Monday, May 20, 2024

The Drop Shipping Scam-Scam

Drop-shipping isn't really a scam.  Selling people seminars on how to drop-ship, is.

I ordered two filters for an old "HEPA" filter machine that we got years ago as a scratch-n-dent deal for a few bucks when Mark worked for Sheets 'N Things.  God, I guess that was 25 years ago.  Anyway, the machine takes special filters (unlike the cheaper ones, where I just wedge in standard HEPA furnace filters) which can cost as much as we paid for the damn machine.  So I searched online for a cheaper alternative. I opened windows in Amazon and eBay and finally found the cheapest price on eBay.  Amazon was almost twice as much.

I shoulda checked Walmart.

A few days later, a package arrives from Walmart, addressed to Robert Shilling, at my address, with the filters.  What happened?  Arbitrage or Drop-shipping.  Someone (Mr. Shilling?) saw that the price on Walmart was lower than eBay and set up a listing on eBay (not hard to do for standardized products) and then when I bought, he merely had it shipped from his Walmart account and pocketed the difference, which was only a few bucks at best.

If you can program a bot to do this, you could rake in the dough - as even a dollar per transaction would add up quickly, if it was automated.  I wrote about "Arbitrage" before when I ordered an eBay item and it arrived by Amazon as a "gift" order (so I never saw the actual price the drop-shipper paid).  It isn't a scam per se, as I paid the price agreed upon and received the goods I wanted.  It was my fault that I didn't cross-shop on other platforms.

Economists would smile.  In a perfect economy, each consumer pays the most they are willing to pay for a product (more about that in tomorrow's posting).  So if I was willing to spend time on researching prices more, I could have paid less.  But for other consumers, the hassle isn't worth it, and many people just click on the first hit on Amazon and hit "buy it now!" and don't bother to cross-shop, believing (falsely) that they can afford it.

Perfect economic balance, in the warped minds of economists.  But I kid....

To me, it is fascinating that someone thought this up.  And I see no problem with it, either.  The only thing that concerns me is that perhaps Amazon or Walmart are the ones behind this - trolling eBay to see if listings are going for higher prices than on their own sites and then putting up listings on eBay which lead back to an Amazon or Walmart purchase.  Since the Internet monitors everything you do (or at least your browser does) it isn't hard for them to figure out if you are cross-shopping on different sites.

Amazon, Walmart, eBay, and PayPal all desperately implore me to "remain logged in" to their sites, even as I close the windows.  I wonder why that is?  Oh, right, they have my best interests at heart and want to help me out and say, it is convenient to remain logged-in, right?


But getting back to topic, yes it is true one could make money from Arbitrage. In the early days of the Internet, a friend of mine reported that they knew someone in Maine who went to Renys department store (a Maine institution) and bought women's and children's clothing off the discount rack. They would then list them on eBay with a substantial markup.  If they sold they made money.  If they didn't, well, Renys' generous return policy (at the time) allowed them to return items that did not sell.  So it was a heads-they-won, tails-they-didn't-lose kind of situation.  It was the early days of online Arbitrage.

Today, of course, this has gone automated.  You can even set up AI bots to answer customer service inquiries.  So the opportunity for an individual to make money from this is limited.  It is like Bitcoin - you could have made millions if you "mined" coins decades ago. Today?  That ship has sailed and everyone and their brother thinks they are going to be the next Crypto "whale."

That ain't gonna happen.

Levi Strauss made his fortune, not in gold mining, but in selling blue jeans to gold miners back in 1849. That was where the real money was - in supplying the transportation, supplies, and information to would-be miners, who stripped the countryside bare looking for that elusive shiny rock.  Nearly 200 years later, not much has changed.  You can makes lots of money trading in gold - or lose it all.  But you are guaranteed to make a profit selling the idea of making money in gold to would-be goldbugs or silverbugs or crypto-bros or meme-stonk traders or whatever.

And not surprisingly, people are making coin by selling the idea of drop-shipping to the plebes as a "work from home" scheme to make money.  People pay them money to attend an online "seminar" about Arbitrage.  Then people pay a monthly fee to use their "system" to drop-ship.  And since it is only you and a few million other suckers who signed up for this, surely you can corner the market, right?

That's why I have no beef with drop-shippers.  Because market competition exists, if one person offers an arbitrage product for $5 over cost, another will go to $4.  Then another to $3 and maybe $2.  Pretty soon, the arbitraged listing is indistinguishable from the source price listing and there is little profit to be made in Arbitrage.  The invisible hand of the marketplace does its job - eventually.

Not only that, but even dunderheads like me eventually catch on to what is going on and start go check out alternative sites to ensure they are getting the best pricing.  A sure sign a product is being arbitraged is when you see multiple identical listings on eBay for the same product at slightly different prices.

I want to thank a reader who sent me a link to a YouTube video which uses an AI-voice to sell an Arbitrage (drop-shipping) tutorial and service.  I would reproduce the link here, but if I did so, it would generate more traffic for that YouTube site.  The above image was obtained by image searching on "shopify drop-shipping tutorial" and was the first image that came up, out of pages and pages of images - each linked to a separate YouTube video.  Good thing to get in on the ground floor!

It is like a link a "reader" sent me about crypto - "11 things that can go wrong with crypto."   It sounded promising, until you read the link and realize it is saying that crypto is the best thing in the world and all those people crying in their soup just didn't do it right.  Sounds a lot like what MLM-Scheme "Huns" say when a victim bankrupts themselves. "They just didn't work their downline hard enough!" or some such nonsense.

Or the "Buy Ugly Houses" billboards - selling the idea that somehow you can find an endless supply of distressed homes that can be bought for half of their market value, easily fixed up, and flipped with no effort on your part.  Good luck finding people to work on your house, in this market!  Good luck finding an endless supply of cheap fixer-uppers as well!  Better off to sell the idea of house-flipping than to flip houses yourself.

You'll never go broke selling the idea of how to make money.  That's for sure!

If it was such a good idea, why would anyone tell others about it?