Is It Still Wise to Sell Internationally on eBay?

The eBay Seller's News, September 24, 2008, Volume 8, No. 15

Learn How To Sell More on eBay with The Newsletter for Professional
eBay Sellers by:  Skip McGrath

In This Issue:

Musings

1. Is It Still Wise to Sell Internationally on eBay?
2. Does eBay's Free Shipping Promotion Make Financial Sense for Sellers?
3. Will Listings By Giant Sellers Who Get Reduced Listing Fees Swamp eBay?
4. Is It Time To Buy eBay Stock?
5. New eBay Wholesale Sources for September 2008

"Character is like a tree and reputation like its shadow.
The shadow is what we think of it; the tree is the real thing." ~ Abraham Lincoln

Musings

Since I started writing my newsletter twice monthly, I have consistently tried to make each issue slightly shorter but that has been very hard to do with all of the announcements and changes by eBay.  So, as Thomas Jefferson once said: "I apologize for making this letter so long -as I lack the time to make it shorter."

I love to write but I have never mastered the art of conciseness.  The ability to make your point in a relevant concise manner is a skill I have never mastered, so I hope my readers will bear with me.  There are a lot of important issues that will affect the future and profits for eBay sellers.

I have just completed revising one of my best-selling courses, How To Create and Sell Information Products on eBay...and The Internet.  Earlier this year when eBay banned the sale of digitally delivered information products everyone thought the info products business was dead. Boy, were they wrong.  I was an early critic of the policy -but it turned out I was wrong too. In fact, my information product sales on eBay are actually up!  It seems that getting rid of the 99-cent eBooks was a good thing. Most of the people selling the cheap eBooks were doing one of two things:  They were selling junk -or they were running a feedback farm.  With these items gone, buyers now have more confidence in the info products market.

The one big change was the new policy that information sellers now had to deliver a physical product instead of sending the product electronically.  As it turns out there are some very cheap ways to automatically deliver your products on a DVD or CD (or even in print) and buyers seem to be willing to pay more for a physical product than an electronically-delivered one.

So if you sell -or want to sell, information products, please take a look at our completely revised and updated version of How To Create and Sell Information Products on eBay...and The Internet. It consists of a printed manual packaged in a clamshell case with three resource CDs. We ship the same or next business day we receive your order -and as an introductory offer for my readers we are offering free shipping through the end of this year.

In the last issue I told my readers about two new training products I recommended - Google Snatch and Auction Acrobat.  Several of you bought and liked them, but I also received several comments from readers who didn't like the One Time Offers (OTO) that those sellers made.

That is my fault. I knew about those but forgot to mention them.  OTOs are used by a lot of information sellers because they work. I have even seen them offered by large established online sellers -but in truth I personally have never been a fan of them. In fact, in the case of both Google Snatch and Auction Acrobat, I passed on them.  So my apologies. It was an oversight on my part. I should have pointed that out. Both Google Snatch and Auction Acrobat are good programs. I am not saying you should not take the OTOs, but I would do so only if they appeal to you and look like they fit your needs. In my case I didn't feel I needed them, so I didn't purchase them.

About 2000 of my readers downloaded my FREE eBook, The Future of eBay and I continue to get about a dozen downloads a day.  The book is still available. I plan to leave it up through the end of the year until I revise the Complete eBay Marketing System which I plan to do in December for a January release.  The Future of eBay eBook is essentially an update to the 2008 version of The Complete eBay Marketing System that I released in March. So anyone who bought the book this year should download it. It is also helpful to anyone who sells on eBay whether you have purchased one of my books or not.

My good friends, Ina and David Steiner of AuctionBytes, have launched a great new free service. It is a web directory of online merchants. EveryPlaceISell.com allows sellers to showcase all the venues on which they sell. Shoppers can see if their favorite eBay sellers have their own website, or do more research on a merchant to explore their reputations on various marketplaces. (It also has a section to display accepted payment methods for each site too, a very useful feature for buyers.)

Visitors to the directory can search by seller name and User ID. The directory also lets shoppers find new sellers by browsing the categories or searching by keyword.

David said EveryPlaceISell.com was a direct response to the trend of multi-channel selling among even very small sellers: a survey of eBay sellers in August showed that 63 percent of respondents were multi-channel sellers.

All online sellers should create a listing in the directory - it's additional exposure, it's easy to create a listing - and it's free. http://www.everyplaceisell.com

Let's get started with this month's issue.

[top]

1. Is It Still Wise to Sell Internationally on eBay?

This is a great question and one of heated debate on the eBay message boards. In my case, the answer is big NO! But that doesn't mean that is the right answer for everyone.

The big issue about selling overseas is the inability of sellers to work out feedback issues and the risk of receiving poor Detailed Seller Ratings.

There is no question that selling your products overseas can be very profitable. Overseas buyers often pay more, and, most of them understand and are willing to pay the higher shipping costs. Before I stopped selling internationally, my international sales were only about 10% of my total sales, but I often realized much higher prices -sometimes 20% higher or more. Looking at that you would think this is a no-brainer, but when eBay changed their policies, it changed the game.

Despite how profitable international sales were, there were a few problems.  At least once a month I would have a problem with a package arriving late -usually due to the item being held up in customs -sometimes for weeks at a time. Other times the shipping just seemed to take a long time.  When I shipped from the West Coast to the UK, the average shipment took about 5-10 days via International Global Priority Mail. But, every once in a while, a shipment would take up to 15-20 days for no apparent reason.

The other issue was time -our time.  It's not much, but it does take more time and paperwork to prepare an international shipment. There are automated services that help, but even with these there is more work and time spent on overseas shipments.  It also takes longer to communicate between buyer and seller when there are time zones involved. You send an email at 2:00 PM on the West Coast and that is already 10PM in most of Europe. Lastly, there are the foreign currency conversion fees. PayPal (and everyone else) charges a small fee to accept a payment in Pounds or Euros or Yen and convert the currency into dollars (and vice versa for Europeans selling into the USA).

None of these reasons taken individually were enough to keep me from selling overseas, until eBay added the additional complexity of the new policies.

The big two are feedback and DSRs. Let's look at feedback first.

Prior to the new policy that prevented sellers from leaving negative feedback, if and when you had a problem with an overseas shipment, I would withhold leaving feedback for the buyer until the package arrived. I wouldn't withhold feedback until they left it for me -I just wanted to wait until the package arrived. That way, there was time for the seller to email me if there was a problem. If there was a problem I would attempt to work it out and usually could. Although we sold hundreds of items overseas, we kept our 100% feedback rating for years. Now that is harder. An unhappy buyer can leave you a negative and you really have no recourse. eBay plans to announce a system whereby you can negotiate feedback removal and that could help, but we don't yet know the outline of that program or how it will work.

The other issue is Detailed Seller Ratings (DSRs). As you know, DSR scores are tied to fee discounts and your placement in search. We are not high volume sellers. We sell higher priced items but only sell about 100 items per month. One low DSR score will have a greater effect on us than on a seller who sells 1000 items per month.

If I am selling $10,000 per month and ten percent of those sales result in 20% higher final value, when I figure out my margins and additional costs that puts about $300 extra in my profit column at the end of the month. So the question becomes, what is my risk?  Currently my DSR scores are at 4.8, so I get the 15% fee discount.  My fees last month were about $1300 -the 15% saved me $195 -over half the additional profit I would earn from selling internationally. How about search placement?  If I take a hit on my DSRs and my search placement is lowered what will that cost me?  One of my most popular items sells for about $225 and has a $80 profit margin. If I am disadvantaged in search what will it cost me? If I only lose one sale it's $80, but what if I lose 3 or 4 sales?

So I look at this as a question of risk versus reward.  I have spoken to other sellers who sell overseas and they are enthusiastic. Their numbers -and experience, are different than mine.  Media sellers seem to do very well selling overseas, and, certain collectible sellers couldn't survive without their overseas sales.

You cannot base your decision on my particular experience. You really need to look at your product and your business model -specifically, your margins and your volume. Try to calculate your risk versus reward.  If you are selling fairly high volumes and giving excellent service in all four areas of the DSRs, then your risk of generating negative feedback and low DSR scores is acceptable. The occasional hit won't affect you that much and the profit potential probably outweighs that. But if it is a close call, you may want to tread very carefully. And, if international sales account for a large part of your business (>25%), then you really don't have a choice.

[top]

2. Does eBay's Free Shipping Promotion Make Financial Sense for Sellers?

eBay today is all about free shipping.  When eBay states that their research shows buyers want free shipping I have no doubt that is true.  I have spoken to the folks at Amazon and Overstock.com and they both agree that free shipping promotes more sales.  There is plenty of evidence that free shipping is good for buyers and the platforms (eBay, Amazon, Overstock, etc) -but is it good for sellers?

I have -and still do-use free shipping. Not on everything, but on those products where I have found it to work.  But, let's get one thing straight: Free shipping is not "free." Someone pays for it.

One complaint about using free shipping on eBay has always been that eBay earns a final value fee on the additional markup sellers build into the price to cover the cost of free shipping.  To address this, eBay announced a promotion for the 4^th quarter (October 1 - December 31) whereby any final value fee discounts a seller earns from their DSR rankings will be doubled on items that sellers offer with free shipping. (They are also offering free subtitle for the same period. This is a 50-cent savings if you normally use it).

Obviously if you are not a PowerSeller, or your DSR scores are below 4.6, then this promotion will not help you. Just to remind you, here are the discount levels:

4.6       5%

4.8       15%

4.9       20%

One product I sell is a set of Rachel Ray Chef's knives. They routinely sell around $70, but I have found that I can usually get a few dollars more if I offer free shipping. I looked at an auction last week and they went for $74.25 with free shipping.  Since I ship Priority Mail my shipping cost averages around $7.75.  So I made $4.25 of that back with the free shipping. That leaves $2.50 that I am still out.

If you look at the lowest level (4.6 = 5%), what would the discount be worth on a sale? The final value fee on $72.25 is $3.85.  Five percent of that is 19-cents. With the promotion, eBay will double that to 38-cents, so subtracting that from $2.50 still leaves me out $2.12.  However, my current DSR score is 15%, so in my case I got back $1.15 and am actually out only $1.35.

On the face of this it would not seem to be a good deal to offer free shipping, but this is just one example. There are other cases where I get a higher price that easily covers shipping. And I tested free shipping against fixed shipping and did see a slightly higher sell trough rate.

I often use free shipping with Buy-it-now (BIN) and eBay Store listings, and that seems to work better. When I set the BIN price, I set it at the top price I can get, consistent with the competition on eBay and then I add in the full shipping cost.  This seems to appeal to the impulse shoppers and those who do not want to wait for auctions to end.  I have found the same thing to be true when I use a fixed price listing.  So now that lower FP listing fees are into effect I will be using free shipping on those listings.  That sounds more like a winning concept.

As for auctions, it really depends on the product and the demand. I have had auctions that did much better than in the example above when I offered free shipping. It seems to be really product dependent. So what that tells you is that you really need to experiment.  Also, my example may not relate to all of you because I use Priority Mail shipping.  I have found that even with the higher cost, when I use Priority Mail I save money on shipping supplies and I get much higher customer satisfaction rates. I do get the occasional customer giving me a low star for shipping cost, but it doesn't seem to hurt in the long run because my DSR scores are always around 4.7 to 4.9.

The bottom line on this is that yes it will be good for eBay. Free shipping increases sales and that increases eBay's income. As for the sellers, it will be good for some and not for others. But the potential gain makes it worth trying. If you try it and it doesn't work, you aren't really out that much money and you have learned something really important that will save you money in the long run. If it does work for your product, then you will be making a lot more money.

What would make better sense?  If eBay truly wants sellers to use free shipping, why not just offer a straight fee discount of 10% for any seller (not just PowerSellers), and any item regardless of DSRs?  Or, give sellers a lower listing fee for any listing that offers free shipping.  That would make a lot more sense, reduce the risk and eBay would get what they want.

[top]

3. Will Listings By Giant Sellers Who Get Reduced Listing Fees Swamp eBay?

By now, the deal that eBay made with Buy.com to list hundreds of thousands of items on eBay at a greatly reduced listing fee is well known. eBay tried to keep it quiet but members eventually figured it out and eBay had to fess up.  I recently asked eBay if they would be making similar deals with mega sellers that would allow them to list more items at lower listing fees than eBay offers to the rest of us.  My source at eBay answered that they retain the right to do so in situations where the seller can deliver "outstanding buyer experience on a large scale."

My concern if eBay brings in other large listers with low fee "special deals", certain categories will become swamped with listings. Before the new fixed price listing fee went into effect, the Books category on eBay had 1.1 million active listings and the DVD and Movies category was running about 425,000.  After the new FP listing fees went into effect, Books increased to 1.5 million (30% increase) and DVDs & Movies jumped to 939,600 -almost doubling.

eBay doesn't break out numbers for new versus used.  I tried to compare the number of used books and DVD & Movies before and after the new policy. I couldn't come up with anything concrete but intuitively it didn't look like any significant increase.

Besides media, the type of products most affected by eBay offering special deals to large sellers will most likely be popular consumer products -especially electronics and computers.  None of the really large sellers seem to work in the smaller niches. This is another good reason for small to medium sized sellers to avoid hot products and concentrate their efforts in specialty, off brand or less well-known products.

[top]

4. Is It Time To Buy eBay Stock?

Back in April 2005, a couple of months after eBay stock split for the fourth time, I got in a lot of trouble with my readers for an article I wrote in my newsletter talking about how well eBay stock had done and implying that the stock was a good buy. From the time my article was written eBay's stock began plummeting from its price of around $43 to today's price of around $21-$22 - a 50% drop.

I did caution my readers that I was not a stock picking expert and certainly not an investment professional, but a lot of them decided to invest in the stock. So let's take a look at eBay's stock today -but I am NOT making any recommendations -this is just a discussion of eBay's prospects for the coming year or so.

Leading investment gurus like Warren Buffet and Peter Lynch say that the secret to success is to buy great companies and hold onto them. I don't think Warren Buffet owns eBay and I don't know about Peter Lynch. There was a time when eBay certainly qualified as a great company. If you bought 100 shares of eBay stock shortly after they went public at $18 ($1,800) and held on through the four splits, you would now own 2400 shares after all of the splits, currently valued at $52,800.  However a couple of years ago when the stock was in the 40s, that stock was worth$100,800.  So even with the drop, eBay was a good investment for the long haul. But that, as they say, is history.  You can't take history to the bank -so what about today?

eBay's stock went up so fast and so high because it was growing its sales (income from eBay and PayPal fees) and profits rapidly. There was a time when eBay's income was doubling every month or so.  But today, eBay's growth has slowed. In the last quarter (ending in June) eBay grew 22% over the previous year.  That is actually pretty respectable.  If I were convinced that eBay could continue to grow at 22% per year, that would make a pretty good investment -but I am not.  It helps to look behind the numbers.

It is important to remember that eBay today is more than an auction company. They also own Skype, PayPal, Kijiji, StubHub and Shopping.com. eBay reports their income in three segments: Marketplaces (eBay, Kijiji, StubHub and Shopping.com), Payments (PayPal) and Communications (Skype).

Here are the income year-over-year growth numbers for each:

• Marketplaces 13%
• Payments 33%
• Skype Skype's revenue and user base grew (51% and 9%), but the amount of profit wasn't stated (or at least I couldn't find it). In any event it is tiny compared to the rest of eBay.

PayPal is still the big star. It is growing rapidly, expanding globally and highly profitable. The problem lies in the marketplaces category. If you were to subtract StubHub, Kijiji and Shopping.com and look at just eBay, the numbers are not so encouraging. Although some of the overseas eBay sites are doing very well, eBay.com (US) is still the largest driver and where eBay has run into the most trouble. It is a situation where the core business is experiencing the slowest growth. That is worrisome -and is what's behind the changes we have seen from eBay over the past year.

The next fiscal quarter ends September 30^th and eBay usually reports its results about 45 days after the end of the quarter. The third quarter is usually pretty good with the fourth quarter containing the holiday season, the best.  So this will be a very interesting quarter.

Listing volume has increased and PayPal continues to expand, so I think this will be a fairly good quarter -but Wall Street isn't looking for "fairly good." eBay will have to really surprise investors with some pretty good growth to move the stock very much.  I don't think there has been enough time for the new policies to work to get that result -but I would love to be wrong.

Another factor hovering over eBay is the rising dollar.  The US Dollar has been on a tear lately gaining ground over the Euro and the Pound.  Most of this has happened near the end of the third quarter. So the impact on the third quarter will be minimal but it could really impact the 4^th quarter.  Here is why. A weak dollar makes goods from US sellers less costly thereby increasing overseas sales.  With the dollar rising, it makes goods more expensive to overseas buyers and thereby impacts sales by US sellers to foreign buyers.  This also works the other way. eBay earns a lot of profits from its various overseas sites. But these earnings are realized in Euros, Pounds, and other currencies. When eBay translates these currencies into dollars they realize fewer dollars.

Of course the other big factor is the current financial crisis. As this newsletter goes to press we don't yet know how this will play out. Personally I am being very conservative. This is a good time to hold cash -and even some hard assets like gold.  I have not sold all of the stocks in my retirement accounts, but I am being more cautious and holding a higher cash position. This strategy has kept my losses minimal during the past crazy couple of weeks. So even if I thought eBay was a great buy now, I don't think I would be buying until things settle out. I would rather miss a little profit than take a loss.  Remember, if a stock drops 10%, it has to rise 20% to get back to where you were.  If eBay surprises investors and shows some great growth, I will miss out on the initial jump in price -but if eBay is showing good growth that means they have turned the corner and there will still be time to jump in.

Lastly, I don't like the PE ratio. PE is the ratio of the stock price to earnings (profit). Even at the low price of $23 share, eBay's PE ratio is 60:1.  That is really high. High PE ratios are usually associated with fast-growing companies which eBay clearly is not anymore. When I look at Google, still considered a high-growth company, their PE is only 28:1.  And, Amazon, who has shown consistent profit growth is just below eBay at 57:1.

[top]

 5. New eBay Wholesale Sources for September 2008

If the financial crisis grows and the economy continues to slow down, you will see consumers move towards more bargain hunting on eBay and away from high-priced goods. Although brand name clothing and fashions are the easiest to sell, there is still a good market for off brand clothing from bargain-hunting shoppers.  Wholesale Fashion Square is a great supplier of good quality off-brand clothing.  Clothing is a pretty competitive category, so you will want to look for a specialty such as plus-sized clothing, or specialize in one type of item such as tops, dresses, formal wear, etc.

Another supplier of off brand clothing is Best Deals 4 Less. For fashion accessories, check out Michelle and Scotts Wholesale Imports.

Christmas is coming and toys will be big sellers. Empire Discount is a wholesale dealer of closeout toys and games.    Just be careful of buying large quantities of toys as every week there is a new recall of toys announced on eBay. If you buy a toy that is recalled, you are really stuck.

Given all the crowding in the DVD market that might not be a good place to go, but savvy sellers know that there is a great market for niche DVDs.  There are people always looking for DVDs on specialty subjects such as Martial Arts, Niche music, cult films, documentaries and so on.  One supplier of a lot of offbeat titles is Mountain View Movies.

Another DVD supplier is Spinning Disk. They have a drop ship program, but I haven't looked into it so I don't know much about it, but you may want to check it out.

Wholesale Case Lots sells case-sized lots (usually between one or two dozen) of Airsoft guns, remote control toys, tools and other general merchandise.

Sierra Terra Cotta is a unique line of handcrafted terra cotta designs for home and garden. Items include children's clocks, wall planters, bird feeders, table lamps, hanging lamps, coffee mugs, covered jars, and more. All designs are limited-editions, signed, dated and all handmade in the U.S.A

Paul Sahlin Tiffany's sells hand crafted stained glass/blown glass lamps and decorative accessories. Click on the link that says Policies and Terms to create an account to log in and see pricing.

If you are looking for more niche products, don't forget our free web wholesale search engine on this website at http://www.skipmcgrath.com/gowholesale.shtml.  For home and gift items, check out Great Rep at www.greatrep.com. You will have to sign in and create a username and password.  A lot of the companies listed on there don't have websites, but Great Rep gives you their contact info and it is usually just a matter of sending them an email to get pricing. A few of the companies listed there won't sell to eBay or online sellers, but most of them will. Best of all these are a lot of small companies with merchandise you won't find in a general web search or on eBay.

That's it for this month.

Best success with your listings!

Skip McGrath
The eBay Seller's News

P.S. If you missed the last issue, click here to read it.