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Going to Display Rack and Ruin Going to Display Rack and Ruin
Ever hear the phrase all that
glitters is not gold? It applies
to fraudulent display rack
business opportunities.
Fraudulent promoters across
the country are offering entre-
preneurs like you the chance
to make $100,000 or more a
year selling licensed products
from well-known companies.
Their pitches include some
great claims: No selling. You
wont have to quit your job.
You can work from home.
You can make your own
hours. Indeed, they say that
for an investment of as little
as $15,000, all you have to do
is restock profitable high-traf-
fic display rack locations like
malls, shopping centers, gift
shops, convenience stores,
supermarkets, and chain drug
stores.
Sounds like a dream oppor-
tunity, right? Wrong!
Entrepreneurs who invest
in business opportunities
like these rarely make the
big money theyre
promised.
Promoters often supply unde-
sirable merchandise for
example, outdated products
that may never have captured
the publics attention and
unprofitable locations. In fact,
would-be business owners
generally lose their entire
investment.
You may see newspaper ads
promoting display rack busi-
ness opportunities for the sale
of stuffed animals, action fig-
ures, and other licensed
products. Fraudulent promot-
ers claim theyre affiliated with
well-known consumer product
companies and that their
licensed products sell them-
selves in high-traffic loca-
tions. For an initial investment
of $15,000 or so, they prom-
ise youll hit display dirt:
retail sales of $20 to $40 a
day per display with annual
profits of $100,000.
The fact is that entrepreneurs
who invest often are supplied
with outdated toys and unpro-
fitable locations. Average
daily earnings are minuscule.
If youre thinking about invest-
ing in a display rack oppor-
tunity, the Federal Trade
Commission has a message
for you: Check out their
claims to avoid going to dis-
play rack and ruin.
Business Opportunity
Checklist Check out the promoter: Call the legal department
of the company whose
merchandise is being
promoted. Find out whether the pro-
moter is affiliated with the
company. Ask if the company has
ever threatened trademark
action against the promo-
ter. Question promises that
your entire investment will
go for display racks and
initial inventory. The pro-
moters sales commis-
sions on your purchase of
products may eat up as
much as 30 to 40 percent
of your investment. Ask the promoter if youll
be charged wholesale or retail prices for your initial
inventory. If you pay retail,
youll have to mark up the
price to make a profit. That
means you probably wont
move much inventory.
Even if the promoter
agrees to sell you inven-
tory at wholesale prices,
you may get out-of-date
merchandise that never
sold in the first place.
Either way, you lose. Check out locator com-
panies. These are third-
party firms, usually rec-
ommended by the pro-
moter, that you hire to
locate display rack sites.
They first may claim
theyve done market
surveys in your area. Ask
for copies. Typically, a firm
charges you $200 per site;
the locator gets half the
fee. Since high-traffic
stores could sell popular
consumer products on
their own, locators may be
able to secure low traffic
locations only. Get a list of previous
investors, as well as their
addresses and phone
numbers. The FTCs
Franchise Rule requires it,
and any legitimate busi-
ness should be happy to
provide it. If possible, visit
one or two investors and
their locations in person.
If you call, you may talk to
a singer or a shill a
person hired by the pro-
moter to give a favorable
report on the business. Get earnings claims in
writing as well as sub-
stantiation. Insist that the
promoter give you written
substantiation in the dis-
closure document required
by the Franchise Rule. Be
sure this includes the
number and percent of
others who have earned at
least as much as the pro-
moter claims. If the promo-
ter hesitates or refuses,
walk away. Dont believe
what they say about sales,
profits or income. Consult an attorney,
accountant, or other
trusted financial or busi-
ness advisor before you
sign any agreement or
make any upfront pay-
ments. Ask your attorney
to review the companys
contract and advise you
on how best to proceed. Call the Bureau of Con-
sumer Protection, and
the Better Business
Bureau where you live and
where the promoters
business is headquar-
tered. Ask if there are any
unresolved consumer
complaints on file. This is
a prudent and practical
way to proceed, but not
foolproof.
Dollars and Sense
Buying into any business
opportunity can be expensive.
If it turns out to be a scam, it
can cost more than money.
Before you make any financial
commitments: Decide how much money
you can afford to lose;
dont let anyone talk you
into investing more. If the
business is successful,
you can expand it later. Determine how much
income you need from the
business. Talk to other
investors to see if they are
making that much after
meeting their expenses. Insist on meeting experi-
enced investors in person,
and visit their locations. Find out where your
money is going. How
much for sales commis-
sions? How much for
equipment and supplies?
How much for initial inven-
tory? Figure out how much you
will have to sell and at
what price to recover
your investment. Be sure
that the prices you need to
charge are competitive in
your location.
For More Information
and Help
If you think youve been
defrauded by a display rack
business opportunity pro-
moter, contact the company and ask for a refund. Let the
company know that you plan
to contact law enforcement
officials about your experi-
ence. Keep a record of your
conversations and correspon-
dence. If you send documents
to the company, make sure
you send copies, not origi-
nals. Send correspondence
by certified mail, return receipt
requested, so you have a
record of what the company
received.
If you cant resolve the dis-
pute with the company, sev-
eral organizations may be
able to help you: The Department of Agri-
culture, Trade and Con-
sumer Protection,
Bureau of Consumer Pro-
tection at (800) 422-7128. The advertising manager
of the publication that ran
the business opportunity
ad. The Federal Trade
Commission. To file a
complaint with the FTC,
write: Consumer
Response Center, Federal
Trade Commission,
Washington, D.C. 20580.
While the FTC cannot
intervene in individual dis-
putes, the information you
provide may indicate a
pattern of possible law
violations requiring action
by the Commission. The National Fraud
Information Center
(NFIC) at 1-800-876-7060,
9 a.m. to 5 p.m. EST,
Monday through Friday.
NFIC, a project of the
National Consumers
League, is a nonprofit
organization that operates
a hotline to provide serv
ices and help for consum-
ers who may want to file
complaints. NFIC also
sends appropriate infor-
mation to the Federal
Trade Commission/
National Association of
Attorneys General Fraud
Database.
To file a complaint or for more
information on business
opportunities, contact the
Bureau of Consumer
Protection

at
:
(800) 422-7128
FAX: (608) 224-4939
TTY: (608) 224-5058
E-MAIL:
datcphotline@datcp.state.wi.us
WEBSITE:
http://datcp.state.wi.us/ /
(Taken from FTC fact sheet 8/97)
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