Are eBay Drop-Off franchises sound business models?

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In the wake of iSold-it US cancelling expansion plans and iSold-it UK shutting up shop, Trevor Ginn has some interesting comments on eBay drop-off stores. Ginn is largely not in favour of them which is surprising seeing as he’s the Head of Consulting for an eBay drop-off store. However his argument is that “the only way to make money out of this industry is with central processing, as the low margins require economies of scales”. This makes an awful lot of sense, the set up costs for a drop off store are prohibitive, if you decide to purchase a franchise drop-off shop from a national chain set up costs rise further but in addition you’ll be handing over a slice of your profits.

I’m unconvinced by the business model of franchised Drop-Off shops, and unsure just how much brand recognition a national chain of Drop-off shops attract. Often they are known locally as “The eBay shop” rather than by the franchise name.

Drop-off shops appear to fly in the face of traditional eBay businesses. Generally on eBay an unknown local business gains a national or international audience. National or International chains of drop off stores attempt to trade off their brand to attract local business – the exact opposite to that which eBay excels at. Attempting to create a brand to profit from another brand appears an uncertain way to do business.

8 Responses

  1. To be fair, I don’t think that Trevor is questioning the drop-shop model in general: but he is questioning the validity of the drop-shop model that relies on stand alone branches rather than a centralised approach.

    So, say, you have a shop in Brighton, one in Eastbourne and another in Hastings and each of these runs their own operations and in essence duplicates activity and costs too. Trevor favours a system whereby you centralise operations and do away with independent standalone branches.

    A4U has a centralised model which he, I believe, is arguing is the only viable model in this low-margin business.

  2. Unfortunately, the centralized model has its own problems. You still need a point of contact on the street corner to collect the merchandise and ship it to the central processing warehouse and you also incur additional inbound P&P costs. You still need the sales contact with the consumer who is dropping off product.

    It is a tough model regardless of how you do it.

  3. Being a nothing but a middle man in an eBay transaction with the overheads of a B&M site as well is doomed to failure. I’ve yet to see any of these places make any real money. Most go tits up after a few months if not sooner. We had one in our town, it lasted less than two months.

    As a side line business to a retail shop or an existing business it could work, but as a stand alone business the figures just don’t add up.

  4. Some very good points here. Margins are lows so the success of drop shops depends on the scalability of the model, hence the requirement for central processing. Currently we sell around £500K/month on eBay

  5. I am Auctioning4u’s CEO and a colleague of Trevor’s.

    While TameBay is correct in saying that we have a significant B2C business we make a significant contribution margin on each consumer item we sell. We can do that since we have developped our owns operating systems since four years and because we have specialised listers, i.e. somebody who say only lists cameras and is an expert in doing so and somebody else who might list 30 Nokia phones to then move on to 40 Blackberries.

    Randy is correct in saying that we have to handle the logistics of moving stuff around, but as long as the quantites are there that’s not an economical issue. Lastly, yes, we still need a retail location, but we are can work on a shop 3x smaller than a stand-alone business, i.e. a shop 3x cheaper.

    We strongly believe that we have developped the only viable route to a consumer dropoff model by investing heavily into software, processes and a great team (we now have 120 employees).

  6. The big question for others thinking of emulating your model is “If you didn’t have the business contracts would you still have the infrastructure in place to be profitable on consumer items? Would you have 120 staff in place to have a cameras or mobile phone specialist if you were a purely consumer walk in orientated model?

    I know the centralised processing helps and it’s good to know the consumer side is profitable, but I suspect if you removed all your business contracts the overhead of warehousing and staff would be hard to sustain on consumers alone.

  7. Hello again, This all depends on the people running this type of store. We thought many times about opening up a local drop store or many other franchise businesses but the overhead costs to us are just to tremendous to overcome an make it work.
    We do everything out of our home. That’s the best Ebay Shop I know of (for us) with as little overhead as possible. Our only overhead are the fees and the supplies we need to pay for. Any other items I need I get free of charge from the postal service. UPS or FedEx doesn’t even do that!!!
    These are just some of our insight to various ideas we have come across.
    Plus as it was explained the reach you have from all over the world you just don’t get with a brick and mortar store.
    We’ve watched our store double in the amount of people visiting from around the world. From one country at the beginning we have more than 10 countries visiting and doing business with our store. For us, in our opinion, an Ebay Drop off store was not the thing for us.
    As always, all emails are welcome and we hope to see you browsing our items. Thank you again to our customers.
    C&R Coins and Collectibles (Cathy&Ray) 🙂

  8. With regards to Mr. Braun’s final paragraph and the benefit of six-months hindsight, Yes…of course you have!!



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