Internet drop-off stores pick up on a growing market

When Pierre Omidyar founded eBay Inc. in 1995, it's unlikely he imagined the first online-auction site wouldn't just radically change how goods are bought and sold, but would also save marriages.


		SCOTT EKLUND / P-I
	Kenny Byrne checks out a tricycle dropped off by a retired clown at his Federal Way store recently. Byrne plans to open 27 iSold It stores by 2009.

Yet it has, says Federal Way's Kenneth Byrne, one of several Washington entrepreneurs using eBay to sell stuff gleaned from folks' attics and garages, as well as companies' excess inventory and liquidated goods.

"One customer told me, 'Thank you! My marriage is back together because my wife isn't so upset with me since I cleaned out the garage,' " Byrne said at his fourth "drop-off" store, in Federal Way.

Byrne has set aside $1.2 million of his own money to open 27 iSold It stores in Western Washington by 2009. His drop-off stores give people a place to get rid of unwanted stuff, then sit back and get a check for 70 to 80 percent of the online price after iSold It photographs, describes and auctions the items online.

Byrne, 39, said he missed out on early opportunities to profit from San Jose, Calif.-based eBay, a simple but hugely successful business that carries no inventory, has minimal overhead, requires little capital investment, yet has increased its revenue by more than 42 percent over the past year alone, to $3.86 billion.

So in January 2004, when he saw a televised report on a new franchise called iSold It, he jumped at it. Last summer Byrne paid $285,000 for the exclusive right to open iSold It stores in Western Washington. He said he plans to open a new store every two to four months and thinks the area could support 50 additional stores beyond his 29.

Drop-off stores work because many people lack computers or Internet access, are intimidated by going online themselves to auction off goods, or just don't have the time to do so. They're willing to sacrifice part of the sale price if someone else does the work for them.

And selling other people's stuff is a pretty good business to be in, Byrne said.

A pair of 1950s Levi's, still in their original packaging, brought a surprising reward for both Byrne and the elderly gentleman whose closet they'd been cluttering, selling for $1,100.

In addition to selling other people's stuff, Byrne is serving as a distributor for people importing products from China, India and Iran. He also buys overstock, inventory from companies going out of business or into bankruptcy, and even new products.

Then, with the approval and help of iSold It, he sells that merchandise not only on eBay but also on Amazon.com, Shop.com, Ubid.com, Smartbargains.com and Yahoo! Auctions.

Shop.com and Smartbargains.com allow selling large quantities of identical items at fixed prices. Ubid.com focuses on selling large volumes at auction.

"Sourcing our own products is an important part of our business, because then we're not just earning a 20 to 30 percent commission -- we're earning whatever we can on it and reducing our risk," he said.

One of his stores was operating in the black within nine months, a second within six months. Byrne is now seeking investors in both individual stores and his entire Western Washington organization.

"There is a wonderful upside" in putting goods onto the Internet, Byrne said. "The market of potential buyers is huge -- bigger than any market you'd ever find face-to-face -- and the merchandise I can sell is unlimited."

Byrne said he chose to buy iSold It franchises in part because of the Pasadena, Calif.-based company's software, which links all franchisees in an intranet, tracks all current and past auctions and produces comprehensive reports. But iSold It is hardly the only franchise building eBay drop-off centers.

At least three other franchise companies are also building nationwide chains, though only one has a presence in Washington. AuctionDrop Inc., of Fremont, Calif., uses UPS outlets as its drop-off points. There are 108 The UPS Stores in Washington, 82 of which are in the greater Seattle area.

At least two local competitors are also active here.

Sarah Carlton, 54, is far smaller than any iSold It store, and she says she likes it that way. She opened u-Bay.biz out of a rented house in Greenwood about a month ago.

Carlton, who declined to reveal her investment, said she needs to bring in $1,000 in sales every seven days to turn a profit. But she's only open four afternoons a week, and so far, she's not making her numbers.

"I'm way far away from breaking even," she said.

Carlton is counting on stuff coming in from local estate sales and from nearby homeowners pressed to make hefty house payments. To supplement that income, she's offering $50 classes twice a week for people who want to learn how to sell online themselves. She's also auctioning vintage lingerie, clothing and accessories she finds at thrift shops.

Carlton, who once ran The Elliott Bay Book Co.'s graphics division, said she never even considered buying a franchise instead of starting her own business.

"You've got to pay a lot to get those franchise fees back," she said. "And I'm such a mom and pop, do-it-your-own-way kind of person that I would never want someone else's business model."

Toward the higher-powered end of the spectrum is Seattle's Bidadoo Inc., a 2-year-old start-up funded by private investors. Bidadoo specializes in selling high-volume or expensive items. That includes roughly equal numbers of business-oriented products, such as copiers, computers, tools and machinery, and personal goods such as furniture, jewelry, antiques and electronics.

The 15-person company with two locations -- both in Seattle -- sells goods only on eBay. When it comes to selling business items, Bidadoo competes mainly with live auction houses, such as Kenmore's James G. Murphy Co. and Vancouver, B.C.-based Ritchie Bros. When selling art and furniture, the company competes with Sotheby's, Christie's and Seattle's Pacific Galleries, all of which offer both live and online auctions.

Liquidating excess inventory and obsolete or unneeded equipment is a role only now being undertaken on the Internet, co-founder and president Howard Hawk said. Bidadoo has a 20,000-square-foot facility for warehousing, photographing and shipping those so-called surplus assets.

Hawk said eBay has only recently gained a reputation as a marketplace for high-priced artwork and fine furniture. But as that reputation increases, "the market is so much larger on eBay than with any live auction or high-end online auction that we can get our customers prices that are 50 to 100 percent higher" than they'd get otherwise.

EBay spokesman Hani Durzy said drop-off stores have "a nascent impact on the eBay marketplace, and they introduce people to the power and the idea of eBay. We're very much in favor of these businesses, and we hope they succeed."

"Nascent" is just the word. Drop-off sales are expected to total $250 million of eBay's $40 billion total this year, or less than one-half of 1 percent of the total, said Walt Duflock, head of eBay's "Trading Assistant" program.

Although that's a tiny contribution to eBay's bottom line, it has doubled over each of the past several years, Duflock said. About 15,000 trading assistants, defined as an individual or a single store even if owned by a franchise, sell goods on eBay, he said.

P-I reporter Dan Richman can be reached at 206-448-8032 or danrichman@seattlepi.com.

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