eBay Frenzy Spawns Stores

"I believe these (eBay drop-off stores) will become as common as a cleaners," Michael Uskovich, COO of the locally based Auction Mills Inc., tells GlobeSt/RETAIL. In the past six weeks, Auction Mills co-founders Uskovich and CEO Jason Brola have opened a headquarters and two retail sites in the Dallas area after working since spring 2003 to launch the public offering.

Uskovich says the founding team decided to form a public company to raise capital and gage interest with the investment sector. "We also are trying to make sure we control our growth," he explains, "and don't make mistakes." The Pink Sheets offering, he says, generated $1 million.

Uskovich says they were flooded with franchise requests after Auction Mills hit Pink Sheets. He says the 5,000 franchise requests to date have resulted in agreements with 14 area developers, each with a 15-store territory. So far, there are two area developers in Northern California, three in Southern California, two in Florida, three in Texas and one each in Georgia, Indiana, Massachusetts and Mississippi. The franchisees are on track to roll out 210 stores in first quarter 2005, with a Dallas training expo set up for this December.

Franchise costs, including software and training, run from $15,000 for one store to $30,000 to multiples, according to Uskovich, a former salesman who's accrued a half dozen years working the eBay platform to his advantage. Drop-off sites will range from 700 sf to 1,000 sf. Auction Mills partnered with Infopia Inc., a Salt Lake City-based ecommerce solutions provider, to roll out the franchise plan.

Unlike many of its competitors, Auction Mills isn't relying on dropped-off goods to spin all the profits. Uskovich says he's hitting the bricks to set up partnerships with a sporting goods store for overstocked and unsold items, doing the same with some "mom and pop" retail operators and eyeing an alliance with a local hospital system to sell its outdated or refurbished medical equipment. He's also planning to court real estate agents and brokers to offer Auction Mills as an alternative for people on the move, inside and outside the metroplex.

The hard-sell for the partnerships is "you're paying to have those items sit there. We can move them," Uskovich explains, adding Auction Mills' hook is anonymity for sellers as well as convenience. "It's the garage sale of the 21st Century."

Auction Mills started with a 1,700-sf store in a grocery-anchored, suburban shopping center in McKinney, northeast of Dallas. It then opened a 3,000-sf storefront and headquarters with a training center in Dallas' Deep Ellum, an eclectic mix of shops, nightclubs and residential lofts on the CBD fringe. Next year, Uskovich says he plans to open a half dozen corporate sites to go along with the franchise ramp-ups. He's scouting Southlake, Grapevine and the Mid-Cities.

Analysts with a pulse on eBay say the consignment-style stores are a likely progression for ecommerce. The "B2C" niche play targets people who are not tech-connected to clicks or don't want to take the time to do the prep work necessary for a sale.

"I think this is something that will be around for awhile until everyone becomes tech savvy," says Brian Bolan, vice president of Marquis Investment Research in Chicago. But, it's marriages like AuctionDrop and UPS that will sort the good, the bad and the ugly. "I think AuctionDrop getting an affiliation with UPS will make it the big player in that space," he says. "I think they're going to rule the marketplace." Auction Mills, in turn, has signed an exclusive agreement with FedEx.

Mark Mahaney with American Technology Research's San Francisco office believes retail bricks riding the shirttails of eBay's clicks are here for the long haul. "There should be a huge food chain that works off eBay, but I don't know how you'll pick a winner," he says.

More than 30-some companies, each with a snappy name, have taken the franchise world by storm from the metros to the mountains. One of the fastest growing drop-off franchise operators is QuikDrop, a Carson City, NV company that opened its first retail location in August 2003 and says it's the only one right now with overseas locations. At last count, there are 18 open in nine states and franchises in place for another 500 stores in the US and 100 sites abroad.

But regardless of the name, the strategy's pretty much the same to get a piece of the eBay action, an online store with 45,000 categories of merchandise and 95 million registered users. This year's guidance is projected to be $35 million higher than anticipated. Three months ago, the San Jose-based eBay was projecting it would end 2004 with almost $3.2 billion in consolidated net revenues.