Retail Without the Risk
How to become a major merchandiser on eBay--without spending a dime on merchandise.
by Paul Sloan

(Business 2.0) - Like many mom-and-pop teams that sell on eBay (Research), Cheryl and Gary Casper started with stuff lying around the house--baby clothes, old toys, even VHS copies of Cinderella and Sleeping Beauty that their daughters were still watching. "I was ripping them out of their hands," Cheryl says. "I was, like, 'I'll buy it for you on DVD.'"

The Caspers' quest to build a presence on eBay has paid off. Last month they sold $15,000 worth of products. But the really good news for them and their children: Their strategy no longer requires rummaging through their Houston home.

That's because the Caspers now sell goods they don't even own. They look for vendors that have too much inventory (ideally, hard-to-find merchandise) and then sell the stuff on eBay. The sweet part: The vendors hold the inventory until after the sale. The Caspers only touch the stuff when it's time to mail it out. The couple's product assortment might sound dull--they specialize in floor mats for Ford (Research) automobiles--but their inventoryless business model is amazingly efficient and virtually risk-free.

The Caspers have teamed up with a Houston-based auto surplus company that supplies them with a product list. Some days they put as many as 50 mats up for auction, at $16 to $125 a pop. Once or twice a week, they drive to the warehouse to buy the mats they've sold. The profit margins are as much as 75 percent, even after paying the dealer. "If I only wanted to make a few hundred dollars a day, I'd be done by noon," says Cheryl, a former Merrill Lynch sales associate. Some days, she says, she and her husband make $700 in pure profit.

The road to easy eBay money hasn't been smooth, however. Soon after the Caspers discovered online auctions, friends started asking them to sell unwanted belongings. Quickly their home was overflowing with cast-off merchandise. The Caspers also experimented with so-called drop-shippers--outfits that charge others to sell their products but then ship directly to buyers--but found them unreliable. At one point, the Caspers were selling about 40 TVs a week on eBay, but fully half were arriving at customers' houses broken or damaged. "We got burned," says Gary, a former executive at a Fox television affiliate.

The Caspers soon began looking for categories in which competition hadn't already wrung out most of the margins. Peddling electronics on eBay, they found, is a sucker's game because of the vast number of sellers crowding that market. They used eBay itself as a research tool, punching in offbeat product ideas to gauge sales potential and competition. (Star Wars light sabers and gumball machines were two quickly discarded notions.) They even attended Chamber of Commerce meetings to find people with products to sell. "That's how your mind has to work," Cheryl says.

Eventually Gary called a friend in the auto surplus business. At first the Caspers considered hawking the man's excess spark plugs and brakes, but the technical knowledge needed to sell such items was beyond them. Then the Caspers learned that their pal had auto mats--lots of them, stacked three stories high in a warehouse the size of two football fields. Auto mats are easy to understand and market. Better, there's surprisingly high demand for certain mats, like the ones for pre-1999 Ford cars and pickups. Ford dealers rarely carry them. The Caspers' friend had thousands.

In August the Caspers bought 30 mats as an experiment. They sold in a few days, so the couple went into high gear. They keep just one sample of each model to take pictures for their eBay listings. If a mat doesn't sell, the Caspers lose the $1.50 it cost them to list it. But that has never happened.

There are some pitfalls, of course. Inventory could run dry. Rivals could squeeze profit margins. So the Caspers are always on the hunt for other niche products they can sell with the same inventory-free approach. They're currently considering side-view mirrors and radiators. Not as glamorous as floor mats, perhaps, but the margins are just as alluring.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.