knoxville

Knoxville franchises believe online auctions are wave of the future

Feb. 12–Amid the bustling retail development that has come to define Turkey Creek and its Parkside Drive surroundings sit three stores within a half mile of each other that won’t sell you a thing.

The iSold It business, a franchise originating in Sacramento, Calif., NuMarkets, a franchise store based in Etowah, and e-Auctions, a local, independently owned store, are three among a growing number of businesses — including chain, franchise and independently owned stores — that are attempting to bridge the gap between the Internet’s biggest auction site, eBay, and the everyday customer.

Knoxville’s cluster of stores reveals in microcosm the growth and competition that has developed in this industry, so new it doesn’t have an easily recognizable name.

These companies serve as middlemen, brokers, facilitators (some say parasites) for the sale of goods on eBay, from “paper clips to powerboats,” as e-Auctions owner Jim Hatmaker put it.

Customers leave items at what some call eBay dropoff stores, where the companies charge commission on the price the items fetch, ranging from 20 percent to 30 percent depending on the sales price. The stores serve to relieve sellers of the nuisance of appraising, photographing and posting the items themselves. In some cases, the stores will charge fees to post the items.

The question is, can such a high density of competitors in a still-nascent industry survive and thrive?

They say yes, predicting that one day these shops will dot cities across America much like McDonald’s, Burger King and Wendy’s.

“I believe there’s room for thousands of these stores across the country,” said Kenneth Sully, CEO of iSold It, based in Pasadena, Calif.

Others aren’t so sure, questioning the auction stores’ business model with the high cost of prime retail space, labor and other overhead expense, as well as the bottom line — will the service catch on with the masses?

Even as companies like iSold It expand their franchise chains, other companies are going out of business, said David Steiner with AuctionBytes, a site and newsletter that follows the online auction industry.

“I think that there’s definitely some contraction going on in the industry,” Steiner said. “It’s a very challenging model.”

Last year $34.2 billion worth of merchandise was sold on eBay, and eBay dropoff entrepreneurs believe that’s just the tip of the iceberg.

According to Daniel Nissanoff, author of the newly released book “Futureshop,” while eBay boasts more than 150 million registered users, just 5 percent of buyers sell on the auction site too.

For most, he wrote, it’s too much trouble or they just don’t understand the potential of unloading goods they no longer need or use.

That’s the market third-party providers are hoping to tap.

Besides California, Tennessee has become a hotbed of startup third-party online auctioneers.

NuMarkets’ headquarters are in Etowah. Another company that has no Knoxville locations is Nashville-based Snappy Auctions, which is expanding through franchises.

Fremont, Calif.-based AuctionDrop provides eBay dropoff and auction services through UPS stores in the Knoxville area.

Then there are the independent stores like e-Auctions, which began out of owner Jim Hatmaker’s home and opened in a new strip center development on Lovell Road last fall.

Hatmaker said his business is built around customer service and a personal touch.

“I’ve always been a people person,” he said. “I know no strangers and I’ve always wanted to share what I have with other people.”

Hatmaker’s e-Auctions provides employee ownership in the business, and he said he plans to expand the concept to locations in Florida, North Carolina and Alabama.

Turkey Creek is an ideal location for eBay dropoff stores, owners say, because of the high percentage of affluent homeowners that populate West Knoxville and nearby Farragut.

Industry executives say the Knoxville cluster of stores is unusual — most stores are still building their national presence — but portends things to come.

Nissanoff owns his own eBay auction firm, Portero, which specializes in the resale of luxury goods.”

He argues that retail of the future will depend heavily on the secondary market for goods, similar to the used car business today. Instead of buying an item for life, Nissanoff wrote, people will buy with resale in mind, forking over $500 for a designer brand of shoes with plans to sell them the next year for $350.

“This shift will redefine socially accepted norms for consumer buying and selling behavior,” Nissanoff wrote. “We will soon live in a world where the norm is to sell our iPods after using them for a year. Or you’ll sell your $800 Jimmy Choo shoes after wearing them twice. Cell-phone companies will automatically send us the newest, most high-tech mobile phone every six months. We’ll essentially be leasing Rolex watches instead of buying them.

“The new paradigm will change the very meaning of brand value and alter fundamental methods of marketing across the range of most consumer products.”

That’s the kind of future stores like iSold It, NuMarkets and e-Auction are banking on.

Sully, CEO of iSold It, is a former executive with Mail Boxes Etc. He said iSold It is focusing on blanketing the country with its franchises and this year will launch an aggressive marketing campaign to educate consumers about its merits.

“We have 165 stores open in 35 states and we have 600 stores under contract,” Sully said. “We’ve got a pretty heavy program and we’ve got a really big marketing strategy. … We’re going to be the brand leader and have the largest footprint.”

NuMarkets, on the other hand, has pulled back from the franchise model and is re-focusing its strategy on a market-by-market approach, mixing franchising and company-owned stores.

Last year was tough for NuMarkets, said its CEO Russell Grove. The company closed four stores in Mississippi, Dallas and Raleigh, N.C., and now has nine stores open in Tennessee, Utah and Pennsylvania.

NuMarkets, which touts its niche as the software “brains” it’s developed to support its enterprises, ran into trouble building awareness as a single store entered a market, Grove said. So now, the company will “franchise smartly” but approach expansion on a market-by-market basis, building up a cluster of stores in a particular city and rolling out a comprehensive marketing plan before moving on to the next.

“Consumer awareness and reaching the consumer is still the barrier to break,” he said. “A year ago, if we would have talked, I would have said, ‘This franchising thing is tougher than it looks.” ”

This year, however, NuMarkets locations are planned for the Chattanooga and Knoxville markets — Grove said the Knoxville franchise is the company’s best-performing location — and NuMarkets plans to enter the Lexington, Ky., market via acquisition of two independent stores.

The question, Grove said, is not if the business will work, but when.

“Proving the economics and getting it to work, again, is the challenge in front of everybody,” he said. “Knoxville is our most mature market, and we’re hitting less than 2 percent of the population there. … No doubt, it’s going big for whoever gets it right.”

Everyone agrees, however, that the industry is in for some consolidation.

“There’ll absolutely be a shake-up,” Sully said. “The best of breed emerges and survives.”

AuctionBytes’ Steiner, however, isn’t sure the eBay facilitator model is such a good one.

A couple of years ago venture capitalists swarmed to invest in dropoff stores. But Steiner said he’s been keeping a chart of such stores since 2003 — including both franchises and those independently owned — and he said of those originally on the list, 35 have gone out of business.

Steiner said much of the industry’s growth has been based on the successful sale of franchises rather than actual revenue from the stores themselves.

“They’re not doing anything different than a trading assistant would do,” Steiner said, referring to individuals who assist customers with the sale of goods on eBay, typically for a lesser fee than the brick and mortar stores. “Many of these people were doing it with no overhead at all.”

It’s tough, said Steiner, for a business to pay rent — typically in a high-profile, retail-oriented part of town — as well as pay labor and marketing costs and still sell an item for a price that gives the customer a good return after an average 30 percent to 35 percent commission.

“I’m not a huge fan of the model myself,” he said. “It’s not the kind of business where you put your shingle out and you have a crush of customers coming to your door.”

One problem the business has faced is name recognition, Grove said, citing a recent reference to the industry in the movie “The 40-Year-Old Virgin” where the main character enters an eBay dropoff store, mistakenly thinking he can buy a pair of boots.

“Consumer awareness and reaching the consumer is still the barrier to break,” he said. “The name is confusing by itself: eBay dropoff store.”

But businesses like NuMarkets are moving beyond the dropoff store concept.

They’re getting into business-to-business applications. NuMarkets’ new software product, BlueDot, allows businesses to use NuMarkets’ software to facilitate their own auctions, and Snappy Auctions has a similar product.

Grove said he looks for expansion of the eBay dropoff concept among traditional retailers such as Lowe’s and Wal-Mart, providing an opportunity for companies like NuMarkets already in the business to sell support services for these endeavors.

Shelley Williams, owner of NuMarkets’ Knoxville franchise, says for business that don’t want to do it themselves, her store is serving as a liquidator for companies looking to unload overstocks, used equipment and furniture. In fact, Williams said she might have to soon open a warehouse that would serve as a processing center only for these types of goods.

Each company is developing a niche in this new marketplace, said Jackie Jacobs, owner of the Turkey Creek iSold It franchise.

She says her store tends to specialize in smaller, higher-priced items while NuMarkets sells a lot of larger items, including furniture. E-Auctions, on the other hand, accepts lower-priced items.

“We see the same folks week after week after week,” she said. “Everyone continually gets new stuff. There’s really an infinite market of items to sell on eBay.”

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