From Digital Rags To Riches And Back To Rags Again
Allow me to introduce you to Louis, Louis well that is not his real name because he does not want other people to know his true identity but his story is quite true that much I can vouch for was like you and me.
Louis worked as a security guard at a local Wal-Mart and heard about people making money on the Internet, this was just after the dotcom bubble where companies like Amazon were gaining popularity. When Louis was at work he was reading stories about how companies like Amazon were also bringing in millions and that is when Louis came across blogs that talked about selling on Amazon.
What Makes Amazon Appealing
Louis did not know how to build a website or write engaging content but he was a student of fine art and wanted to continue his education but had to work as a security guard to make ends meet.
What attracted Louis to Amazon was all he had to do was find products to sell over the website and Amazon took care of the rest, finding customers and collecting payment so Louis decided to source for art from China since that was a niche which was undeserved on Amazon so it created a great opportunity to make a profit.
Since Louis could not afford to fly to China on a regular basis he used Alibaba as a way to find organizations that were selling fine art and crafts. Since this was his first time dealing with an overseas supplier Louis wanted to make sure he was getting good quality products so he ordered a few samples from the Alibaba to make sure everything was legitimate. Once Louis verified the quality of the products he began to sell on Amazon.
What Made Louis Amazon Business Distinct
While most Amazon sellers would actually have the physical item on hand and ship it from their location Louis did not have the cash on hand to build a big inventory and needed something that could “scale rapidly” so what he would do is list items that were for sale by his Alibaba supplier, add on an additional fee for his profit and a week or two extra for the company from China to ship it to the customer. This process of “drop shipping” allowed Louis to make a considerable amount of money to such a degree that he quit school and his security job so he could grow his Amazon business full time.
Trouble In Paradise
Over the course of 7 years Louis took his Amazon business to a 6 figure income but something happened, his supplier in China closed up so he had to source for a different supplier. Louis purchased samples from the supplier to make sure that everything was high quality before he started listing these items on Amazon under his own name. What Louis failed to realize was these Chinese suppliers changed their business practices and what they would do is always send out top quality items at the start to try and lure in new customers but once an order was made they would send out inferior products.
This “churn and burn” business practice was one of the primary reasons that consumers did not want to buy from Chinese suppliers on Amazon. Louis sold a few thousand dollars of items to hundreds of Amazon customers and these individuals started leaving negative feedback on Amazon which hurt Louis chances to get new customers. While the negative reviews were bad these consumers also filed charge backs with Amazon Payments, which handles all payments on Amazon.
With all of these chargebacks coming in Amazon Payments placed a 180 days hold so Louis could not get access to his cash while Amazon waited for all of the claims to be settled. Once the everything was concluded Louis was prevented from using Amazon which effectively destroyed his once profitable online business. While there are many other auction websites there were none that had the reach or potential of Amazon that combined with Louis inability to find a supplier of good quality art and craft items.
If Louis exercised some due diligence he could have protected himself from these hassles. While Louis is suffering from catastrophic economic loss we can draw some very helpful lessons from his experience.
The first thing is to always screen your suppliers, if you are not careful you could suffer financial ruin so always be proactive and make sure you are delivering a top quality product to your client otherwise you could share the same fate as Louis.