The Truth Behind Ebay Consignment Franchise Stores

Going back to my roots in college, I had a part time job in a regional ebay consignment chain called ShipOnSite. I was really excited when I got the job, even with the hourly rate of $8/hour.  During the early part of this decade, these chains even rated very high in reputable commerce directories for “best franchise opportunities”. Today, much has changed and the business model is suffering big time due to the economy and changes in the marketplace. While some are still successful, it takes a very good manager and the right demographics for one of these chains to succeed these days.

The basics behind this model are for locals that are unfamiliar with ebay to drop off their items and leave it to the “experts” to sell products around their house for extra cash while the store brings in a hefty commission rate ranging from 25%-50%.  At the same time, these stores scrape dozens of other in house opportunities to stay afloat including packaging and shipping with multiple carriers, mail drop off, mailboxes for incoming mail, fax and printing services and greeting cards and other small items for sale on stands and and and checkout.

In 2007, ISold It was a top 100 Entrepreneur Company. A year later it dropped from 108 to off the list of 500! However, the question remains, how can it makes sense to pay for a brick store, pay insurance costs, manager salaries and overhead expenses when many successful ebay businesses can be run at home as long as room allows for inventory space.

Former MyEZsale CEO Mitchell Schecter comments

“You cannot open a standalone consignment service and make it work. There simply isn’t enough profit in commissions to cover expenses. I think the only way to make it successful is to take an existing business and offer eBay selling as a secondary revenue stream.”

I’ll point out several reasons why I would recommend staying away from these opportunities for anyone who’s ever thought about franchising one of these stores.

1. Shipping Costs – For starters, these stores do offer a competitive advantage, at a cost!  Most offer shipping through all the major carriers. USPS, DHL, Fedex and UPS are all under one roof. The disadvantage is that 99% of the time, the cost to ship a parcel is charged at an increase of retail rates. We had many customers come in that were used to shipping flat rate Priority for $4.60 cents only to find when we rang up their total there was an additional $1.50 surcharge added so that the store could make money. Even with discounts that the store received for having a business account, the customer usually always pays more than the retail rate. So for walk in customers not even wanting an ebay service the cost can really hit you in the wallet and most would choose to drive the extra few miles to the post office or carrier specific location for a reduced price.
2. Ebay Shipping Cost – One thing I hated when I was listing items was having to calculate the shipping cost for items. I was used to nickel and dime my cost here with free boxes, options for packaging materials and reducing all S&H cost so I could make an extra buck and be able to offer a lower sales price that seemed more attractive to buyers on ebay. They recommend you use a “cheat sheet” to calculate cost and I would say 75% of the time, ebay will flag the item as excessive shipping in your category. The reason is because these models pride themselves in “safe” packaging. I would say, too safe of packaging. When we would sell a DVD or CD set, the manual tells you to put it in a box with peanuts, bubble wrap and excessive taping. Are you kidding me? Slapping one of these in a DVD box or flat rate envelope with a layer of bubbles is more than enough to be safe. You always got good feedback on the packaging but with new ebay polices on free shipping and excessive shipping unless your workers think outside of the box and disregard standard operation procedures …buyers on ebay are going to choose the item from someone else with a more reasonable shipping rate.
3. Franchise Supplies - Another thing that always made me a little heated was ordering “discounted” supplies for shipping and packing. I cant recall the rate of peanuts, bubbles or boxes but they were always way to excessive. These franchise companies obviously make their money from each store when different locations order suppliers from their partners but the discounts never made sense. Paying $1.80 for a new, double corrugated cardboard box was about double what I could get it from down the street at the supply company. Shoot, most of the time buying a single item from Wal-Mart would be less expensive than buying a hundred from the franchises’ supplier of choice. When I took the trash out, I would bring perfect boxes back in that were about to be dumped but was told I couldn’t use them because of the franchise contract and that they seemed unprofessional to send a DVD player in a box that had a toilet paper logo on it. Obviously, they work perfectly and the customer would most likely prefer a $2 discount on their box thats going to be trashed the second they open it anyways.
4. Poor Employee Knowledge of Ebay – While most sites only accept items valued at $25 or more, paying 25%-50% of the FAV is pretty ridiculous with the standard knowledge you get from an under $8/hr employee. I had ebay experience so I found their training seminars and tutorials had little to no value to a seasoned ebay sellers such as my self. These models don’t support having specialized ebay experts in house. While the system these franchises have is pretty fluid from start to finish, you’ll never find a true ebay savvy seller in one of these stores because the pay structure for employees is just way to low. They’re there to run the cash register, do basic packing and list a couple of items. In a nut shell, listing is only about 1/3 of a general employees role so the attention to ebay sales isn’t what you’ll get when using a Trading Assistant.
5. Expensive Overhead - Most of these stores will have $6,000-$10,000 in overhead per month. Franchise fees, vendor specific suppliers as stated above and associated cost leave the owner or manager with little decision making power on internal operations cutting into overhead and monthly costs.
6. Good for newbies, bad for real entrepreneurs. – For someone who’s never been on ebay, they set you up with a nice system. Listing software, camera booth, inventory system and easy post sales operations and tracking software. The thing is, all of these systems cost money. Many times I would be listing a new product that was brand new and it was mandatory that I took a real phone each time. However, a stock phone from google would be just find for that product. Sometimes, snapping photos for 1/2 of my shift could have been solved in 5 minutes on google images. For a real ebay seller, these systems might cut you short or be too inclusive to the point that you didn’t need them, however to someone who is new or never ran an ebay company, they won’t know any better.
7. Ebay consignment is a LOW % of store income – Truly, I’ve never seen an ebay consignment user name that had hundreds or thousands of feedbacks per month and usually range between 50-200 feedbacks per month. This is not enough to pay even a fraction of the overhead. Depending on ebay sales is not what run these businesses. Having locals who don’t want to drive across town and wait in line at the post office is where the money is made. Having a sign in the window for Ebay is just a way to get people interested and stop by. They might drop off a $50 DVD player, but the seller usually wants to sit down and spends 10-30 minutes after they’ve come in and signed the contract to sell the item. I loved to hear peoples personal stories and talk up a relationship but you dont get paid for how long a customer talks to you.  Unless someone brings in dozens of items or high end profit margin products you rarley made much after labor and other costs. Most people dont bring in expensive items or bulk lots especially when you tell them you’re keeping 50% of the profit.
8. Increase in Ebay Knowledge and Poor Economic Factors - I found less and less young people or Internet savvy customers bringing their items it. It was usually people over 28 years old who didn’t know how to work a computer and never had an ebay account. These days, just about everyone has had some experience in ebay and the younger crowd are teaching their parents and older friends how easy it is to sell on ebay. Expanding on that, it’s actually very easy to sell an item on ebay. After your average American has seen how easy it is to sell on ebay they’re not going to drive across town at $4/gallon, sign a contract and take 50% of the profit when they can sell from home and make all the money themselves. Money is tight these days and selling your average item on ebay is as easy as 1-2-3, making the demand for drop off’s less and less desirable.

While the above reasons are factors for failing, I’ve seen some ( a handful) look like they are doing well. They all seemed to have a few things in common and ill point them out below.

1. Location, Location Location! - The few stores I saw doing well in other cities are one with high foot traffic in busy shopping centers or highways. I would walk in and the ebay desk would be empty but customers would be lined up to get their packages out and circumvent the line at USPS or driving across town to make a drop off before 5pm. The store makes money when people pay for postage and make around $1 for each drop-off that’s already prepaid.
2. Mail Box Services - Following the same idea, the one location I walked into had every mail box sold out and were probably charging $10-$30/month fee. This store was in a heavy business sector and again, driving across town to get your mail is a hassle sometimes but this drop off store was in a great location for local businesses to get a mailbox at a lower rate than USPS offers. Stopping by in lunch or walking a few stores down to get your parcels or packages was a great way to get traffic in the store.
3. Running other Ebay platforms under one roof - One guy had a great idea. He was already a powerseller before he started his franchise and needed more room to get out of his garage. He used the back storage area to run his collectibles ebay business and turned the front of the store into the consignment/shipping center. Here he was able to combine two similar models under one roof and make money from them both. The store might break even or make a bit of money upfront, but having the space to run other business in the back with an office was a win-win situation for him.

Conclusion: While very attractive and interesting concept, Ebay Franchise businesses are really for people with little to no ebay knowledge. Who needs a franchises to tell you how to sell/pack/ship your items if you already know how ..especially when they want a cut in on the knowledge that you already have.  Five years ago, only some people were on ebay …now close to everyone has had a taste making the ebay side of the business relatively slow. Franchise contracts restrict a business savvy person from implementing money saving decisions. I knew how to operate every portion of the business in 2 months. If it only takes this long to learn their operations, you don’t need a franchises system along with all the cost involved.

Sadly, I quit my job to sell in house for a local guy who had surplus off-lease equipment, which my boss refused to look into. One year later, the store went under and was bought out by new management. Six months later, the new owner also went under and a Subway is now thriving in it’s place.

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