This article is reproduced here without permission under the Fair Use Doctrine. It was originally published at http://www.canada.com/national/nationalpost/financialpost/story.html?id=19e244b1-7dd0-45a2-b66d-7883f94e1db4.
David Menzies
Financial Post
Saturday, December 06, 2003
"You are losing more money than you think," the junk mail leaflet proclaimed, instantly garnering my attention. The promotional literature was from DirectBuy, which, it turns out, also operates across Canada and the U.S. as UCC Total Home, a.k.a., United Consumers Club.
But what's in a name? After all, the DirectBuy pitch was seductive.
Imagine shopping at a store that eliminates the middleman, enabling consumers to buy everything from furniture to jewellery to major appliances "at savings up to 50% and more off store prices."
To become a "purchasing insider," I had to attend an open house at the DirectBuy outlet in Markham, Ont. It was here I would view a video presentation and meet a company representative. The visit began by taking in a video co-hosted by none other than CNN news anchor Bob Losure, who gushed how DirectBuy "has saved thousands of people millions of dollars."
The details: As members, we would select products from "manufacturers catalogues" which contain secretive "confidential price lists." In other words, we'd be purchasing name brand goods at near-wholesale prices, avoiding the typical retail markups (which, according to DirectBuy, range from 24.6% to 42.6%.) Thus, an area rug available at DirectBuy allegedly sells for $125 less than the exact same floor covering at a retail store; a sofa, meanwhile, was some $709 cheaper (store price: $1,699, versus just $990 at DirectBuy.)
How, pray tell, does it pull off such feats? Easy, we were told: DirectBuy does not purchase any advertising ("except institutional advertising"). As well, because it has the buying power of some 500,000 members across North America, it has considerable purchasing clout with the manufacturers. Oh, yes -- one must pay an upfront fee to become a DirectBuy member. A hefty fee.
Unlike wholesale clubs such as Costco and Sam's Club, which charge an annual membership fee of about $50, it's $3,177 to become a DirectBuy member for the first two years. For the next eight years, members pay $195 annually (memberships last 10 years). Members can pay the dues in full, or apply for monthly financing (the interest charged is more than 20%.) Still, we were urged, the membership cost would pay for itself given the savings we would enjoy as "exclusive insiders."
But would it? And what about the hidden fees, buried in the fine print of the contract?
When I met Ivan, a DirectBuy sales rep, he was anxious to sign me up. In fact, DirectBuy uses the "buy-or-die" method of marketing: I had to join that evening or the offer was null and void. Ivan said the club was powerless to make any exceptions to this rule. He said this hard sell stipulation was at the behest of the manufacturers DirectBuy deals with.
More unpleasant surprises: When I asked Ivan to see the contract I'd be signing should I choose to join, he initially said he'd be happy to let me read through the documentation -- on the proviso that I agree to join the club. I explained to Ivan that agreeing to join prior to reading the contract would be akin to not reading the contract at all.
Ivan finally relented and I spent 20 minutes combing through the fine print. A good thing, too.
For example, the prices quoted in those catalogues we'd be shopping from are exclusive of brokerage fees, freight, duties and handling fees. As well, a "manufacturer's service charge" is sometimes applied. I asked Ivan what all those charges would add to the price of the goods for sale. He said he didn't have a precise percentage to pass along, but assured me the dollar amount would be "minimal."
I also noticed a clause stating membership isn't transferable -- odd, given that Ivan told me membership was indeed transferable.
Alas, it turned out that any assurances made by Ivan were actually worthless. Another fine print stipulation stated: "No oral promises or statements not contained in this agreement shall bind or obligate the club." In theory, Ivan could've promised me a Ferrari as a signing bonus and get off Scot-free upon reneging.
I resisted Ivan's hard sell pitch and declined to join. And after doing some cursory research after my visit, I'm glad I didn't.
DirectBuy/UCC has a checkered history and a legion of critics. For instance, in 1992, a pair of Buffalo, N.Y. consumers filed a lawsuit against UCC (Niemiec v. Kellmark Corp., doing business as United Consumers Club of Buffalo.) The pair wanted out of their membership after "suffering buyers' remorse."
Upon reviewing the UCC contract, Justice David Gerald Jay was far from impressed, particularly with a clause in the contract that stated: "Members are warned not to accept merchandise and sign for it until after they have carefully examined same to make sure the merchandise conforms to the order, and that the condition of the item is acceptable to them, since the club will not be responsible for merchandise once accepted by members, and merchandise may not be returned."
The judge noted: "One wonders how a member can inspect the contents of a parcel before its delivery. The court cannot imagine a commercially reasonable way that a delivery service would allow such pre-delivery inspection."
In ruling for the plaintiffs, the judge noted: "This club membership is nothing more than a cleverly disguised method of selling nothing but hopes and dreams."
What does DirectBuy' have to say to all this? Silence. When FP Money contacted the Markham office, franchise owner Steven Tratner was unavailable to be interviewed. The store's manager, Holly Painter, referred all queries to Fred Ball at the company's U.S. head office. Mr. Ball did not return repeated phone calls.
Bottom line: CNN's Mr. Losure -- who now does public relations for DirectBuy -- notes due to the company foresight, "we're in the midst of a revolution in how we buy."
Start the revolution without me.
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