Why the eBay Franchise Failed
March 26th, 2008 | 
Author: This article is about eBay, but the comments easily apply to other franchises and including the MA business. Plus it shows that mentality of expanding without consideration for the business or for the owners.
Ah, the infamous technique of saying or emphasizing one thing, prior to the deal, and then after the trap has been shut innocently pointing the the FDD or UFOC, saying “well, didn’t you read the contract and disclosure?”
The author quite correctly points out the “the U.S. government requires this UFOC document, but they do not provide a course in how to read it. I will say that it is intended to provide many worthwhile protections for prospective franchise buyers, but since most of those same people do not read the document, these protections are rarely understood.”
Finally, what training were you given?
And this certainly speaks volumes!
So, there you have the components of failure in a nut shell: a wonderful pitch unconnected with a real business, over investment in fixed costs by the franchisee, and and under investment in substantive training by the franchisor.
Read the rest of the article here:
Other Articles of Interest:
- Another Fifteen Franchisees Sue Dream Dinners Attorneys
- No Financial Disclosures – The Excuse
- Hello FDD! Goodbye UFOC…
- Meal Prep Kitchens – A Ho-Hum Recipe Club
- The Magic and Mystery of Meal Assembly
- Slumping economy reins in teen spending
- Still think stores aren’t closing?
- Judge Dismisses Federal Lawsuit against Quiznos
- Buying a franchise is as easy as 1,2,3…
- Connecting the meal assembly dots (Reprise)
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I have my own theory about why this breed of store failed. The target demographic (would-be eBay seller) is inherently a do-it-yourselfer; seeks bargains and enjoys the “thrill of the chaseâ€â€¦why would this person want to pay an intermediary to do something that eBay provides as it’s sole benefit…a marketplace where anyone can buy/sell directly?
I understand that the eBay stores tout their value proposition as what I will call “fire and forgetâ€; in other words, drop your item off and they will research, list, monitor, handle inquiries, package, ship and close the auction…for a price.
That is fine and well, if you have an item that is worth selling!
Let’s suppose that you have a camera that you want to sell. It’s a used Nikon 35mm film body, and the eBay store manages to sell it for $100. I seem to recall that their commission is around 30%, so we’ll say your net is $70. But then they pack, ship, and probably insure the package; we’ll assume another $20. So you net $50. Personally, for an item like that, I’d probably just post it on Craigslist.
But the problem with these stores wasn’t that items were selling. I spoke to one of the owners a few months before his store went out of business. Here’s how he said things more typically went:
- Most sellers were elderly and/or had no internet savvy (or possibly computer).
- They would clean out their garage and bring the stuff to the store. Sometimes literally a truckload.
- The store staff would dutifully research and list the items for sale; sometimes things were worth mere dollars (or less) and their net value after commission and shipping would be negative(!) For this reason, he said they began to offer groups of items together; in a “lot†so to speak, but that is a hard sale on eBay unless the things appeal to a collector.
- After the auction closed, most of the junk didn’t sell. Sometimes it did, but the net due to the seller was small or even negative.
- The eBay store would let the seller know the stuff didn’t sell; come pick it up.
- The sellers perceived the stuff had no value, and retrieving from the store was low on their priority list.
- Many times, sellers would say, “I don’t want it…you can donate it for meâ€. Or, they’d say, “Let’s re-list it and try againâ€.
- In the end, the back room is full of junk that no one wants…and you’re paying premium retail rent to store it; and/or running a business where you deliver stuff to Goodwill…for no money.
I think a lot of those ideas can be related to meal assembly. People want to make meals for themselves (at least that’s what they keep telling themselves), people make the meals then put them in the freezer never to actually use them, soon they have a whole stockpile of stuff they will never eat and thus think the whole idea of MA is of no value to them since they never used the product.
Personally I think the whole eBay thing was about 3 years off the mark. The price of digital cameras dropped enough to where a $100 investment could get rid of all that junk in your house and yield untold fortunes. “One man’s trash is another man’s treasureâ€. What they failed to realize is that sometimes, trash is trash no matter how shiny you make it in the picture.
Maybe the idea of MA was about 3 years too late in getting started.