Doin’ it eBay

There's no magic in retailing on eBay. It still takes hard work and business

January, 2004

A lot of businessowners claim they started with just the shirts on their backs. But Hilo-based business partners Mya Pawu and Lucas Rouner literally began their business with nothing more than the clothes in their closets. In May 2001, Pawu, 50, and Rouner, 18, devised a plan to earn money to send Rouner to college. They rummaged through their closets, mustering everything from old aloha shirts and vintage wear to barely used outfits, and threw everything up for sale on eBay – the world’s largest online auction site, and the most popular shopping destination on the Internet.

“We kept the products in the spare bedroom in Lucas’ mother’s house, and we basically ran the auctions around our other responsibilities. It was a real learning experience,” says Pawu. “We just wanted to generate funds for Lucas’ college education, which we did, but we soon realized it could be a continuing stream of income.”

So, even after exhausting their inventory, the duo continued to sell clothes on eBay (NASDAQ: EBAY), hitting up thrift stores, garage sales and various fund-raisers for additional product. And even though the venture is still a part-time gig for both men (if you can call 40- to 60 hours a week part time), the business has grown tremendously in the past two and a half years. The duo, which sells under the eBay username “Teknoranger,” have relocated from mom’s spare room into a 600-square-foot office in Hilo. Teknoranger has conducted more than 6,000 transactions online, and averages gross revenues of $1,300 per week.

Their story is hardly unique, though, even in Hawaii. While eBay refuses to disclose the number of Hawaii-based members doing business on its site, there are clearly a growing number of locals catching the eBay craze. A simple search for any Hawaiian or local product on eBay pulls up thousands of results – whereas a few years ago, bidders would have been hard-pressed to find anything more than cheesy aloha shirts being sold from Hawaii. “We’re definitely seeing more competition from Hawaii sellers than when we first started selling,” says Pawu, “It’s obvious that locals are really opening their eyes to the advantages eBay offers.”

And why wouldn’t they? It sounds easy enough. Download digital photos of your goods, write a catchy listing to attract bidders, then sit back and wait for the money to roll in … right? Well, not exactly. Far too often, businessowners and aspiring entrepreneurs have the misconception that eBay is a cheap and easy way to get rich quick. Actually, running a business on eBay can be time-consuming, costly, and it often takes months, sometimes years, before sellers realize a profit.

“The key is to do your homework. There’s no magic in retailing on eBay. It’s no different than running a regular brick-and-mortar business. You still have the same failure rate. You still need to work hard and have all the same business smarts to be successful,” says William Gladstone, owner of Aloha Gifts, who has been selling a variety of local gifts on eBay for just over a year. He says it’s his previous experience as a small-business owner that’s really allowed him to grow the eBay company into a full-scale operation that involves eight employees, offices in Kailua and New York, and two warehouses, and earns $25,000 per month in gross sales.

“It is possible to be profitable and successful on eBay. But just be realistic about it. Have all your ducks lined up, and get everything in order beforehand,” he says. “The beauty of eBay is that if you do it right, it can work for almost anyone – from the small entrepreneur to a big business.”

He’s right, eBay is a valuable tool, and a wonderful opportunity for entrepreneurs looking to start a new business, or grow an existing one. For starters, people will pay outrageous amounts of money for things otherwise inaccessible to them … things such as hand-carved Polynesian tikis. Ever since Jerome Coudrier moved to Hawaii from France 12 years ago, he’s been fascinated with the wooden figures, and after scouring the Internet for pieces to add to his collection – and coming up empty-handed – he stumbled onto a niche.

“I realized no one on eBay was selling tikis, so I found local carvers to sell me products at wholesale costs, and began selling their tikis on eBay about a year ago,” says Coudrier. Because they’re such a novelty, he is able to sell the tikis at a 100 percent markup. Proving: The higher the perceived value, the bigger the margins. “If you’re offering products with high differentiation and enough of a demand, then there is a greater probability of selling profitably,” says self-employed Internet strategist Robin Tjioe.

That’s good news for sellers in Hawaii, where practically everything “local” is perceived as unique and difficult to obtain. But products don’t have to be unique to warrant such drastic markups. Pawu says the vintage gear he sells is often sold for six times what he originally paid for them, simply because he keeps his upfront costs to a minimum. For bigger businesses, that would be the equivalent of having good vendor- and manufacturer relationships.

Another advantage to eBay is that it can be a real boost for existing businesses. Oftentimes, companies will shed surplus inventory or out-of-season goods at higher prices than they would’ve gotten selling them via other methods. It’s also an excellent way to drive traffic to a business’ Web site or virtual store. “That’s what I love about eBay. It’s such great advertising, because I don’t have to do anything,” says Coudrier, who sells under the username Tikimaster777. “If they’re looking for what you’ve got, users will find you. And eBay’s got a lot of users.”

Seventy-five million users, in more than 200 countries, to be exact. Which, if you’re in Hawaii, means you no longer need to board a plane to do business overseas or on the U.S. mainland. “eBay has torn down a lot of barriers for local businesses. Our business is in Kailua, but we do a lot of international sales,” says Aloha Gifts’ Gladstone. “We’ve had lots of sales to customers in Europe and Asia. We once sent a shipment to a country in Africa that was so small, the post office returned it, claiming there was no such place.”

This type of borderless, global marketplace just about levels the playing field for Hawaii-based retailers. Almost, but not quite. For local business owners, the issue of shipping still remains a massive drawback to selling on eBay. “Shipping costs are a big issue in Hawaii. Nearly everything here must be air-mailed, and can take about a day or two longer to reach their destinations,” says Tjioe. “Establishing an efficient and cost-effective fulfillment process can also be a major profit drain and hindrance to customer service.”

For some people, the shipping issues completely negate the benefits of selling on eBay, because the disadvantages are multifold: Prospective buyers are often scared away, resulting in fewer sales; products takes longer to reach the destination; and costs chip away at sellers’ profit margins.

Although, says Gladstone, if you’ve got a good product or are adept at running successful businesses, don’t let the costs of shipping deter you. “Shipping is expensive, and that’s a disadvantage for Hawaii sellers. But you’ve got to account for that before you begin selling. The same goes for everything else involved in running a business – inventory, customer service, product selection – you take all of that into consideration beforehand,” he says. “It’s no different than any other business. You start off with a good business plan and go from there.”

Doing Business the eBay Way

For most eBay rookies, the first few months are critical, and will likely be a period of trial and error. But

sellers can get a leg up in the game, simply by understanding a few simple rules beforehand:

TIME CONSUMPTION: Selling items on eBay is labor-intensive and time consuming – particularly for a small business owner. Each auction requires someone to write a listing, organize photos, track the auction, confirm billing, accept payments, arrange shipping and maintain constant communication with potential buyers. William Gladstone, whose company, Aloha Gifts, has completed more than 1,000 eBay transactions, says it’s so much work that he set up a separate fulfillment company to handle the day-to-day operations. For those who can’t afford such a luxury, be prepared to spend long hours on otherwise mundane tasks.

CUSTOMER SERVICE: On eBay, it’s best to under-promise and over-deliver. Respond to e-mails promptly, don’t misrepresent products in any way and ship items quickly. Those who skimp on service run the risk of getting negative feedback, which will inevitably result in decreased transactions. eBay’s feedback rating system (with which users comment on, and rate transactions) will very often make or break a sale. Most bidders won’t deal with sellers with excessive negative feedback, or shady reputations.

FEES: In 2002, eBay revenues totaled $1.2 billion, and 2003 year-end figures are likely to surpass $2 billion. And all that money is derived from fees eBay charges its members. Each auction is assessed an insertion fee ranging from 30 cents to $3.30, and a final value fee based on the final sale price. In addition, eBay’s online payment service, Paypal, also charges a fee to accept payments on sellers’ behalves. As a general rule, sellers should expect to spend about 15 percent to 25 percent of their sales on monthly fees.

FRAUD: It’s difficult to tell a fraudulent bidder from the real deal. Non-payment for auctions won, bounced checks and stolen credit cards are common types of fraud a seller may experience. To avoid these situations, state when payment is due in the listing, wait for personal checks to clear before shipping items and do not ship products to unverified credit card addresses (Paypal confirms

shipping addresses for its users). However, don’t be overly paranoid either. Of the $14.87 billion worth of transactions eBay’s 75 million users made each year, far less than 1 percent resulted in confirmed cases of fraud, according to an eBay spokesperson.

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