Tough Times for eBay Entrepreneurs

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

by Karen E. Klein

Ann Wood was thrilled last January when her eBay (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 (BusinessWeek, 4/16/08), Etsy (BusinessWeek.com, 6/12/07), 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).

"I suspect 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.

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-- Edited by budnonymous at 13:10, 2008-07-24