and eBay generates a list of trading assistants in their areas. This ends eBay involvement in the program as the company is careful to note that trading assistants are neither employees, agents or independent contractors of eBay, and negotiations are strictly between the two parties — caveat emptor.

The requirements to become a trading assistant are quite loose: the potential assistant must have sold one item on eBay in the past 30 days, must have a feedback rating of 50 or higher and a rather mediocre positive feedback of 97 percent or higher. Negotiations begin by e-mail; generally the item must be worth at least $50; all other terms are set by the trading assistant/consignee.

eBay also sponsors its own drop-off consignment store program known as Trading Posts. Here, the requirements are more stringent: the Trading Post assistant must have a staffed, storefront location with regular drop-off hours, have a feedback score of 500 or higher with at least 98 percent positive feedback and must average at least $25,000 per month in eBay sales. This eliminates all but the biggest of the big on the site.

However, all this barely dents the consignment market. Most people simply do not have a friend or acquaintance in the business with whom they can consign merchandise for sale on eBay, and/or they are not eBay members with access to the site's consignment sellers. Further, according to one source, only one out every 250 people have ever sold something online. For these legions of people in this potentially enormous market, the franchises and independent drop-off stores have stepped into the breach.

The drop-off stores make the consignment process as quick and simple as possible. PC World magazine ran a test consigning $160 worth of identical unopened electronics and tools to three drop-offs: an AuctionDrop storefront in California, a Postnet franchise in Georgia, and an independent drop-off store in Connecticut. At all three locations the consignors spent less than 15 minutes time, including an explanation of the process and filling out forms.

The auctions begin about a week after the items are consigned, and unless the consignor pays for a longer sale, the auctions run seven days. Assuming the item sells, the consignor simply waits for the check (if they do not sell, it must be picked-up at the store, or the consignor pays for return shipping). The drop-off store Web sites try to engender enthusiasm with testimonials on good results (iSoldit claims 160,000 items sold on eBay) and by inspiring auction fever in the potential consignors, such as this blurb on AuctionDrop, "Many report that watching the action as the auction progresses is as much fun as getting the check!"

But all this comes at a price. The drop-off stores commission makes the traditional street consignment fee of 25 percent appear attractive. The franchise drop off stores average 35-40 percent commission on sales of 200-500 dollars or less. With tax, special service fees and eBay listing and closing fees, the total bite can be up to 50 percent or more of the selling price.

The drop-off stores defend their hefty commissions by arguing that they may be able to get higher final selling prices due to better photography, research, descriptions, page layouts and reputation based on more eBay feedback.

As part of their test, PC World themselves auctioned the same goods on eBay, without a middleman. The result was labor intensive; the 15 minutes or less at a drop-off store, grew to eight hours of work from photographing, listing to eBay, boxing and shipping the same items. On the other hand, they got to keep the entire proceeds of the sale less the eBay and PayPal fees of about 10 percent. (It should be noted that experienced eBay sellers as well as drop-off stores could perform the same process in considerably less time than the 8 hours of this experiment, though it is always a time consuming process.)

For the individual consignor, the drop-off stores are certainly more lucrative than a tax write-off from the local thrift shop, and the consignment process is quick and painless; but to maximize your profit, you must do it yourself.

On the franchise drop-off store Web sites, the acceptable consignments favor new, popular merchandise over vintage items and collectibles. On AuctionDrop, for instance, only one store directly deals with antiques and collectibles. In the ten sub-categories under "Cameras and Camcorders" just one, "vintage cameras," applies to collectible material. Electronics, computer equipment, audio and video, cell phones, jewelry and designer handbags, sports and hobby equipment, video game systems and musical instruments round out the list.

The reason may be twofold: besides casting the widest possible net for consignors, individual collectibles are finite in number and require more research, while known, mass-market commodities like iPods, computer equipment, designer jewelry and handbags, have a set price range and a virtually limitless market. None of the franchise sites advertise for books — a very large market within eBay — or certain other niche categories.

All the stores maintain parameters of what they will accept both in terms of value and size. The stores do not want consignors showing up with anvils (though one outfit did sell a full size phone booth.) AuctionDrop maintains a $75 value minimum and a 25 pound weight limitation. Other, smaller chains and independent stores accept lesser value and larger sized items, as well as offering lower commission rates.

In Part II we will discuss the pros and cons of selecting a drop off store for consigning property for eBay auction, the start-up and franchise opportunities being offered by nearly all of the chain drop off companies, as well as the pending legislation and other red flags lurking over this burgeoning market.

Adapted from ECommerce-Guide.com, part of Internet.com's Small Business Channel.

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