eBay's new fees incite fury
The site's 500,000 online store owners rebel against auctioner's increased selling costs.
NEW YORK (CNNMoney.com) -- With more than $45 billion in yearly gross merchandise sales, eBay's virtual marketplace has attracted many small business owners who have traded in their brick and mortar shops for the virtual marketplace.
But many of those owners have decided to close shop recently in response to eBay's (Charts) fee hikes.
As of Tuesday, the online auctioneer boosted the fees it charges to those who sell items through its online stores, which are set up more like a retail site than eBay's traditional auction listings.
When sellers list an item on eBay, they are charged a listing fee, or an "insertion fee." If the item sells, the seller is also charged a so-called "final value fee."
Under the new policy, the listing fee will be raised and some final value fees will also increase. (See chart for details.)
The San Jose, Calif.-based company isn't changing the fees for any other format, including its auctions.
The new prices will raise fees by an average of 6 percent for the approximately 500,000 online store owners, eBay estimated.
By raising the costs to operate stores, eBay hopes to push more listings back into the auction format, CEO Meg Whitman said in an interview last week.
"We are trying to get back to the essence of eBay," Whitman said.
"The desired effect is to incite sellers to use the core part of the site more often," said Hanni Durzy, a spokesman for eBay.
"Nobody likes a fee increase, but it's our responsibility to make sure that we're creating the best experience overall," Durzy said.
Sellers, on the other hand, are expressing more than dislike for the new policies. Thousands have decided to close their virtual doors and take their wares to other sites like Amazon.com, shopping.com and Yahoo!
"This has been a devastating blow as far as the stores go," said Janet Hills, who has been selling formal wear, dress shoes and pageant clothes on eBay since 2000.
Almost all of Hills' 1,500 listings sell for over $25, which means that under the new structure, her listing fees will increase by 500 percent.
"To backhand the sellers this way just boggles my mind," Hills said. "We're not trying to get rich, we're just trying to survive."
The problem, according to Skip McGrath, author of "Titanium eBay: A Tactical Guide to Becoming a Millionaire PowerSeller," is that a lot of large sellers were using eBay's online stores as a dumping ground for non-performing merchandise, cluttering up the space and diluting the platform's effectiveness.
"There were just so many items that users couldn't search stores effectively," McGrath said.
Store inventory listings represent about 83 percent of the volume on eBay's site but generate just 9 percent of the gross sales volume, according to the company.
Ultimately the success of eBay hinges on the success of the auction format, and the more items up for auction, the better it is for the company.
eBay hopes that by raising fees and reducing store inventories, it will become easier for buyers to find what they are looking for.
"Whenever we do a fee increase, our community doesn't like it, but I think they will understand the reasons why we are doing this," Whitman said.
Many sellers said they won't hold their breath.