Setting Up Shop Online

E-Commerce Merchant Beware

Galaxy Alley claimed to be "The Best Place to Buy Electronics in the Galaxy." Too bad this promising e-commerce start-up had to close its virtual doors prematurely.

"I have some bad news. Galaxy Alley is closing its doors." So said the e-mail from Brina Friedman, owner of Galaxy Alley, a site that in its heyday last fall sold electronic goods to online customers. Friedman's site caught my eye when I was researching an article about setting up shop online for PC World magazine. I was hoping to spotlight Galaxy Alley in the article to demonstrate to readers how an intriguing design could lure customers to a site and compel them to read on.

But even the best Web stores don't exist in vacuums. Problems from the real world can do more damage to an online store than the seemingly insurmountable snags that crop up in HTML codes. In Friedman's case, after placing her first two orders with her hired fulfillment house, she learned that the cupboard was bare--literally. The fulfillment house didn't actually stock any of her products.

"I've been duped big time," she grieved. "You'll have to take me out of your story." But journalistic loss was the least of my concerns. Friedman had invested three months of her time--as well as a sizable chunk of her money--in building the foundation for her virtual store. Now there was nothing more than a digital facade of a shop floating through cyberspace.

What Went Wrong

The problem, Friedman found, is that there is a huge shortage of distributors willing to fulfill orders for third-party merchants. And those that exist can't handle the unpredictably high volume of sales sometimes generated on the Internet.

"Once we started to promote the site aggressively," Friedman said, "we received three orders totaling over $3000 in less than a week." She called the distributor only to find that it had none of the goods in stock. Worse, it would take at least 21 days to ship the items once they'd arrived.

Friedman had to tell her newfound customers the bad news, and not surprisingly, they asked for refunds. "Not only did we lose the profit, we also had to pay the transaction fees for both the sales and the refunds," she said.

And things could have been worse.

Two of Galaxy Alley's large orders came from Eastern Europe. After talking with other e-merchants, Friedman suspected the orders were fraudulent. "We checked and found that one order was placed from Belarus, in Russia, with a credit card from the Netherlands. The other order came from Romania, using a credit card from the States," she said.

When the credit card authorization company agreed that her fears were justified, Friedman didn't fill the orders. "When I contacted the two faux customers, they didn't respond," she said. According to Yahoo's founder, Paul Graham, Internet fraud from Eastern block countries is on the rise. All of which goes to show that when you can't see your customers it's hard to know if they're "for real."

An Ounce of Online Prevention

I heard the same advice from most e-commerce merchants: It's imperative you don't concentrate on your Web site so much that you stop paying attention to real-world concerns of doing business. Here are some tips to keep your business running offline as well as on.

• Start with a business plan that outlines clear, attainable goals. For help read Business Plan: Road Map to Success at the Small Business Association's site.
  
  
• Make sure you understand all the charges when you place an order with a fulfillment house. Look for minimum order service charges, restocking fees, and special order assessments.
  
  
• Use reputable distributors. Before you enter into a business relationship with any company, ask for--and contact--at least three current customers. It's also worth the time and money to open an account with Dun & Bradstreet and see what it has to say about the company you want to do business with.
  
  
• Use a credit card when you order items for resale. You may have to pay an extra service charge, but your credit card company should protect you if something goes awry. To learn more, check out Don't Be Victimized by Online Credit Card Fraud on the ScamBusters site.
  
  

As we went to press, Friedman was thinking of filing a lawsuit against the fulfillment house. But while Galaxy Alley's doors were slamming shut, she was also optimistically opening Brina.com, a site at which she hopes to help others learn from her e-commerce mistakes. In short she wants to give other merchants advice on how to avoid being duped big time. This time, at least Friedman knows there's a limitless supply of material for her site.