eBay Layoffs: Tech Jobs in Spotlight, What About Authentication Operations?
UPDATE 1-29-24
Confirmed: 25 of the 28 Nevada layoffs were related to eBay's authentication operations - 16 warehouse workers, 8 authenticators, and an authentication specialist.
eBay joined the ranks of companies announcing mass layoffs this week, with a 9% reduction in force impacting about 1,000 employees - but while much attention has been placed on the loss in tech jobs & plans to reduce use of contractors, eBay's growing authentication warehouse operations have been curiously absent from the conversation.
Nevada Department of Employment records show that eBay filed a WARN notice on January 23, 2024 advising 28 positions in Las Vegas would be impacted by this round of layoffs.
eBay has not responded to requests for comment to confirm if these jobs were at their Las Vegas authentication center, but the increasing number of "Open For Work" messages popping up on LinkedIn profiles of (presumably) ex-eBay authenticators and an anonymous Reddit post would suggest that is likely the source of at least some of the cuts.
Not only are eBay's authentication centers possibly impacted by these layoffs, they are an integral part of the story of how the company has found themselves in their current predicament of "headcount and expenses outpacing growth."
CEO Jamie Iannone has built his "focus vertical, high value, enthusiast buyer" strategy for the company largely around the idea of offering experiences and services to "enhance trust" and draw buyers to key categories on the platform.
Clawing back market share in the sneaker space that ex-CEO Devin Wenig allowed to slip through his fingers to competitors like StockX was priority number one when Iannone took the helm, announcing a partnership with Sneaker Con in 2020 to provide authentication for qualifying sneakers and reducing selling fees to 0% to entice more sellers to list their kicks.
eBay eventually acquired Sneaker Con's authentication business in 2021,for an undisclosed sum, taking on their US facilities in Nevada and New York as well as operations in the U.K., Canada, Australia and Germany.
They've since added a third US location in New Jersey for in-house luxury handbag and fashion authentication, while authentication programs for watches, jewelry and trading cards are still handled by third party partners.
eBay massively increased their investment in these services throughout 2023, disclosing millions of dollars in additional expenses related to authentication every quarter.
Q1 2023: $14 million increase related to the expansion of authentication services compared to 2022.
Q2 2023: $15 million increase related to the expansion of authentication services compared to 2022.
Q3 2023: $9 million increase related to the expansion of authentication services compared to 2022 for the quarter.
That comes to a total of a $38 Million increase in authentication service costs just for the first 9 months of 2023, and we have not yet seen Q4/full year reports.
Despite pouring money into expanding authentication, eBay has struggled to gain traction with newly introduced categories like streetwear and to keep the momentum going with sneakers, while trying to find ways to monetize the service to cover some of the ever increasing costs.
Sneaker sales slowed when eBay ended fee free selling, with fees currently sitting at ~8% for sneakers over $150 and 13.25% if they are under $150, and buyers are increasingly unhappy with the program since eBay instituted a mandatory $14.99 shipping fee for all shoes sent to the authenticator.
Liz Morton
In August 2023, eBay started looking for a new Global GM for Sneakers and Streetwear, possibly signaling a desire for change in direction for this crucial category.
Liz Morton
The job remained open even after previous sneakers GM Garry Thaniel announced he had moved to GM eBay Canada, leaving eBay's flagship focus vertical without strong leadership or strategy.
Update 2-3-24: Director Global Strategy and Operations Jonathan Gunawan has been promoted to General Manager Global Sneakers at eBay.
Analyst Chris Burns at ARCH-USA recently revealed troubling reports that several sneaker industry consultants were ghosted by eBay Sneakers leadership and that eBay does not appear to have a great understanding of the concepts that were pitched to them to help ramp up their involvement in sneaker culture.
Chris Burns
eBay purchased SneakerCon and attempted to ramp up their involvement in sneaker culture. Speaking with several sneaker industry consultants who all found themselves ghosted by eBay’s sneaker GM and team it is clear that sneaker resale of premium and extremely limited footwear dominated the business plans of eBay.
Outside consultants with eBay attempted to move eBay towards a more controlled form of sneaker resale rooted in a combination of what the site owned, arbitrage and the ability to mimic retail. The pitches to eBay Sneakers were taken and placed in action with various websites and influencers, but eBay never understood the concept.
In addition to Sneaker Con, eBay made another big acquisition as part of Iannone's strategy when they purchased collectible card game marketplace TCGPlayer in October 2022 for $295 Million.
Liz Morton
TCGPlayer had over 600 employees at the time of acquisition, along with a massive headquarters and processing facility in Syracuse, NY where workers receive, authenticate, bundle, pick, pack and ship tens of thousands of trading cards a day.
The acquisition has subsequently mired eBay in a protracted, expensive and bad-pr inducing labor battle as authentication workers at TCGPlayer fought for and won their bid to become the first US union in eBay history.
eBay has continued to drag out the bargaining process, even though the National Labor Relations Board has found merit in multiple complaints filed by TCGUnion-CWA, all while paying notorious anti-union law firm Littler Mendelson big bucks to represent eBay's interests in the process.
Liz Morton
When Iannone first embarked on his grand plan to bring authentication in-house at eBay, very little attention was given to the significant change in strategy it represented or the risks this strategy could pose to the company (and investors).
As savvy scrutineer, unsuckEBAY, noted at the time, it was a "significant step-change" for the company as it departed from the asset light, "just a venue" model that had previously protected it from unionization efforts which have targeted competitors like Amazon.
TCGPlayer employees had previously attempted to unionize in 2020, with concerns and demands about working conditions, pay, and management transparency similar to those cited in their ultimately successful organizing actions in 2023.
eBay should have been able to anticipate and prepare for the possibility of facing unionization efforts following the acquisition, given that the agreement allowed Founder Chedy Hampson and other management personnel to remain in an environment with a documented history of "strained" labor relations.
Interestingly, eBay chose not to reveal the potential risks that unionization efforts could bring to investors until February 23, 2023 in a 10-K filing with the SEC.
However, even after this disclosure, the company downplayed the potential impact.
Our business is primarily nonunionized, but we have some works councils outside the U.S. There has been a general increase in workers organizing to form or join a union in the U.S.
While we have not seen a material increase in such efforts among our employees, the unionization or related activism of significant employee populations could result in higher costs and other operational changes necessary to respond to changing conditions and to establish new relationships with worker representatives.
That statement was made one month after TCGPlayer employees filed their union petition and multiple unfair labor practices complaints with the National Labor Relations Board.
While eBay may not consider 272 employees "significant" within the total global headcount, any unionization efforts in the US were arguably a "material increase" from 0 and now that one authentication facility has successfully voted to unionize, others may follow suit.
eBay's apparent due diligence and disclosure failures in the TCGPlayer acquisition raised questions and concerns among investors, which were amplified even further when Chief Accounting Officer Brian Doerger abruptly exited the company in March 2023.
Liz Morton
In addition to ongoing labor troubles, eBay also entered into a deferred prosecution agreement with the Department of Justice earlier this month after being found criminally liable in connection to the 2019 cyberstalking of journalists Ina and David Steiner of EcommerceBytes.
The deal hit the company with the maximum fine of $3 Million dollars and will require enhanced compliance monitoring for 3 years, including a specific focus on Mergers and Acquisitions due diligence, disclosure and risk management.
Liz Morton
The broad scope of the compliance monitoring suggests the Department of Justice and other Federal regulatory bodies may be concerned about a wide variety of business practices, opening eBay's entire operation up to additional scrutiny.
In his memo to employees about the layoffs, Iannone took very little responsibility for the situation eBay currently finds itself in, while expressing that he remains steadfastly committed to the strategy he says is working.
We are on a path to building a stronger eBay for the future — one that is growing, and resilient in the face of any challenge. Over the past three years, we made fundamental changes in our experiences across categories and accelerated the pace of innovation at eBay. In areas where we’re investing, we are seeing consistent increases in customer satisfaction and a meaningful improvement in our growth relative to the market.
Our strategy is the right one, but there is more we can do to ensure our success. We need to better organize our teams for speed — allowing us to be more nimble, bring like-work together, and help us make decisions more quickly. Today, I am sharing news about changes we are implementing to better position eBay for long-term, sustainable growth.
The most significant and toughest of these decisions is to reduce our current workforce by approximately 1,000 roles or an estimated 9% of full-time employees. Additionally, we plan to scale back the number of contracts we have within our alternate workforce over the coming months. These are not actions we take lightly — and we recognize the impact they will have on all eBayers. We have to say goodbye to people who have made so many important contributions to the eBay community and culture, and this isn’t easy.
The Need for Change
Despite facing external pressures, like the challenging macroeconomic environment, we know we can be better with the factors we control. While we are making progress against our strategy, our overall headcount and expenses have outpaced the growth of our business. To address this, we're implementing organizational changes that align and consolidate certain teams to improve the end-to-end experience, and better meet the needs of our customers around the world.
But is there solid evidence the strategy is really working and is worth the costs and risks involved?
While eBay does not break down their "enthusiast buyer growth" by category, CFO Steve Priest's comments across multiple earnings calls show results over the last year have remained relatively flat, at best.
Liz Morton
Q2 2022 - "Enthusiast buyers made up approximately 17 million of our active buyers in Q2...average spend among enthusiast buyers grew sequentially and remains over $3,000 annually."
Q3 2022 - "Enthusiast buyers accounted for approximately 17 million of our active buyers in Q3...average spend per user grew sequentially and continues to be healthy at over $3,000 per year."
Q4 2022 - "Enthusiast buyers accounted for over 16 million of our active buyers in Q4...average spend per enthusiast rose again sequentially and continues to be healthy at above $3,000 annually."
Q1 2023 - "Enthusiast buyers remained relatively stable sequentially at 16 million in Q1...and on average, spend approximately $3,000 annually."
Q2 2023 - "Enthusiast buyers was stable at 16 million in Q2...spend per enthusiast grew modestly year-over-year, averaging roughly $3,000 annually."
Q3 2023 - "Enthusiast buyers were also flat sequentially at 16 million. Spend per enthusiast was stable quarter-over-quarter at around $3,000 annually, but modestly year over year."
Given Jamie's commitment to stay the course, it's important to understand the role that labor-centric warehouse and authentication operations play in his strategy and the implications of continuing down a path that is increasingly dependent on a large hourly workforce in relatively pro-union locations.
Increasing selling fees and/or adding additional costs to buyers has proven to be a difficult proposition for eBay to pull off without risking significantly slowing down momentum in these critical focus categories.
Ultimately, eBay is either going to have to find some other way to continue to financially support these operations (possibly with cuts in other areas) or pivot and scale them back - which would require admitting that maybe the strategy isn't working so well after all.
If Iannone is unwilling or unable to come to that conclusion on his own, the Board and investors may need to start making some tough decisions about eBay's future.
