How ebay can kill you

Internet retailing is a double edged sword, it lets you get your foot in the door but also, it lets others less scrupulous in the door too. Now, this isn’t a problem if you’re the only one selling your goods but if other people start selling your stuff, well, it can destroy everything you’ve worked to hard to create. If you have no retail buyers then there’s no one to complain that you’re selling under MSRP but once you start selling to others, you have to make sure they’re not selling at deep discounts on sites like ebay. I’ll start with a story from someone I know.

Cathy had been in business selling her products for six years when one of her regular customers placed an unusually large order. The order was ten times larger than any she’d ever gotten. Happily, filling the order was no problem because she was reordering to fill in her own stock at the time so it only amounted to an upfront short term belt tightening until the buyer paid. Collecting on the invoice wasn’t (much of) a problem so Cathy was pleased with the unexpected windfall. That is until the buyer started competing with her online, selling in her exact venue at a 40% discount. There was nothing she could do, she nearly went under. Worse, since the buyer had such a large inventory, it severely impacted her sales for nearly two years. Still worse, her biggest customer stopped ordering because the buyer effectively locked up all the sales on that item.

Beyond despondent and depressed, she learned two lessons. One, as tempting as they may be, big orders can kill you. Two, verify where your buyers intend to sell their products –even if they’re an existing customer! Cathy’s customer had his store; he used her to expand into online sales. Specifically, if you expect to retain your own margins or those of your other buyers (and why else would they buy from you), you must make sure you’re not selling to ebay sellers, off price web sites or other discount venues. That is not to say your customers can’t be competitive but there is no way that a brick and mortar store can compete with the overhead of someone selling on ebay -and as it happens, someone who’s not paying their invoices. More on that in a minute.

Today’s second story comes from Susan:

I manufacture children’s apparel and have recently discovered that two of my retailers are selling my CURRENT season’s clothing on eBay. The sellers in both situations do not have store fronts. I struggle with my feelings about how this has happened. I would like to think that between meeting the requirements to buy at market as well as by meeting with my sales reps and explaining to some degree their situation, this could/would be avoided. I have spoken to both representatives who wrote papers for these buyers.

I am not entirely sure how to handle this. I don’t think that it is good business practice to buy goods at market, and sell them for a deep discount on eBay. The retail stores that pay so much overhead and run reputable businesses are who we want selling our goods.

What Susan did not say in this email is that she has two customers selling her goods on ebay with starting prices of $7.99 on goods that retail for $52 -and worse, they haven’t paid their invoices yet. The one buyer is communicating and says she intends to pay. The other buyer is AWOL. Also, please note this is her current line, these are not off price, remaindered or brokered goods. She also did not mention that her spouse is an attorney. Apparently, remedies are limited.

Unfortunately, these stories are becoming too frequent these days. Buyers are going to market, placing orders and selling your goods at ridiculously low prices with no intention of paying their invoices. This kills you in two ways. In the case of Susan’s second buyer, this person has committed fraud and has no intention of paying. Second, this depresses the market for your goods. If your other stores find out your products are available online at much lower prices, they’re not going to buy from you any longer. As Dan from BoBo bags said, there are lots of buyers out there who are alligators. They are thrilled with new lines because you haven’t been around long enough to know how they can burn you. It’s one thing for someone to take your goods without paying for them. It is quite another thing to ruin your chances with other stores who won’t want to buy from you anymore if you can’t control who’s getting the goods.

Susan also mentions that the problems transcend ebay, now it’s trunk shows. She says these are getting huge. People are buying goods and showing them in their homes, again at deep discounts. She mentions that she doesn’t know where the controls lie, how these buyers are getting in when many trade shows (like Dallas) in order to get buyer’s credentials, you have to have a photo of your storefront, an electric bill,or proving a buying history. A word to the wise would make online sales in these venues verbotten. Similarly, trunk shows. Somehow, you’ll have to stipulate in your sales contract that your buyers must either have a brick and mortar store or if online, that they agree not to sell below a stipulated price point. In any event, collect before you ship. I realize that big orders are flattering and a validation of all you are trying to do but don’t get taken.

So please, feel free to post your suggestions to hopefully prevent these things from happening to others.

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  1. Mary Beth says:

    I’ve experienced the same thing with other online manufacturers’ copying my designs and selling at 1/4 my price, esp those mfg’rs in Asia. I’ve been so downheartened. But at a show 2 weeks ago I got to see the actual items these vendors were selling customers and the fabric was different, construction shoddy, etc etc. Eventually the buyers will have to make the ultimate decision whether to believe internet pictures and accept inferior goods or go with a manufacturer they know to be top notch. Fortunately my company makes over 750 things so these are not our bread and butter.

  2. J C Sprowls says:

    I wonder if eBay is the online equivalent of the off-price market? I presume none of us would want to sell to T J Maxx or Ross at first blush, either – at least not during the current season.

    What makes eBay (and, Dove Bid, UBid, etc) difficult to trace is that the participants are virtual companies. Saying that one has an ‘online storefront’ does not differentiate between a click & mortar setup, like Miracle’s webstore, versus a “flea marketer” who is hawking out of their garage on eBay.

    So, I’m wondering if this is just part of the due diligence necessary for selecting our clientele?

    A factor might help us by evaluating the credit worthiness of the prospective buyer because there should be some credit evidence (i.e. utility bill). The expense of factoring can be leveraged to help in more ways than guaranteeing payment.

    Perhaps we need to expand our criteria to also investigate the sales venue, before we pass the credit app off to the factor? Just to see if it’s something we want our brand/label to be aligned with?

  3. Marguerite Swope says:

    I think the problem is unscrupulous e-tailers, not eBay itself. eBay is an easy venue to use, but it’s not the culprit. There are things you can do to protect yourself from uncrupulous buyers. Here are a few.

    Some manufacturers specifically say you cannot sell anywhere on the internet at less than MSRP. After all, the internet has access to the world and you don’t want your retailers undercut. It doesn’t hurt to ask where they plan to sell and to specify your internet sales terms.

    If you are unfamiliar with a new buyer, perhaps try it out with just a few items and track what happens with them. An unvetted new account making a huge order should be under suspicion. A good buyer shouldn’t object and shouldn’t want to expend large amounts of money on an untried line anyway.

    Also, asking for a sales tax ID will weed out some of the trunk show people as well as some etailers. I’ve been told (but haven’t done it) that you can go to the state’s website where the license is issued and get the address of the owner. Then a quick internet search on the address should help you determine if it’s a legitimate brick and mortar store.

    Finally, why not get paid before you ship? If someone wants net 30, then ask for their credit card and let the credit card company give them the 30 days. For $20/month you can take credit cards on PayPal with their virtual terminal feature (handy way to get started taking CCs where ever you’re selling) OR you can just invoice with PayPal (assuming YOU have an account) and the other party can pay you with their credit card via PP and you don’t ever have access to their CC numbers (the buyer may like that protection).

    You are still open to chargebacks, of course. Again, this is why you might want to stick to very small orders with unproven buyers.

    All this presumes an ideal world, and there are just some determined scammers who are going to get to you. But if you’ve done everything you can, and kept your possible losses to a minimum, then you can sleep well knowing you’re still in business.

    Wholesale shows I know of do vet their buyers and if you’re at a show and uncertain about a buyer, you can ask if they have references with any other vendors at the show. An honest buyer will not resent you wanting to protect your business. After all, if they like what you have and want to keep buying from you, it’s in their best interest for you to stay in business. And that means protecting yourself against bad buyers.

    Hope some of this helps.

  4. AB says:

    In our agreement with the retailers we say that selling our product on ebay/auctions is prohibited. Now we drafting new agreement that includes not to sell our product below a certain price point – this agreement will protect all retailers who’ll sell our product. I’m prepared to wait for good buyers, than sell just to anyone. We carefully choose our retailers. We also do a credit’s part of the application retailers have to fill (including tax ID, bank/trade references, address and other info), it helps.
    If retailer doesn’t want to fill out the application, too bad, we have to protect our brand and move ahead.

  5. Lisa NYC says:

    there is one such line where this has recently happened that I am aware of. Buyers bought at market and are now selling the current line on ebay or at deep discounts on their websites. The sales rep never mentioned that selling their current line on ebay was prohibited, thus the company has no recourse.

    The sales rep has asked those buyers to not sell on ebay. The company will no longer sell to these buyers, however, the damage is already done to the current line.

    With friendship,

  6. Thomas Cuningham says:

    If I’m wholesaleing a product with an MSRP of $52, I would sell it for $20 to $25.

    At what price is this person wholesaling goods that her customer can sell at $8 and make money? This person must be selling the goods for $6 or less. Why would they do that and give all the profit to the retail who will sell for $52.

    I don’t understand.

  7. carissa says:

    Thomas, I took it that these people can do this because they haven’t paid- and don’t plan to pay- for the goods.

    I’d like to know at what point does atmosphere make a difference? I’d pay more for something at a brick and mortar store that I love than I would for the same item on ebay. Don’t we all know when we buy something at a trendy bookstore that we could have bought it for less online? But we want the coffee in our hand and we want to bump into old friends and touch the books, flip through them a little. There are some stores where I happily pay more for items because I know their overhead really calls for the prices and I want to support the people and store. Is price really the only competition here? I agree this is so terrible. I’m just shocked that it impacted these business so much.

  8. Big Irv says:

    I know Ebay is quickly becoming an avenue that many “brick and mortar” retailers are using to bolster sales. In some cases Ebay sales form a bulk of their revenues.

    As a Canadian and not being fully familair with all the US laws surrounding these issues, I did discuss with a colleague of mine based in the US and well versed on the laws and issues surrounding apparel manufacturing and price fixing.
    Essentially in the USA is it illegal to “price fix”. MSRP is a “suggested” retail price..and retail pricing cannot be determined by the manufacturer. Levis was sued (and lost) on this a decade or so ago and that is when “MSRP” pricing began to be a catch phrase in the fashion industry.

    When a buyer buys your product, they are free to sell it whenever they please- at whatever price they please. You can refuse to sell to a customer for any reason ..but if you draw up a form saying “you cannot sell online, you must sell at this price, etc. etc.” then are “price fixing”
    and B. the venue is not able to be predetermined by the manufacturer.

    If you find the buyer is price cutting your other buyers, and you are not happy with that..then you can stop selling to that buyer at any time.. but you cannot tell that buyer what to do. Once they buy the goods- they can do whatever they want to with them.

  9. another wish says:

    thanks for your comments. thomas, carrisa is right, the store selling our goods for $8 has not paid and hasn not given any indication that she is willing to pay! live and learn.

    i am interested to sit and read miracle’s post as kathleen tells me i have some recourse.

    susan (from today’s post)

  10. Megan says:

    This is a fascinating topic and one that could easily affect me in the future as I try to reach out for wholesale accounts.

    Why is not the standard for smaller or independent vendors (is that the right word) to require payment up front for first orders and current credit card number on file for subsequent orders? I admit to not being that experienced in these things. My contract for wholesale requires a credit card number submitted upon the order, which isn’t charged until the order is shipped. That way I’m not stuck trying to collect, which I can’t really afford to do.

    Is that not realistic to expect from most retailers? My minimum is fairly low so I hope not.

    I have wholesaled to two online venues without much concern until now. I do feel that if they purchae my work then they own it and can do what they want with it. I can’t imagine they would want to charge too much less than my retail.

    Lots of things to think about. Thank you!!!

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