Amazon Dropshipping Store Management: What to Look Out For
In an era where financial independence and flexible lifestyles are becoming increasingly desirable, a growing number of investors and entrepreneurs are seeking new sources of passive income. From rental properties and dividend investments to online businesses and affiliate marketing, we’ve helped our clients secure various passive income arrangements that allow them to generate revenue streams with minimal day-to-day involvement.
Over the past few years, e-commerce dropshipping has experienced a surge in popularity as a method of generating passive income. Dropshipping is a retail fulfillment model where an online entrepreneur sells products to customers without physically stocking or owning the inventory. In this arrangement, the retailer acts as a middleman between the customer and the supplier or manufacturer. When a customer places an order, the retailer forwards the order details and shipment information to the supplier, who then directly ships the product to the customer.
While legitimate dropshipping arrangements eliminate the need for retailers to invest in and manage inventory, which can significantly reduce upfront costs and risks associated with traditional retail models, the growing popularity of this fulfillment method has attracted scam artists to the industry. For this reason, it’s essential to take steps to protect yourself from potential scams and poorly-performing dropshippers before you enter into an agreement with a potential supplier.
Types of Dropshipping Scams
While dropshipping can be a legitimate and lucrative business model, it's essential to be aware of potential scams that may occur within the industry.
For instance, while Amazon allows legitimate dropshipping through third-party fulfillment companies, some deceptive dropshippers fill orders by purchasing items from other retailers, such as Walmart, Sam’s Club, or another Amazon merchant, once they are ordered. Sellers who are caught using this forbidden method of dropshipping can face consequences including suspension, account blocking, or having their funds held permanently, even if they were unaware that their dropshipping partner was fulfilling orders in this way.
Additionally, some unscrupulous suppliers may engage in fraudulent practices, such as selling counterfeit or low-quality products, falsely advertising inventory levels, or not fulfilling orders after receiving payment. Other scams may involve businesses that pose as dropshipping companies but are actually just middlemen who purchase and pass along products from suppliers at an inflated price.
One of our clients recently invested with one of these bad actors. The investor entered into a dropshipping agreement with a company that claimed to provide automated online stores that generate passive income. The company would take care of all operations, including product research, listings, order processing, store metrics, and customer service. Each time a customer made a purchase, the company would use the investor's personal credit card information to buy the product at wholesale cost and sell it for a profit. The investor also had to provide a sizable cash deposit.
Numerous problems appeared from the beginning. The investor's store was deactivated frequently for unknown reasons. The company then claimed to have made changes to the store that required another large cash investment. The final straw was when the company asked the investor to open a new online store using another person's identity, supposedly due to unspecified problems with the previous store that the company was supposed to be managing.
Fortunately, by being vigilant and conducting due diligence, you can minimize the risk of falling victim to these scams and build a successful and legitimate dropshipping business.
How To Protect Yourself Before You Execute a Dropshipping Agreement
To protect yourself from dropshipping scams, it's crucial to thoroughly research potential suppliers and platforms, read reviews from other retailers, and verify the legitimacy of any claims made by third-party dropshipping providers.
You should also comprehensively review and understand the terms of the contract before you sign. Additionally, it’s advisable to familiarize yourself with the regulations in your state that businesses are required to follow and confirm that the contract complies with the relevant legal obligations.
An experienced business attorney can help you vet your potential business partners and review any contracts for legal sufficiency and unfair terms to ensure that they are legitimate suppliers. Remember: If someone is offering deals that seem too good to be true or promoting dropshipping as a type of “get rich quick scheme,” there is a good chance they are trying to scam you.
The common legal issues involved in dropshipping scams often start with breach of contract. The contract is the jumping off point for legal claims against scammers. Generally, unscrupulous companies will fail to uphold their contractual responsibilities and provide flimsy excuses for their failures. They'll ignore any requests to cure a breach and try to shift the blame.
Many of these scams also violate federal and state business opportunity laws. These are regulations that require sellers of certain business opportunities to provide detailed disclosures to prospective buyers. Such laws typically mandate that sellers provide a written disclosure document outlining essential information about the opportunity, including earnings claims, cancellation policies, and background information on the seller.
Other legal claims involved may be civil theft or fraud. Civil theft can be associated with dropshipping scams when dishonest dropshippers intentionally misappropriate funds or fail to deliver paid-for merchandise, constituting a form of theft by deception. In such cases, customers who have paid for products may find that their payments have been taken without receiving the promised goods. Fraud claims can also be a component of scams when deceptive dropshipping businesses engage in unethical practices, such as misrepresenting product quality, origin, or availability.
Red Flags To Look For After You’ve Signed a Dropshipping Contract
Once you've executed a dropshipping agreement and initiated a business relationship with your supplier, it's crucial to remain cautious and be aware of red flags that could signal problems or indicate a less-than-reliable partner.
Some potential signs that you are working with a scammer include:
The supplier asks for more money before you’ve started to realize a profit
The supplier uses vague messaging about how “we’re in this together” and “we’re striving to build something together”
The supplier asks you to circumvent rules or regulations
The supplier will consistently make excuses or blame others instead of immediately curing the problem if/when the supplier fails to fulfill its part of the contract.
If you are starting to suspect that you’ve partnered with a disreputable dropshipper, don’t beat yourself up. These con artists are experienced manipulators, and this kind of situation can happen to anyone. Instead of blaming yourself, you should contact an experienced business attorney immediately. There are steps you can take to protect your business interests and your legal rights under your contract.
At Anthony Law, our business attorneys are experts in contract law, corporate structure, and fraud. We’ll assist you in the early stages of an agreement and help you complete due diligence. If you do put your trust in a business partner who turns out to be questionable, we’ll be there to help you through any ensuing litigation.
