Tough Times for eBay Entrepreneurs

by Karen E. Klein

A bad economy and competition from big e-tailers
are challenging those who make a living via online
marketplaces such as eBay, Craigslist, and Etsy

Ann Wood was thrilled last January when her eBay
store, Willow-Wear, had its best month ever,
grossing around $33,000. In February, however,
Wood experienced a sharp drop-off in sales. Since
2004, Wood has run the home-based business, listing
and selling high-end jewelry, clothing, shoes, bags,
and antiques for more than 40 clients around the
country. She works four to six hours a day, and had
sales of about $250,000 in 2007, she says.

"I've still got steady sales and I'm making money
for my clients," Wood says, "but I've been seeing
more caution from buyers on the items priced for
$1,000 and over. People are being smart. They're
acting like my husband and I are trying to act,
which is to be more careful about purchases and
not buying everything we want."

Yet Wood's inventory is growing as her clients
scour their closets, hoping to make some extra
money selling unused items, and telling their
friends Wood can do the same for them. The other
bright spot for the former appellate attorney,
who became a home-based entrepreneur after her
three children were born, is international sales.
"A great portion of my stuff is shipped overseas.
With the dollar so weak, I've got great deals for
people in places like Germany and Italy. I even
sold something to Tahiti recently," Wood says.

"Pay to Play"
But overall, it's a tough time for entrepreneurs
who sell products through online retailers like
eBay, Craigslist, Etsy, and myriad other sites.
It's also tough to get solid financial data on
these individuals, many of them hobbyists
conducting virtual yard sales in their spare
time, rather than serious business owners. "What
we know is that probably half of all online retail
happens through companies that are smaller than
the top 100 e-commerce retailers," says Sucharita
Mulpuru, a principal analyst in the retail
division at Forrester Research (FORR).

It is suspected that probably about 60,000 small
and medium-size businesses have some sort of Web
presence, and another 650,000 sole proprietors
are selling through an online marketplace where
anybody can upload their product catalogs,"
Mulpuru says. "I can't imagine that they're doing
particularly well in this economy." Small online
operations must either sell unique items, such
as antiques and collectibles that appeal to
niche buyers, or do enough sales volume to keep
prices low.

"The challenge is that if they're sole
proprietorships, they will not be particularly
well-branded. In order to attract traffic, they
have to pay for some interactive marketing program,
which adds to their expenses and cuts into their
margins," Mulpuru says. "They have to pay in order
to play, but many of them don't have the resources
to do that."

That's not to say lots of people aren't trying.
A study of eBay market activity released in May
shows that in 2007 the top 10 markets in the
country—Los Angeles, New York, Chicago, Philadelphia,
Dallas, Orange County, Calif., Washington, Houston,
Nassau-Suffolk, N.Y., and Fort Lauderdale—generated
more than $7 billion, accounting for 55% of all U.S.
sales on eBay. In Los Angeles alone, 196,089
residents sold 24,051,645 items for a total of
$1.3 billion in sales, with cell phones, cell
phone accessories, and clothing the top categories


More Full-Timers
Jacques Stambouli is the CEO of ViaTrading.com,
an overstock liquidation firm that provides
merchandise for a number of online retailers.
"We deal mostly with entrepreneurs and people
trying to make a little extra money on the side
with home-based businesses. What I've noticed
recently is that a lot of people who were doing
this part-time are trying to ramp up their
activities and spend more time on selling. Others
are already selling full-time and they are trying
to grow," Stambouli says.

Some of his clients who disappeared two or three
years ago have gotten back into the swap meet or
online retailing business in the past few months,
he says: "If all of a sudden you have to spend
$1,000 on gas instead of $500, there's twice as
much of your income gone and you still need to eat.
There are also a lot of new faces showing up at the
flea markets, more people bargain hunting and
looking for cheaper ways to buy the same stuff."

The problem for small retailers trying to sell
merchandise more cheaply than volume discounters—
such as Target or Wal-Mart—is that they don't have
the economics of scale on their side, says David
Zahn, president of StartUpBuilder.com.

"It is harder [for small e-tailers] to turn a
profit, because the pressure is on the e-commerce
businesses to absorb shipping costs as many
established sites are doing," he says. "For
Amazon.com, as well as traditional retailers
that have e-commerce sites, such as Staples.com and
others, the costs are often absorbed for both
shipping to the customer and also from the customer,
if the item is to be returned.

What remains to be seen is if the gas crunch will
lead to more online purchasing," he says.

Free Listings
Small eBay sellers have been complaining
about the online marketplace's deal with
Buy.com, an online volume seller that can offer
free shipping and other perks that small store
owners feel will undercut their offerings. That
agreement, as well as recent price increases
(BusinessWeek, is driving eBay competitors as
well as eBay itself), to turn up the volume
on their appeals to get more small sellers
onto their sites.

Some, like newcomer Wigix, are offering
alternative business models. "We don't do
auction; we operate more like a stock market
with open bid orders for everyday stuff. We
don't charge anything for listings," says
James Chong, Wigix CEO.

The company, which launched in April, is
actively recruiting eBay sellers with its free
listings and low—or nonexistent—transaction fees.
"Every time there's a revolt at eBay, we're
getting a benefit from it," Chong says. "The
small sellers there are competing with a
gazillion other listings and they end up having
to pay a lot of extra fees to break out from the
clutter. Their margins are being eroded by
those costs."

For now, Wood is sticking with eBay and hoping
her sales will soon be up again. Her online
store, which grosses an average of $25,000 a
month, has been doing well so far in July, and
she is optimistic. "I'm on track to have another
big month, and we're seeing a lot of volume on
eBay now," she says. She is experimenting with
providing some free shipping as well as
increasing her sales listings, upgrading the
look of her online store, and letting buyers
know she can also sell items for them. "I'm
always trying to take a cue from the bigger,
higher-volume sellers. Watching smart sellers
is how I taught myself this business,"
Wood says.

Craigslist.org
Etsy.com
Wigix.com