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MALL PORTAL

Clicks meet bricks as eBay drop-off stores proliferate at centers

BY JESSICA ROE

The inventory at iSold It is standard secondhand store fare: maternity clothes, a 64-piece set of flatware, used videogame systems, vintage guitars. But don’t say the words “consignment shop” around Jerry Wright, the company’s vice president of operations.

“Landlords need to get that analogy out of their heads,” Wright said. “Our stores have a very clean feel. There’s no clutter of items around the store. People are not shopping in our stores. All our transactions take place over eBay.”

Though eBay drop-off stores may not attract browsers, they are expected to capture an untapped market by leveraging the eBay brand. Pasadena, Calif.-based iSold It is one of more than 20 drop-off brands launched in the past two years that are vying for a stake in a market eBay estimates could generate as much as $10 billion in sales by the end of 2005.

The online auction house doesn’t have a direct financial stake in any of the drop-off stores, but eBay CEO Meg Whitman is a booster of these brick-and-mortar offshoots. “Clearly, they’re getting an incremental customer that would have never come to eBay on their own,” Whitman said at a Goldman Sachs investor conference this year. Some analysts have estimated that consignment sales activity could yield $700 million in revenue for eBay.

To capture customers who don’t normally sell their attic treasures online, drop-off stores take the work out of running an eBay auction.

“Buying on eBay is easy,” said Elise Wetzel, founder and chairman of iSold It. “Selling is a lot more complicated.”

For a commission, drop-off stores will manage every aspect of the auction process. They’ll estimate an item’s value, write a detailed description, take a high-quality digital picture, collect the payment from the winning bidder, arrange shipping and send a check to the seller.

“We’re seeing a mix of people,” said Yale Dolginow, founder and CEO of DropShop, a Minnesota-based regional drop-off chain. Some have bought merchandise from eBay, others have just heard of it and figure it’s a good way to dispense with their stuff.

Most drop-off shops accept only items with a minimum value of $30 to $50. They often impose a weight limit of 150 pounds as well, since the items will eventually have to be shipped by the U.S. Postal Service or a private carrier.

The primary selling point for drop-off stores is convenience, but this doesn’t come cheap. Commissions average about 30 percent, though some shops offer reduced commissions on higher-valued items. Sellers using the drop-off services also pay the usual eBay listing and payment-processing fees. Winning bidders pay the shipping fees.

Convenience is a priority in site selection, too. Drop-off stores overwhelmingly prefer to be located in grocery-anchored shopping centers. “We experimented with a lot of different stores, including secondary retail in office parks,” said Jack Reynolds, co-founder of Costa Mesa, Calif.-based QuikDrop. “We finally settled on a 2,000-square-foot space next to a grocery store. That’s the model for all our stores.”

Drop-off stores also prefer to be near coffee shops, sit-down restaurants, beauty parlors and drugstores, all of which are considered draws for the target demographic: middle- and upper-income people between 35 and 60.

“Our target customers are people who’ve had enough time to acquire a lot of items and want to get rid of some of them,” said Drue Miller, director of research at AuctionDrop, based in San Carlos, Calif.

Small businesses that use eBay to liquidate inventory are potential clients too, as are fund-raising groups that prefer the ease of running a virtual flea market.

Sizes of 1,200 to 2,000 square feet are typical. Most of the chains are looking for plain-vanilla shells where they can set up airline-style counters in the front of the store and extensive shelving systems in the back. Street-level locations with ample parking are important to facilitate bringing large items into the store.

Unlike most franchisers, iSold It, QuikDrop and many other drop-off companies allow franchisees to participate in leasing decisions. Many franchisers provide direction about size and location, and then they hire local brokers to handle the lease transactions, says Wright. Given the stores’ highly utilitarian design, conformity to brand style is often a matter of having the required signage and the recommended counters and shelving systems.

So far only AuctionDrop has an extensive national profile, and it has managed that by opening no more than five storefronts, thanks to a piggyback agreement it signed with UPS in May. Under the terms, customers can drop items off at any of 3,400 UPS Store franchises across the country for shipment to AuctionDrop’s 105,000-square-foot processing facility, located in San Carlos.

QuikDrop and iSold It are themselves trying to establish a national presence through such markets as Chicago, Los Angeles, New York City and San Antonio. As of July iSold It had six franchises, but the company has ambitions to grow quickly.

“We have 170 stores under contract now, and we’re out aggressively looking for locations,” said Wetzel. The company says it expects to be operating about 500 stores within the next three years and 1,000 within the next five.

QuikDrop, which recently tapped DHL as its exclusive shipper, currently operates 18 stores. The company says it hopes to open two stores per week, on average, through year-end.

“We have franchise contracts in the U.S. for right around 400 stores, which will open over the next 36 months,” Reynolds said. “The whole problem is getting open fast enough — getting the people trained and finding the spaces.”

Some stores are opting to build a strong regional presence instead of trying to compete with AuctionDrop for national reach. DropShop, for example, has opened five units in Minnesota and plans to have three new ones in the state by year-end. Next year it plans to begin expanding outside the state.

Who said Internet shopping was going to be bad for the shopping center industry?