Going to Display Rack & Ruin
Ever hear the phrase "All that glitters is not gold?" It applies to fraudulent display rack business opportunities.
Fraudulent promoters across the country are offering entrepreneurs like you the chance to make $100,000 or more a year selling licensed products from well-known companies.
Their pitches include some great claims: No selling. You won’t have to quit your job. You can work from home. You can make your own hours. Indeed, they say that for an investment of as little as $15,000, all you have to do is restock profitable high-traffic display rack locations like malls, shopping centers, gift shops, convenience stores, supermarkets, and chain drug stores.
Sounds like a dream opportunity right? Wrong?
Entrepreneurs who invest in business opportunities like these
rarely make the big money they’re promised.
Promoters often supply undesirable merchandise – for example, outdated products that may never have captured the public’s attention – and unprofitable locations. In fact, would-be business owners generally lose their entire investment.
If you’re thinking about investing in a display rack opportunity, the Department of Financial Institutions Securities Division and the Federal Trade Commission have a message for you. Check out their claims to avoid going to display "rack and ruin."
Business Opportunity Checklist
Check out the Promoter
- Call the legal department of the company whose merchandise is being promoted.
- Find out whether the promoter is affiliated with the company.
- Ask if the company has ever threatened trademark action against the promoter.
Question Promises that your entire investment will go for "display racks and initial inventory." The promoter’s sales commissions on your purchase of products may eat up as much as 30-40 percent of your investment.
Ask the promoters if you’ll be charged wholesale or retail prices for your initial inventory. If you pay retail, you’ll have to mark up the price to make a profit. That means you probably won’t move much inventory. Even if the promoter agrees to sell you inventory at wholesale prices, you may get out-of-date merchandise that never sold in the first place. Either way, you lose.
Check out Locator Companies. These are third-party firms, usually recommended by the promoter, that you hire to locate display rack sites. The firms may claim they’ve done market surveys in your area. Ask for copies. Typically, a firm charges you $200 per site; the locator gets half the fee. Since high-traffic stores could sell popular consumer products on their own, locators may be able to secure low traffic locations only.
Get a list of Previous Investors, as well as their addresses and phone numbers. The FTC’s Franchise Rule requires it, and any legitimate business should be happy to provide it. If possible, visit one or two investors – and their locations – in person. If you call, you may talk to a "singer" or a "shill" – a person hired by the promoters to give a favorable report on the business.
Get Earnings claims in writing. Insist that the promoter give you written substantiation in the disclosure document required by the Franchise Rule. Be sure it includes the number and percent of others who have earned at least as much as the promoter claims. If the promoter hesitates or refuses, walk away. Don’t believe what they say about sales, profits, or income.
Consult an attorney, accountant, or other trusted financial or business advisor before you sign any agreement or make any upfront payments. Ask your attorney to review the company’s contract and advise you on how best to proceed.
Call the Department of Financial Institutions Securities Division, Attorney General’s Office, and the Better Business Bureau where you live and where the promoter’s business is headquartered. Ask if there are any unresolved consumer complaints on file. This is a prudent and practical way to proceed, but not foolproof.
For More Information and Help
If you think you’ve been defrauded by a display rack business opportunity promoter, contact the company and ask for a refund. Let the company know that you plan to contact law enforcement officials about your experience. Keep a record of your conversations and correspondence. If you send documents to the company, make sure you send copies, not originals. Send correspondence by certified mail, return receipt requested, so you have record of what the company received.
The Department of Financial Institutions
PO Box 41200
Olympia, WA 98504-1200
1-877-RING DFI (1-877-746-4334)
Visit our web site at http://www.dfi.wa.gov/sd
You should also file a complaint with the following:
- The Attorney General’s Office
- The advertising manager of the publication that ran the business opportunity ad
- The Federal Trade Commission
Consumer Response Center
Federal Trade Commission
Washington DC 20580
Visit their web site at: http://www.ftc.gov