Tuesday, October 03, 2006

eBay Drop Off Stores: The Cost of Free Inventory

Hier een stuk geschreven door ex-ISold-iT franchise nemers.
Bij een Drop-Off geldt: "Everything offered for auction is online, no walk-in buyers." Dat is anders dan een lommerd of (ver)koopwinkel.

eBay Drop Off Stores: The Cost of Free Inventory
By Gene Bowen and Karen McGinn

I still find it hard to believe that the eBay drop-off store concept doesn’t work. You know- the QuikDrops, the NuMarkets, the SnappyAuctions; even the independent retail drop shops. I guess it’s like finding out that Santa Clause isn’t exactly who you thought he was; and, he really doesn’t have elves making toys all year at the North Pole.
Although I want to believe that somebody will discover the right combination to turn the idea into a gold mine, there is little doubt that the online auction drop-off stores are heading for extinction. I see more proof more often that the concept for “the online selling of everything for everybody from a retail storefront” is nothing more than a fast way to empty your bank account. Even though the number of stores is increasing and give the impression they are doing well, current articles appearing in the media are not as optimistic as the ones from a year ago. Even ones that aren’t
directed at drop of stores confirm the flaws in the drop-off store concept and their main business model.

A good example that makes my point appeared in the June 2006 issue of Practical Ecommerce magazine; where, on page 12, Mitch Bettis presented an article called “Itching to Expand Your Product Niche?” Though he isn’t addressing the shortcomings of drop-off stores directly, his advice about selling online certainly applies to eBay drop-off store owners.

I want to list his three subheadings because they summarize the major reason why eBay drop-off stores are failing.
The subheadings are:
• Niches Get You Noticed
• Be Distinctive in the Marketplace
• Be an Expert in Your Niche.
Each of these headings points to the subject of why customers would want to buy from you. After all, if you don’t make enough sales at the right prices you will go out of business. The key to staying alive in the e-commerce jungle, according to Mr. Bettis, is “niche.” How does it apply to the retail drop stores?

The eBay drop-off stores don’t fill a niche because their walk-in business model has a two-fold problem: how they get items to sell and who will by them. What the stores have to offer their buyers is determined by the things customers bring in to them. A continuously changing stream of customers results in items that are mixed in category, varied in condition, and wide-ranging in price. At first this might sound like an advantage since there can be millions of buyers looking for thousands of different products, but it isn’t. Store owners are paying employees to photograph, list, and ship a different set of products every hour, every day. It thus becomes a constant pool of inconsistency with no hope of standardizing the workflow. Remember, too, they’re going through all this work for an item they don’t own and will return if it doesn’t sell. Their control over what they can offer buyers is haphazard.

Next, who are their buyers and what control do they have over them? Everything offered for auction is online, no walk-in buyers. Assuming prospective buyers find one store’s product among the millions online, buyers have to want it and be willing to bid on it before the owner gets a sale. But, in reality, are there any shoppers who go online to see what a particular drop-off store is selling and then decide what to buy? It doesn’t happen in that order. Online shoppers are there to find a certain product, not a specific seller, unless that seller specializes in what they want.
eBay stores are not catering to the narrow, well-defined market of a niche.

It’s easy to see how the owner of an eBay drop-off store becomes the middleman with little control over seller’s diverse inventory or buyers who are looking for items not sellers. Another thing to consider is that the more items that people bring in the more employees it takes to process them. Some of the items sell and some don’t but you still pay salaries and fees to get the products in front of the elusive buyers.

This combination - front-end/back-end problem is what helps keep the bottom-line in the red. The owner must spend more money to submit more items online rather than to ship more items that sold. That additional expense is in the form of both labor and fees. eBay doesn’t discount their charges for high volume sellers. Compound that with the fact that they don’t even set their prices (highest bidder determines price) so sometimes the percent-based sales’ commissions are not enough to offset expenses.

Yet there are people making big bucks selling online. Why should others succeed and the drop-off stores not? What’s the secret? Once again I refer to Mitch’s niches:
• It’s niches that get you noticed not a selection of unrelated items.
• It’s being distinctive in one marketplace that allows buyers to find your products.
• It’s being an expert in your niche that moves you to the head of the pack and puts money in your pocket in multiple ways.

As explained in the process above and summarized here, the drop-off stores can claim to meet none of these three criteria. Their first effort is to get people to bring them items (inventory). But varied goods are not niche items; and therefore, the owners become “Experts of Nothing.” They have to research most items to determine if they’ll sell and for how much. This is excessive labor for too little, if any, return. They have to take in extra items because everything isn’t going to sell, and they have to have extensive shipping capabilities to be able to ship anything that does sells.

What works is a niche where you know your products, how to list them, what will sell, and how to ship them. The more familiarity an eBay seller has in one area the better deals they get buying products (inventory), too. By focusing on one market you know how to adjust inventory and pricing. Your promotional efforts are then more effective. And, you don’t need a retail store front so you lower your lease payment. The only people making money on drop-off stores are those you pay for the opportunity of owning and running a drop-off store.

At www.amitheonlyone.org we present the facts about eBay drop-off stores that franchisors don’t want you to know. If you are considering opening one, read all our information before writing a check. If you are current owner and are wondering why it doesn’t work, we may be able to point you in a direction that will ease the process of closing down.
Contact us through the website or by emailing to amionly1@aol.com.

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