The Mystery of the USD 70 Hoodie that is all over Facebook

By guest author By Khadeeja Safdar from Wall Street Journal

Online sellers are using Facebook ads to flip products purchased from marketplace sites; it is retail arbitrage.

Liz Carlson forked over USD 70 for a “heavyweight cotton” hoodie after seeing an enticing ad on Facebook that claimed it had “the softest interior we’ve ever created.”

“I love hoodies, so when I saw that ad, it spoke right to my heart,” said Ms. Carlson, a 32-year-old in Oakland, Calif.

The ad was from an e-commerce site called Affinity Find, which has more than 700000 Facebook followers—about the same as eyeglass seller Warby Parker. Affinity Find sells dozens of products on its website, which says a store is coming soon to downtown Seattle.

Ms. Carlson’s hoodie, however, arrived three weeks after she ordered it from an address in China. “It was reeking of a pungent chemical smell like gasoline,” she said. “The item was a rough combination of synthetic fibres with no tags and plastic zips.”

Affinity Find is run by Jonathan Smith, the owner of Clear Creek Marketing & Sales LLC in Poulsbo, Wash. Mr. Smith declined to comment and asked The Wall Street Journal not to publish his name, citing “copycat entrepreneurs.”

Online sellers are using Facebook ads to flip products purchased from marketplace sites; it is retail arbitrage.

Welcome to a little-known corner of the e-commerce world, where small entrepreneurs use social-media ads and hip virtual storefronts to entice people into buying products listed on online marketplaces such as Alibaba Group Holding Ltd.’s BABA AliExpress.

The process often involves online storefronts transferring customer details to an AliExpress seller, which ships the goods directly to the customer; the storefront bills the customer. Called drop-shipping, it is a twist on a fulfilment technique that major online retailers also use to send goods directly from their manufacturers to the customer.

The entrepreneur profits by charging a high mark-up, betting shoppers are unlikely to stumble upon the less-expensive goods on a marketplace site. AliExpress is the most popular such marketplace, but some entrepreneurs order from sellers on other marketplace sites like Amazon.

The hoodie that Ms. Carlson purchased on Affinity Find for USD 70, plus shipping and tax, is available on AliExpress for about USD 20 with free shipping to the U.S. Several other items for sale on Affinity Find match listings at lower prices on the Chinese marketplace.

Affinity Find has an F rating with the Better Business Bureau, whose website says it found advertising issues and received complaints about products, service and delivery.

The same hoodie was being pushed by other sites, including Sugar Picks, which says it sells “carefully selected unique products,” and Teelandia, which says it collaborates with local artists to design clothes. Both sites posted Facebook ads in January with the same language and images as Affinity Find’s ad.

A representative for Sugar Picks, which lists an address in Casper, Wyo., said in an email that the site has discontinued the practice of dropshipping, noting “the bulk of our expenses comes from advertisement cost which can be higher than the product cost itself.” Teelandia, which lists a Las Vegas address, did not respond to requests for comment.

 

Such sites often use Shopify Inc., commerce platform where sellers create their own e-commerce storefronts. In a blog post, Shopify provides detailed instructions on how to sell using AliExpress, calling it “retail arbitrage.” It said it doesn’t comment on individual sellers that use its platform.

Craig Miller, Shopify’s chief product officer, said the company wants more people to start businesses. “If the quickest way for someone to start being an entrepreneur and to try it out is to resell someone else’s products, I actually don’t think there’s anything wrong with that,” he said. “But again I want to make sure that whoever does sell online really stands behind their products.”

Facebook said it is taking steps to ensure people have good experiences when they buy items from ads on the platform. “We’re developing a new way for people to flag businesses that deliver products or services that are overwhelmingly unsatisfactory,” said Joe Osborne, a Facebook spokesman. “We think this can help hold businesses more accountable.”

A spokesman for Alibaba, which owns AliExpress, declined to comment.

Flipping products from AliExpress has become so common, that self-proclaimed experts are selling online courses teaching tactics, such as how to pick products that people are least likely to research online and how to hide the original price of the items.

From the balcony of a three-story mansion in San Diego, Kevin David tells YouTube viewers how he left an unfulfilling office job to make an e-commerce fortune. The 28-year-old, who sells a Shopify course for about USD 1000, says in the video that he generates hundreds of thousands of dollars a month in sales from Shopify. “Dropshipping is a beautiful business model,” he says.

In an interview, Mr. David said he makes money from Shopify-related businesses, including sales of his course, and is not sure how much he earns from drop-shipping. He chalked up complaints about drop-shipping to problems with specific storefronts.

“It’s like any other business,” he said. “Some people do it more professionally, and some people do it less professionally.”

Many online sellers run small operations out of their homes or offices; they curate items from AliExpress and other marketplaces, often using the same images, then generate enticing ads for Facebook and Instagram.

When a customer orders from a Shopify-hosted storefront, the seller transfers the shopper’s shipping details to AliExpress. Many sellers automate the transfer using an app called Oberlo, which Shopify acquired last year. The app can pull products from AliExpress into Shopify and send a default note to the suppliers asking them to refrain from putting an invoice in the package.

Casey Ark, a 27-year-old in Bradenton, Fla., runs multiple Shopify sites with more than three million total Facebook followers. He said drop-shipping is no longer lucrative since Facebook’s ad prices have risen and more people have launched copycat storefronts. “The ad saturation is nuts,” he said.

A video on drop-shipping can be had here

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