What went wrong: eBay Drop-Off Stores: How Feasible Were They?

Sounds like a good idea. You’re replacing your laptop computer with a new one, but your current laptop
still works and should be worth something. You’d like to sell it on eBay but don’t want to hassle with
setting up an eBay account, listing the laptop, and following the auction. The alternative is to take the
laptop to an eBay drop-off store, which will sell your laptop for you on eBay. You’ll then get a check less
a commission taken by the store. In the mid-2000s a number of eBay drop-off stores started to do just
this. Nonexistent in 2003, by 2005 there were thousands of independent and franchise eBay Drop-Off
Stores across America; today, only a handful remain. What went wrong? The eBay drop-off store idea
was initiated primarily by two franchise organizations—iSoldit and QuickDrop. Although the idea made
sense to many—there were 7,000 drop-off stores by mid-2005—skeptics questioned the stores’
feasibility from the beginning. The lure of the drop-off store idea is that nearly everybody has something
in their closet or garage they’d like to sell on eBay. So the market’s almost unlimited. But the skeptics
wondered how much “quality” merchandise would actually come in. It’s one thing to manage an auction
for a $600 laptop and another to manage one for a $20 baseball card. With commissions in the 40
percent range (that’s what the stores were getting), what was most likely to come in? It was easy to
envision someone, the skeptics maintained, thinking to themselves, “I’m not going to give up 40 percent
of my $600 laptop computer ($240). I’ll manage the auction myself,” while the same person might gladly
give up 40 percent of a $20 baseball card because the total amount of money involved isn’t that much. If
this type of thinking was pervasive, the drop-off stores would be stuck selling a large amount of low-
ticket items rather than high-ticket products. Another thing the skeptics questioned was the range of
items the stores were willing to sell. Could the same store owners be experts managing auctions for
diamond rings, baseball cards, boats, cam- eras, computers, decorative plates, rare photos, and
countless other things? One of the pitches the drop-off stores made was that they would help their
clients know what a fair price was for the items they hoped to sell.

Regrettably, many of the skeptics’ worries came true. Literally hundreds of eBay drop-off stores have
closed. The main complaint, by the store owners who have called it quits, is that their profit margins
were either nonexistent or too low. They simply dealt with too many one-time sellers and one-of-a-kind
items to develop a cadence of repeat business and efficient processing. They also found that the cost of
processing an item was the same whether it was a $30 decorative plate or a$15,000 boat. Processing
each item included talking to a customer, researching a price, taking a photo, writing a description,
posting the item on eBay, following the auction, shipping the product to the buyer, getting paid by the
buyer, and paying the customer. Not much money would be left over from a 40 percent commission on
a$30 decorative plate after all of that.

There are now many disgruntled former eBay drop- off store owners. The initial capital outlay and
working capital for a franchise like iSoldit was between $100,000 and $150,000. One former owner of an
iSoldit franchise, Karen McGinn, was so mad that she and her partner maintained a Web site, Am I the
Only One, for several years to provide updates about eBay drop-off store problems. While the site is no
longer functional, it does illustrate how high emotions were running during the time many eBay drop-off
stores were going out of business. QuickDrop, one of the pioneers of the eBay drop-off store industry,
closed shop in early 2008 and stopped selling franchises and supporting existing franchisees. Not all is
lost. There are still eBay drop-off stores in existence, as illustrated by the iSoldit Web site. Yet the
numbers are small compared to original projections. At one time, iSoldit had ambitions to open 3,000
stores in the United States and more overseas. At the time this feature was written, the company had 29
domestic stores listed on its Web site. The survivors are also evolving beyond the original eBay drop-off
store con- cept. For example, iSoldit stores are now positioned as Neighborhood Logistics Centers and
combine their eBay drop-off services with retail packaging, shipping, and business services.

Questions for Critical Thinking

1. How many owners of eBay drop-off stores do you think conducted a feasibility analysis before they
opened their stores? If you think the number is low, what’s the explanation?
2. Describe the difference between eBay drop-off stores as an “idea” and as an actual business. Is it
possible for something to be an enticing business idea but a poor business?
3. Why do you think people bought into eBay drop-off stores toward the end of the downward spiral of
the category?
4. What can a start-up learn from the experience of the eBay drop-off store industry about the
importance of feasibility analysis?