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Ovation To Restart U.S. Production

...a few well-chosen words about why the longtime eBay seller is determined to lessen its dependence on the platform—plus a 15% discount for buying directly from its new e-commerce site, stratosphereparts.com. The message went out to well over 100,000 buyers.

Now, anyone can voice their opinion in a mass email, but in this case it pays to consider the source. After starting The STRATosphere from scratch 12 years ago, owner Matt Gibney and his team routinely put in 100-hour weeks to build the company into a multi-million dollar business almost exclusively on eBay. Now based in seacoast New Hampshire, it’s the ultimate one-stop shop for guitar bodies, necks, tuners, tremolos, pickups, and much more from a wide variety of leading brands. The company consistently ranks among the top ten in The Music Trades’ quarterly ranking of the top music products sellers on eBay. And for 2014, it came in at #98 on our ranking of the Top 200 U.S. Retailers with total sales of more than $5.7 million, a good portion of that still transacted through its eBay store, “thestratosphere.” It also ranked #3 out of all 200 retailers on our productivity ranking—basically a measure of who brings in the most sales with the smallest staff.

Over the past two years, however, the challenges of doing business on eBay have mounted up, says Gibney. Among the issues he cites: rising seller fees, red tape, a decline in customer service, and a rise in “buyer extortion”—instances of buyers who receive what they paid for but open a complaint case with eBay simply for monetary gain. The last straw came by way of changes to the way eBay measures and rewards Detailed Seller Ratings (DSR)—the feedback buyers leave on the quality of items purchased, speed of shipment, etc. It sounds arcane, but the fallout has cost The STRATosphere thousands, the company reports. At issue is the automated system eBay uses to analyze those ratings and calculate a “defect rate,” an overall score reflecting all types of buyer ratings that are negative or even neutral (rather than positive). Sellers with a defect rate of 2% or less are awarded Top Rated Seller status, qualifying them for a 20% discount on seller fees—serious money if you’re listing tens-of-thousands of items like The STRATosphere does.

What eBay’s system hasn’t found a way to filter out, says Gibney, is human error: negative ratings left by mistake, or neutral ratings innocently left by buyers who don’t realize “neutral” counts against the seller. All of which brings us to the end of May, when The STRATosphere missed the Top Rated Seller threshold by just .02%—costing the company an extra $6,000 in seller fees for that one month. Knowing the difference might have come down to a single buyer’s rating glitch, Gibney says he contacted eBay nearly a dozen times in hopes of correcting erroneous data, but nothing was ultimately done to address the problems he pointed out. That was when the email blast went out.

For now, “no more eBay” is more of a rallying cry than a done deal for The STRATosphere. The company’s eBay store remains open, but it’s pouring all its promotional efforts into stratosphereparts.com—which was launched as a direct result of the problems with eBay. Frequent discounts and coupons are being offered on items purchased though the website, while items in the eBay store have been locked at full price. In short, says Gibney, the sooner buyers realize they’ll save money buying directly from The STRATosphere, the sooner he can close down the eBay store completely.

In the long run, however, Gibney thinks this story will be less about why The STRATosphere departed from eBay, and more about how changing circumstances pushed the company to build a successful platform of its own. Here’s more of his take on his issues with eBay, why he sent that email, and where he plans to take The STRATosphere in the future.

What was eBay like in the beginning, and how did you build such a successful business there?

When we started we were fortunate to recognize demand not being met in the industry for electric guitar and bass parts. eBay allowed us to quickly tap into that (due to its ease of listing at the time), test the market, and build a large, loyal customer base. Much has changed over the years, and now the market is fully saturated with sellers both domestic and overseas, including manufacturers selling direct—pretty radical changes. That is not our complaint: Competition is great and we are happy that customers have better options now. We feel like we played a significant role in changing this.

So where do you feel eBay has gone wrong?

eBay has inadvertently abandoned some top sellers over the past couple years. We have no point of contact whatsoever, and the DSR rating system is extremely flawed. There is an increasing bias in favor of the buyer and many more obstacles just to get listings up, specifically mandated UPC (Universal Product Code) and MPN (Manufacturer’s Part Number)—most of our products are unique. It compromised our efficiency. We can list parts and edit any parameters twice as fast on our own site.

The current policy has also created a loophole for extortionists. There will always be that small percentage of customers who received exactly what they paid for but will open a case in eBay to squeeze out a few extra bucks (often overseas/duty related). eBay also mandates “extended holiday returns” in order to get Top Rated Seller status—this results in a big hit to DSR rankings in the early part of the year. It has very little to do with actual defects.

We’ve never asked for much, but the process as a whole has never been worse for the seller. The fees are now a serious concern, due to the new DSR requirement and flaws in erroneous feedback. For example, even a neutral feedback counts towards the seller’s defect rate. Other times, feedback is left in error; we have at least a couple customers a week who make this kind of mistake.* Two months ago we missed our Top Rated Seller status by a .02% defect rate—literally one corrected feedback would have saved us $6,000+ in eBay fees. Now multiply that by 12 and you see why we were frustrated. This was the catalyst for our email blast.

(*Editor’s note: At the time The STRATosphere’s defect rate was compiled, a negative or neutral rating counted against the seller even if it was left in error and later revised by the buyer. The system has since been changed so that revised ratings no longer count against the seller’s defect rate.)

What kind of results did you see after sending out your “no more eBay” email?

Never have we been so engaged with the customer. An unbelievable number of customers reached out showing their support with literally only two negative comments to the email. While our tone could be seen by some as negative, the end result was a huge positive and tightened our bond with the customer.

What is your strategy for becoming less dependent on eBay sales? Do you foresee pulling out of eBay altogether?

Our goal is to be 100% independent, but we have some more work to do first. I have no doubt in my mind we could pull the plug right now and still do “OK”—The STRATosphere is already on track for a couple million in sales on the new site in just the first full year. It’s just a matter of bringing over the rest: Many people resist change or are hooked on eBay’s incentives—eBay works very hard at retaining the buyer side; you cannot deny that.

What is the concept behind stratosphereparts.com, and how are you driving traffic there?

Our primary focus is selling direct to cut out the roadblocks and pass on savings to the customer. We’re offering the same great parts customers have been buying from us since day one—but with incentives. We have invested in SEO services to get the site in front of new eyes. We’re using email marketing to drive coupons, along with social media and mailed coupons for all eBay orders. We really want customers to know that they can buy cheaper on our site—and with fewer headaches.

Despite your criticisms, you still have a very successful eBay store. What is still good about eBay?

eBay is still a leading marketplace with a massive worldwide reach. While we now feel like our hands are tied in any eBay transaction, we are not yet at a point where we can completely turn our back on that kind of advertising—we are still acquiring a new generation of customers via the channel. The goal is to simply win them over on the next transaction as soon as possible with better deals and service on our own website.

We are grateful for the opportunity eBay originally provided us. There will be some who say we are ungrateful/hypocritical for speaking critically—but keep in mind we’ve already paid eBay and its subsidiaries nearly $4 million in fees. We have no voice through their site anymore, unfortunately.

What is at the heart of the issue with eBay? Do you feel they’re pushing hard to attract buyers at the expense of sellers?

Absolutely, that is most certainly the direction they have taken. Look, we can fully appreciate part of that equation. Many sellers would agree, though, that they are treated more like employees than customers now.
Honestly, if the new model is working for eBay in the big picture then I say more power to them—they are a publicly traded business with shareholder expectations, after all. They must do what they need to do to survive. It just no longer works for us as a small business, so we must now do what is best for our survival.

You mentioned customer service issues. What are the main problems?

For about ten years, we had two separate account managers (usually fantastic) assigned to our account to assist with problems. Now, they have pulled all points of contact and it has been nearly impossible to get any supervisor to speak with us—trust me, we have tried extremely hard since the DSR changes. It’s a daily process. Since we are only allowed to speak with low-level representatives, we often get a different answer to the same question each time we call. It’s a five-minute process just to dial through the menu and get a voice on the line. We have asked them for over a year for a simple point of contact with no success—no phone, not even email.

Do you know of any efforts to push for more favorable terms from eBay?

Five years ago I was invited to dinner with eBay CEO John Donahoe in Boston along with a small group of top eBay businesses. John and his staff listened closely to all of our constructive criticism—everybody left optimistic about the future. The direction has simply changed. There is great opportunity cost with trying to change the policies at a massive corporation. Instead, we have decided to be proactive and simply migrate the business over to our own website. Fortunately, it has been a success thus far.

What are some alternative sales platforms you like, and what’s good about them?

We have been in talks with Reverb.com—great guys; they really get it and come from a musical background. I think they are gaining momentum in the musical instruments territory, and the fees are favorable right now. Getting inventory to the market is not a convoluted process, much like eBay in the early days. That is a huge plus. You may see some of our offerings there over the next year, but we still remain focused on being independent.
 
What are the latest developments for The STRATosphere in general?

We have some exciting new products constantly in the pipeline. We most recently became a DiMarzio dealer, and have brand new lines of aftermarket hardware and pickguards as well as a large special order of exotic wood Fender licensed necks that just hit the market. Sales year-to-date are ahead 12% over 2014, so things are really going in the right direction.

Honestly, we would not have even started the new website if not for the recent hurdles. Adversity has created opportunity yet again. It has been a blessing in disguise.

www.stratosphereparts.com

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