Consign of the Times

EBay's popularity is spawning a new niche: brick-and-mortar stores that help people who are too busy or confused by eBay's system to sell their goods on the site. After all, selling on eBay requires time and effort. Sellers have to take digital photographs and write descriptions of the merchandise, arrange to get paid, package their goods, and bring the packages to a shipper.

In the past year, many companies-including AuctionDrop Inc., AuctionWagon Inc., Picture It Sold, QuikDrop Inc. and Snappy Auctions-have launched eBay drop-off stores to help with these hassles. Most of these are in California and focus on individuals, but plan to expand throughout the country and to the B2B market.

EBay drop-off stores are similar to traditional consignment shops in that they charge sellers a commission for selling an item. They don't charge upfront fees for their basic service, instead earning commissions based on an item's final sale price. Customers usually pay separate fees charged by eBay, ranging from 1.5 to 5.25 percent of the final price.

One of the most successful companies in the market is San Carlos, California-based AuctionDrop, which has opened five San Francisco Bay area stores since March 2003 and plans to open 15 more California locations and 20 East Coast stores this year. AuctionDrop has raised more than $6 million in VC financing, says CEO and co-founder Randy Adams. So far, the 75-employee company has processed more than 15,000 items and earned annual revenues of over $1 million, by charging a commission totaling 20 to 38 percent of the final price. The percentage drops as the selling price rises, and the company's customers pay eBay's seller fees.

The key to AuctionDrop's success is its hub system-all goods are shipped to the company's 30,000-square-foot processing location, where an automated conveyor system routes goods to specialists who determine the value of items and prepare them to be sold. The company plans to open regional hubs in 2004. "We apply the economies of scale and the process engineering that make it inexpensive to put things up on eBay," says Adams, 51.

Meanwhile, Los Angeles-based AuctionWagon, founded last year by Joshua MacAdam and Devin Bailey, both 24, was self-financed for less than $1 million and will not set up a processing hub. "Keeping overhead low is essential," says MacAdam. "By staying local, we're able to maintain low commission rates." AuctionWagon, which offers door-to-door pickup, takes a 20 percent commission off the final sale, with a $15 minimum commission. AuctionWagon's only store opened in November 2003. The 10-employee company projects sales of more than $1 million in 2004 and will have its second location in Los Angeles operational this quarter.

Anyone contemplating entering this business should be aware that eBay drop-off shops are complex, expensive to start and can be technologically challenging. "This is an operations-heavy business," says Rhonda Abrams, president of Palo Alto, California-based The Planning Shop, a publisher specializing in business planning. "You're taking physical possession of and handling many types of products. That's different from having a sandwich shop."

Those who nail the concept, however, could find themselves at the lucrative forefront of the next big thing. Launching independently isn't the only option, either: AuctionDrop, AuctionWagon and Snappy Auctions plan to offer franchises soon.