Small businesses are making a living on eBay

Online service known for selling attic clutter finds other markets

March 16, 2003|By Barry Flynn | Barry Flynn,SPECIAL TO THE SUN

There's a woman on the phone calling from Pennsylvania. She's in labor, and very angry. Her baby is about to arrive, but the crib she ordered hasn't.

Computer nerd and young entrepreneur David Schultz, the man whose company sold her the crib over the Internet, is on the other end of the line, hoping to straighten things out quickly.

"Ma'am, I am so sorry," he remembers assuring her. "I will fix this problem." And he does.

His shipper delivered the product to the wrong address. Schultz overnights another crib to the busy woman. Days later she calls to thank him.

Chalk up one more satisfied customer for a fast-growing company that does almost all its business through eBay Inc.'s online auction site.

That's right, almost all its business is on an Internet site that is probably still better known as a marketplace for esoterica like baseball trading cards, Barbie doll costumes and other attic clutter.

But things have changed. "There are a lot of small businesses making a living selling on eBay," said David Katham, a stock analyst who follows eBay for Morningstar Inc., a Chicago stock and mutual fund information company.

"In some cases, they used to have physical stores that they closed," he said. However, most of them are smaller companies selling "collectibles and antiques, things like that," he added.

Not Schultz's business. His company, called IEP Enterprises Inc., is doing $150,000 to $200,000 a month in sales and he expects it to double that figure soon when he adds a new line of children's five-drawer dressers.

Schultz, now 26, was a recent graduate of Florida State University when he took a job at Generation 2 Worldwide LLC, a privately owned company in Dothan, Ala., that made children's furniture. His assignment was to find ways the company could sell on the Internet. He did his job perhaps too well.

"We just put a couple of items up [on the eBay site] to see if the eBay generation had any interest in buying children's furniture without actually seeing it or touching it," Schultz said.

They did. So much so, in fact, Generation 2 was soon worrying that such direct sales would offend its major retail accounts like Wal-Mart and Kmart.

"We sell to the big guys," said Ronald Davis, president of Generation 2. "We just didn't feel it was right to be selling on the Internet. It just seems like there were too many conflicts of interest at that time."

So Generation 2 management urged Schultz to buy its products and continue the eBay sales as his own business.

The operation is now run out of a warehouse in Orlando, Fla., where the company stores inventory. But it quickly outgrew Generation 2 and ultimately sought suppliers in Third World countries that allowed IEP Enterprises to get higher profit margins on its sales.

Product comes from suppliers in Indonesia, China and, soon, Brazil. The furniture is packed in individual shipping crates so that when IEP Enterprises gets an order, all Schultz's people have to do is slap on an address label and wait for the Federal Express truck to come.

Now, with more product lines to choose from, IEP often has 200 or more separate items listed on eBay for bidding, Schultz said.

Sometimes bidders can pay less for furniture than Schultz did, he said. But more often, people bid up the price and pay lots more.

"By the time they get done with it, sometimes they paid three times as much as they wanted to," Schultz said. His company has experimented with various approaches and found that it's better to start bidding low and set the time of the auction at five days, he said.

While the rise of IEP has been swift, it has not been without bumps. The company has had delivery mix-ups like the one with the pregnant woman in Pennsylvania.

And it has had quality-control problems with some suppliers, an issue that caused a lot of difficulties because IEP is determined to make good on problems and keep a very high rating on eBay's buyer scoring system.

Schultz said he hopes to expand into furniture for teen-agers, offices and outdoors. But raising the necessary money could be a hurdle.

"I think the biggest problem with his growth is going to be access to capital," predicted Bill Brigham, a small-business specialist at the State University of New York at Albany. Brigham has not studied the company but commented on the business model.

In fact, money has already been a problem. Schultz and his two partners had to raise $250,000 for their first shipment of imports "from dads, aunts, uncles," Schultz said.

Even so, the performance of IEP and others like it on eBay suggests the Internet-only - maybe even the eBay-only - approach can work, said J. Robert Baum, professor of entrepreneurship at the Robert H. Smith School of Business at the University of Maryland, College Park.

"I think it's an old business model in the sense that the only thing that's different is the distribution channel," Baum said.

And there's growing acceptance of making purchases over the Internet, he said. "I think he's doing the right thing at the right time."

Barry Flynn is a reporter for The Orlando Sentinel, a Tribune Publishing newspaper.

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