Pump the Brakes on Scams: 3 Wholesale Scams and How to Avoid Them

Scammers and con-men have been around since long before the internet became a household necessity, but since then, scammers have proliferated and pose a serious threat to internet users.

Unfortunately, online retailers on the hunt for wholesale goods are one of the most highly targeted groups.

Online retailers fall victim to dodgy scams far too often for my liking, so to help keep you and your money safe, I’ve put together this essential guide on wholesale scams, and how to avoid them.

What is a scam?

Before we go any further, let me clarify what a wholesale scam really is. A scam is a con or trick where the ‘scammer’ pretends to be something or offer something that they don’t actually have, or don’t really intend to give you. Most of the time the motive is to get money out of unsuspecting victims.

What a scam is not is a company who does have the stock on hand and also has every intention of delivery it to you, but has poor customer service, and is slow at getting back to you.

A scam is also not a wholesale company that sells items for a higher price than those same items can be bought for on eBay. While these situations aren’t ideal for you it doesn’t make the companies a scam – just not the right company for you.

Why do scams exist in the wholesale industry?

Essentially, where there is a demand there are always bad people trying to take advantage. The rise in business newbies searching the internet for suppliers, and often cutting corners to try and make a quick buck, has only made it easier for scammers.

Scams you MUST avoid!

#1

The Scam: The “supplier” lures you in with unbelievable deals on hot items like Nintendo Wii, Coach Handbags, iPods, laptops or any other hot selling items on eBay.

How it works: This is certainly the most popular form of wholesale-buying related scams, and 9 times of 10, it involves a China-based supplier.

 It targets those who are new to online retail, and have brought a couple of very common misunderstandings with them, including:

• The assumption that sourcing ‘hot’ or popular items such as designer clothing or consumer electronics is easy, and:
• The misunderstanding that wholesale items can be bought for less than 50% of their retail cost.

Unfortunately, neither of these assumptions is true.

So back to how it works: You do a few quick Google searches to find a supplier for the items you are looking for and, find a site offering them at very low prices. You get excited when you calculate what you can buy the wholesale items for, and how much you can sell them for on eBay.  

After shopping around, you eagerly add items to your shopping cart and proceed to the checkout.

This is where it all goes horribly wrong.

You’ll usually be offered two payment forms: Western Union or wire transfer. These payment options should be avoided because they offer you no protection whatsoever if the deal turns sour.

If you enquire about paying via credit card or PayPal, you will probably be met with an excuse about their PayPal account being down or their credit card payment facilities being unavailable.

They’ll convince you to go ahead with the payment, claiming they offer a money back guarantee if you are not happy with the items, and maybe even throw in free shipping insurance to sweeten the deal.

Feeling confident, you go ahead and make the payment using their preferred payment method, then wait for your shipment to arrive.

But it doesn’t!  Despite the supplier’s claims that you can expect your shipment within 2-3 weeks, it never shows up.

Your email enquiries go unanswered, and your phone calls are ignored.

You’re left feeling defeated, coned and out of pocket.

How to avoid this scam:

1.    Only pay using either PayPal or credit card. These provide you with a level of protection when the deal turns to custard. It’s OK to use these payment methods if you 100% know and trust the supplier, and some legitimate suppliers prefer this as it saves them from having to pay PayPal fees.  However, for first time orders, and especially orders from international companies, stick with Paypal and credit card.

2.    Order a sample first before you dive in a place a large order.

3.    Don’t judge a book by its cover! Many scam sites are very poorly designed, and can be instantly recognized as a low quality site. However, many scammers have cottoned on to the idea that a better designed site makes it more attractive and most importantly, more trustworthy to potential buyers.

The image below shows a snapshot of a very well designed site. It’s simple, easy to navigate and appears professional.

However, I have read several accounts of retailers being scammed when using this site, so never judge a book by its cover!

#2.

The Scam: Drop shipping blunder

How it works:

You find a drop shipper that you want to work with and do the smart thing by ordering a sample to check out their service (how fast they deliver, and the quality of their items).

They send you out a sample which looks fantastic and meets your standards, so you go ahead and start selling the items

However, unbeknown to you, the sample the drop ship supplier sent you was one of their top-shelf quality items; what they send to your buyers is their low quality (sometimes even damaged or buyer-returned) items.

Because the drop shipping method gets the items sent directly from the supplier to your buyer, this goes unnoticed by you… until you check your feedback, that is.

You will probably notice a few bad feedback scores, or for eBay users, low DSR ratings for the “item as described” criteria.

Some would say that this isn’t so much a scam as it is a dodgy operation. Either way you look at it, it can really cost you your feedback score and subsequently, an unlimited number of sales. You could even have your selling account suspended if too many buyers have serious complaints about you.

How to avoid this scam:

Search for the drop ship supplier’s company name in forums such the AuctionCut Scams and Cons thread or the SaleHoo Scams, Ripoffs Fraud & Complaints thread.  See what other sellers have to say about them.

Regularly test your drop ship supplier by having items sent to a close friend or family member. You will have to pay for the item of course, but it is a good way to check how long it takes for the item to arrive, and also to see what kind of quality the item that shows up is.

Ask if the supplier sells on eBay. Many sub-standard drop shippers sell the same items on eBay that they are supplying you with, undercutting you from the beginning. By supplying your buyers with low-quality items, they are eliminating you as a competitor, and still making money from you by being your supplier, even if it doesn’t last long!

#3.

The Scam: DH Gate – A gateway to fakes and replicas?  

Many sellers want to know – can they trust DH Gate? This question really highlights a common misunderstanding about DH Gate, which is that DH Gate is not actually a product supplier itself, but is instead a platform where suppliers can advertise their items for sale and do business with retailers.

Really, the question should be: Can I trust this supplier I found on DH Gate? 

Many retailers are attracted to DH Gate for one thing: Cheap brand name or designer items. The problem is, the vast majority of suppliers offering these items on DH Gate are supplying cheap fakes and replicas.

While almost all suppliers know that the items they are selling are fakes, they will insist they are the real thing. Some even make up stories about connections they have with factory owners who make Louis Vuitton bags. Don’t believe a word of it!

Why you should never buy fakes!

The problem with buying fakes is that when you import them from overseas, your packages are often opened and checked over by Customs (especially if they come from China, where most fakes are made).

If they find fake brand name items, they are obligated to seize the items, and in some cases, notify the brand owner. If that happens, you could face prosecution.

If your items get through customs undetected (or you buy them locally) and you start listing them on eBay or another selling platform, you probably will be able to make a few sales, but it won’t be long before either VeRO (eBay’s program to protect ownership rights) finds out, or a buyer catches you out and reports you.

In this instance, you could either have your account closed down (and you may not be able to create a new one using the same personal and credit card details) or again, be reported to the brand owner who may press charges.

Too many sellers have had their retail careers cut short because they believed a phony supplier’s story about being able to source real designer items.  

Here’s how to avoid this happening to you:

How to avoid this scam:

Do not buy branded or designer label items from China-based suppliers. I can say with some authority that 95% of the time, they will be as fake as fakes can be!  

Check their DH Gate rating thoroughly. What is their feedback score? How long have they been trading, and how many trades have they completed? Also check out whether they have repeat customers (have any buyers placed feedback on them more than once?).

Have they always traded designer items? This is important because some sellers build up an account by selling generic easy to-sell items to gain your trust, and then start selling fakes. If they have been selling ball point pens, then suddenly switched to Chanel handbags, alarms bells should start ringing!

On or off DH Gate, if you are offered seriously cut-price designer goods, turn the other way. There is no such thing as a Coach handbag for $25! Designer items have very low margins for retailers; even retailers in brick and mortar stores make a very small profit when they sell these items.

Extra tips to help you stay safe, and scam-free when dealing with suppliers

Scams come in many forms, and new and more sophisticated scams arise all the time. Your best defense is to always look out for certain signs when you are dealing with suppliers.

Here are some extra tips to help keep you safe. I recommend you bookmark this list, and return to it when you go looking for a new supplier.

• Be careful importing unless the supplier has excellent reviews and has been online for more than 2 years (you can check this out by going to DomainTools.com and entering the URL of the website you are investigating).
• Don’t trust claims or seals of trust worthiness on the suppliers’ own website. It’s not hard for the site owner to copy these in themselves!
• Use Google to learn more about a supplier’s reputation. Try querying the keywords “supplier’s name + review” and “supplier’s name + scam”.
• Use Hong Kong rather than China for brand name goods. Many designer items are legitimately made, bought and sold in Hong Kong.
• Don’t use unsafe payment methods. Only risk what you can afford to lose!
• Never a use a supplier that doesn’t have a contact address on their website. A simple contact form is not enough.
• If you are looking at placing a larger order, place a few smaller orders first and take the time to build up a relationship with the supplier.
• Keep in regular contact with your supplier while they are processing your order & preparing for delivery.
• Ask for photos of their factory with a newspaper showing a very recent date. I personally would only ever ask this of a supplier I was thinking of making a large order as it does come off as rather inferring. However, it is worth being a little bold when your hard-earned cash is at stake.
• If you are looking at buying branded items, email the official brand name owner and ask for a list of their authorized distributors. Alternatively, give them a name and ask them whether they are on the list.
• Never rush into a transaction, or let a supplier rush you.

Overall, always read around a lot before you go ahead and order. Research is always your best defense.

I hope you’ve enjoyed today’s article, and I certainly hope that it helps you stay safe in the future!

Have you ever dealt with a supplier you didn’t trust? I’d love to hear your stories, so let me know by posting a comment – you might even help prevent a fellow retailer from being scammed!

About the author: Alice Delore is a copywriter for SaleHoo Wholesale Directory. She also regularly publishes on the SaleHoo Blog.