Auction Drop-Off Stores and eBay: Part II

By Frank Fortunato | Posted June 22, 2005

For anyone with eBay auction-worthy merchandise they wish to convert into cash, but have neither the time nor inclination to become an eBay auction seller, the best route is to consign with a trusted, eBay-experienced friend or acquaintance, or a friend of a trusted friend. If you don't happen to have such a friend, there are several alternatives.

eBay Trading Assistant Program
As discussed in Part I, eBay sponsors a program wherein members can find a consignment seller in their locale by punching in their zip code and categories for their merchandise. Depending on the consignor's location, this search could yield dozens more eBay consignment sellers. The advantage is ease of contact — the process can be initiated with a few keystrokes on a computer.

But using an eBay consignment seller can be a bit like buying a pig in a poke. One problem is, given the liberal standards for becoming an eBay Trading Assistant, (just 50 or more feedbacks, as little as one sale conducted in the past 30 days, etc.) the trading assistant may not be very capable. If the consignor auctions his or her own merchandise, he or she may not be very motivated in marketing consignee items for which they receive only a percentage of the sale price. Further, eBay ends its involvement in the program with putting the consignor and consignee together. All negotiations take place between the consignor and consignee. All disputes between the two parties must be settled via eBay's slow, laborious, e-mail-dispute resolution process.

Independent and Franchise Drop-Off Stores
Drop-off stores offer an advantage for people who prefer to initiate business face-to-face in a fixed location that has regular hours and a phone that gets answered. The stores are fast. They are set up for accepting consignments and getting the consignor through the process as quickly as possible — as opposed to the e-mail negotiations with a trading assistant whose only "face" is a User ID number and then a second step to get your property to the consignment seller, etc.

This convenience may come at the price of higher commissions than one might find with an eligible consignee located through eBay. Further, it is possible to lose money consigning this way since there are many additional charges at stores.

AuctionDrop, for instance, has no up-front fee for their basic service but charges a $20 "prepay" fee to list your item with more than a $1 minimum bid — a fee that's credited towards their commission only if the item sells. If the item fails to sell, you are out the $20; if your item sells for less than the store estimated, you're obliged to accept the lesser price, as the store is legally bound to sell to the high bidder.

Whichever path you choose when consigning with strangers, there are certain survival rules that you should follow:

Check feedback ratings. Whether consigning through a store or an eBay trading assistant, get the consignee's eBay User ID (which may be different than the store name) and thoroughly review the feedback ratings and the length of time they have been selling on eBay. Avoid consignees who only have a few feedbacks and those with too many negative feedbacks. Choose a seller with positive feedbacks as close to 100 percent as possible. Stay clear of sellers with positive feedback ratings of less than 98, regardless of how many feedbacks they have accrued. Negative feedbacks are seldom used nowadays except where there are real problems.

Read the seller's feedback responses from buyers. Does the seller accurately describe what they sell, ship quickly and communicate well? If time allows, e-mail the store's customers to determine their detailed feelings about the experience.

Check the seller's current auctions. Is the layout attractive? Are the descriptions in intelligible English, informative, professional and persuasive? Are the photos of good quality and in sufficient quantity?

Does the seller have experience in marketing what you have to consign?
This is particularly important with vintage items and collectibles — many stores will not. If you suspect your item is rare and highly valuable, you will need to research its value before consigning to a store in order to set a fair minimum-sell price.

Will the store allow you to place a reserve or minimum bid price on the sale of a high-ticket item? Many stores do not, or they charge a fee for minimum bids above $1. The theory behind the $1 minimum is the belief that eBay buyers hate sales with high minimums, that a $1 start price encourages bidding and that quality items will reach their fair market price regardless of their starting bid. This is often true, but as veteran sellers know, from week-to-week eBay auctions can be a crap-shoot: if the right buyers are not active the week your item goes up for sale, and you do not have a reserve price protecting it, you will risk having to sell the item at a fraction of its value.

All things being equal, price shop in a drop-off store. As one descends the ladder of size from the largest drop-off franchise stores to the smaller chains and independents, the commission rates tend to drop and the personalized services increase. If you can find an independent consignment store that takes a 25 percent rather a 38 percent commission bite, and you are comfortable with their track record, attitude and other terms, you don't need a big name? The proof is in the pudding: if eBay buyers want what you're offering and it's competently presented, it will sell, regardless of who sells it.

Start Up: Franchise Versus Independent Stores
Industry analysts give the franchise stores with built-in physical location and an established shipping business the long-term profitability edge over the independent stores. The franchise stores provide software, phone support, and, in general, try to make their models 'plug and play operations.

iSoldit sends what they call "a store in a box" — a complete store module — to your location, along with a crew they claim can assemble it and get you ready to open in two days.

All the franchise chains claim the 99 percent of Americans who have never sold anything online as potential customers. One chain store site touts the drop-off store market as a $30 billion annual business. Further, they argue, being a national franchise, they offer a better exit strategy for eventually selling the business than an independent store without brand-name recognition.

On the other hand, prices for franchises range from about $40,000 to $100,000 and up. They require varying amounts of liquid capital, a royalty percentage on profits and set business policies that must be adhered to.

If you wish to avoid the franchise and other fees, and prefer to set your own business terms as an independent, there is software such as Store Manager Pro from Auction Wagon. There are also other tools that provide eBay consignment store solutions for managing inventory, payments and shipping, prints contracts, barcodes and inventory labels, as well as allowing multiple users to access information simultaneously. Most have a task-driven interface and include image hosting and a seller info site.

Depending on your location, knowledge of the online auction business and general business savvy, an independent store may well be the most cost-efficient route into this market.

Drop-Off Stores: To Invest or Not To Invest
Howard Bassuk, president of FranNet, a group of national franchise consultants, suggests that potential franchise investors ask themselves the following questions — most of which are appropriate for anyone contemplating their first start-up business.

  • Do I really want to own a business?
  • Do I like the idea of being part of a franchise system?
  • How much can I afford to invest?
  • Do I want to invest in the early stages of a franchiser's development when the opportunity to grow is wide open? Or do I want to get involved only after most of the growth is finished so the risk is greatly diminished? Or where would I fit in between?
  • Is the franchiser a leader in its industry? Is the industry stable and growing?
  • Does the franchiser have a top-quality management team? Does it have a vision for the present as well as the future?
  • If I buy it, can I afford an extra cushion if things take longer than expected to develop? Can I afford this business emotionally? Can I handle the stress of starting a new enterprise? Will I have support from my family?
  • Is the competition weak or strong?
  • Does the business fit my personal strategy for growth and success?
  • Do I match the skills, abilities and corporate personality of this business, and do I match the successful franchises that are now part of the market?

A Pending Storm Cloud
Beyond the other considerations, drop-off storeowners face the prospect of legislative regulations against the industry that could complicate the business.

Concerned that drop-off stores may become unwitting fronts for fencing stolen property, California, Florida, Texas and other locales are looking into whether the eBay drop-off stores should be governed by the same laws and regulations currently applying to pawnshops, antique stores and auction houses.

Varying from state-to-state, these laws require establishing the identity of the seller, holding items for a period of time prior to sale and, in some instances, fingerprinting the seller. In California, secondhand sellers are required to report transactions, fingerprint the sellers of high-ticket items and hold the item for 30 days. In New York City, secondhand stores must obtain a license and record transactions for police inspection upon demand.

"People are using pawnshops less and less," clams Danny R. Macagni, chief of police in Santa Monica, California, interviewed by the New York Times, "These drop-off stores don't have to notify us like a pawnshop, so stolen property could be sold, and we'll never even know about it."

eBay and the drop-off stores are joining together to oppose oversight. eBay is currently lobbying in California against a proposed law, Assembly Bill 1178, aimed at setting-up an electronic database to track stolen goods sold in California, including goods sold through drop-off stores, by January 1, 2008. eBay is asking that the drop-off centers be exempted from the proposed legislation.

"We simply cannot see the need for any of this legislation," states Tod Cohen, vice president for government regulations at eBay. eBay and drop-off store owners argue that criminals are not likely to walk into a drop-off store, offer personal information including a phone number and residence, and wait for a check to arrive in the mail. Further, eBay points out that unlike pawnshops and secondhand stores, the drop-offs do not pay cash — they never own the item as does a secondhand store — an argument that won over a judge in a recent case against a drop-off storeowner in Florida.

So far, no exemption for the drop-offs has been written into the California bill, nor has any legislation regulating the drop-offs been passed. But as they continue to proliferate, the chances of regulatory legislation increases giving potential investors another factor to ponder.

Many antique dealers, faced with continuously shrinking sources for fresh merchandise for years, see the drop-off store trend as just another nail in the coffin of their business. Some veteran eBay sellers project a long-term glut of merchandise dumped onto the eBay market, driving down prices across the board. Others liken the drop-off store craze to a modern day tulip craze, with escalating store prices rendering profit next to impossible.

Yet, the untapped supply of junk and treasures buried in people's cellars may be nearly as extensive as the oil buried under Middle Eastern sands — creating a market that can last many years.

However, no one, not the nay- or yea-sayers, possesses the crystal ball that can accurately predict the future of the drop-off store market. Will the average citizen line-up to sell their property through the stores, and if so, for how long? Given the rush into the franchises, who will survive the inevitable shakeout, and when will it occur? The jury is still out.

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

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

Comment and Contribute


     

    Get free tips, news and advice on how to make technology work harder for your business.

    Submit
    Learn more
     
    You have successfuly registered to
    Enterprise Apps Daily Newsletter
    Thanks for your registration, follow us on our social networks to keep up-to-date