Amazon flipping loophole

Amazon flipping loophole DEFAULT

This 30-year-old's company makes millions buying from Walmart and selling on Amazon

It seems too easy to be true that you could make millions by raiding the clearance aisle at your local Walmart or Target and then selling your haul on Amazon. But that's exactly what 30-year-old Ryan Grant is doing.

Less than six years after quitting his accounting job in Minneapolis to flip purchases full-time, his business now employs 10 people and is making well into the six figures in profits per year on revenue that he says nearly reached $6 million in 2018.

That money comes from buying everything from toys to household appliances on sale from retailers like Walmart or Target and flipping them online — mostly on Amazon, where Grant says "the bulk" of his company's sales come from, though his business also makes money selling items on eBay and, among other sites.

"Pretty early on I realized I wasn't in the career path that I wanted to be on," Grant tells CNBC Make It about his former accounting job. "That experience really had me looking for other options and I was starting to explore ways that I could basically leave that job and have my own schedule and be on my own time."

To do that, Grant turned to the side hustle he had used to make ends meet in college.

As a student at Winona State University — Grant graduated in 2011 — he organized textbook buyback events on campus twice a year. He listed the books on Amazon and shipped them out to customers around the country for a profit of up to $10,000 a year.

The process worked simply enough: Using the Amazon Seller app he could see exactly how much he could expect to profit on each book and in what time frame. But the hours spent processing and packaging each order himself proved to be a bit much.

"Going through that process for one semester was enough to know that I didn't want to do it again," he says. "From there forward I did Fulfillment by Amazon the rest of the way."

Using Amazon's fulfillment services meant he could ship all the books in bulk using preferred UPS rates to an Amazon warehouse, where, for a fee, the online retailer handled processing and shipping out each individual order. It made his side hustle more manageable, time-wise.

And, when Grant grew more unfulfilled at his accounting job, it sparked the idea of going online to flip more than just textbooks.

Grant scans items using InventoryLab's Scoutify 2 app (left) which reveals detailed sales data for a given product on Amazon.

After work and on the weekends, he scoped out the clearance aisles at Walmart, scanned a few items using Amazon's app and bought up toys, games, and home improvement items he realized he could re-sell for a profit. A receipt from his early days shows a variety of purchases, everything from vacuums to Barbies, LEGO sets to stainless steel flatware.

"I was putting in about 10 hours per week and I was making in the ballpark of $1,000 per month," he recalls. Once he was able to make the same kind of money reselling on Amazon as he had made at his accounting job, in September 2013, he quit.

"I was confident that if I had full-time hours to dedicate to selling online that I would be able to more or less scale that up," Grant says. Just three months later, in December, he notched $9,000 in profit on over $25,000 in total sales.

"Making that amount of money in one month was a big boost in my confidence to be able to scale up further from there," says Grant, who tells CNBC Make It that his accounting job had been paying him a salary of nearly $51,000 a year before he quit.

Coming across a product worth flipping on Amazon meant buying out the store.

Boxes upon boxes destined for Amazon warehouses started stacking up in Grant's duplex so, in the spring of 2014, he rented out a 725-foot warehouse. He packed his Mazda 626 full of products on runs back and forth from other brand-name retailers like Target and Toys R Us.

"It was starting to basically take over my life because I'm coming home and there's product all over my house," he recalls. When the 30 hours of shopping and the 15 hours of preparing shipments each week became too much to handle alone, Grant hired his first employee, a friend who could help scour local stores.

Eventually it got easier to target the items that had the biggest opportunity for arbitrage. Seasonality, they realized, was a key factor. They could, for example, buy up discounted candy after Halloween and half-priced Christmas decorations around the New Year.

"Believe it or not, there's actually people buying those items out of season," Grant laughs. Still, even he was surprised at how quickly the business took off from there.

While Grant was pulling in "around three-to-five thousand dollars in sales per month" when he was first running the business by himself, after just four years he and his team of employees were seeing more than $200,000 in monthly sales. In July 2017, Grant had to move the business to a warehouse that's over five times as large as the first storage area he used for inventory in the business' early days.

And, those sales figures have only continued to grow, as Grant recently told CNBC Make It that he expects his business to reach roughly $8.5 million in annual revenue by the end of 2019 (sales are up almost 45% over last year). Over the past couple of years, Grant says, the fastest-growing aspect of his business has been the part focusing on wholesale arbitrage, which involves Grant buying products in bulk directly from brands or manufacturers before selling them online.

By partnering with brands and manufacturers to sell their items in bulk online, Grant has been able to grow his business faster — and, the bigger his business gets, the more brands are eager to work with Grant's company. "It was kind of like getting a snowball rolling," he says.

"We can leverage the existing account and the businesses that we work with to work with more and more businesses, both through referrals and ... just by name-dropping other brands."

After outgrowing his first warehouse, Grant's business expanded to a 3,800-square-foot office.

Profits are heavily reinvested back into the company, and Grant even went from taking a salary of around $150,000 per year for himself after a few years with the business to reducing that amount to a base salary of around $60,000 in recent years. Grant's total compensation also includes regular distributions of the company's profits, though. While he declined to reveal his total compensation, he tells CNBC Make It he personally takes home six figures each year.

Part of the reason for his reduced base salary is because Grant has become more reliant on his employees while seeking a more flexible working schedule for himself. But, he also wants to keep putting as much money as possible back into the business. "The lower my salary, the more I leave in the business and the faster the business grows," Grant says. "And, then the more money I can take out later."

Of course, the team also made mistakes made along the way. They lost $6,000 when a faulty nail filing product for dogs got Grant's Amazon seller account temporarily suspended, for example. They also had to pay the fees Amazon charges for products that failed to sell and sat idly in Amazon's warehouses.

All the same, Grant believes he has found an easy and effective formula for success. "I think anyone can do it if they're willing to put in the work," he says.

Grant now dedicates much of his time to getting that message out. Grant consults and teaches e-commerce classes through his website. His hope is that he might be able to help a few people who might not be happy at their jobs find the same independence he did.

"I was just looking to have freedom of schedule and replace the income that I had from that job and now it's turned into a lot more than that," he says. Had he not quit his accounting job in 2013, Grant admits his life would be very different today. For starters, he'd likely be making less money and he would have a lot less control over his own schedule.

"The biggest thing for me is I wouldn't have the freedom or flexibility," he tells CNBC Make It. "I obviously have work to do and there's things that I have to do to keep the business running, but I can do it on my terms and I don't have to check in with anybody to say I have to take time off, or anything like that."

While Grant realizes that not everyone is in a position to take a major risk like quitting their job to start a business, he does have some advice to anyone who might be thinking about following in his footsteps.

An easy and "low-risk" way of getting some experience in the world of online retail arbitrage, Grant says, is to simply start with a few items you already own, but rarely use, and try to sell them online through Facebook Marketplace, Craigslist, eBay, or even Amazon. From there, you can take your profits and reinvest them by buying items from "a garage sale, or thrift store, or even a retail store on clearance" before selling those items online, as well. Repeating that same formula over and over again for several years, while reinvesting profits in the business, is essentially how Grant grew his multimillion-dollar business.

His biggest piece of advice, though, is simply "to get started as soon as possible."

"A lot of people will put it off for a long time, or they'll say they want to start a business and then there's always a reason why today's not the right day," Grant says. "But, if you take the first step of selling something that you're not using, it just increases the odds that you'll get the momentum rolling and it can turn into a lot of positive things."

This story has been updated. 

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How to Lose Tens of Thousands of Dollars on Amazon

Hands grabbing for $100 bills pierced by the Amazon arrow


A growing number of self-proclaimed experts promise they can teach anyone how to make a passive income selling cheap Chinese goods in the internet's largest store. Not everyone’s getting rich quick.

By Alana Semuels

It was only after they’d sunk $40,000 and nine months of precious nights and weekends that Jordan McDowell and William Bjork realized how hard it is to make a passive income selling things on Amazon.

The couple had hoped to strike it rich—or at least quit their day jobs—buying goods from China and reselling them on the e-commerce site. Instead, they lost their savings. For that, they blame Matt Behdjou and Mike Gazzola.

In late 2016, McDowell and Bjork stumbled across a podcast hosted by Behdjou and Gazzola, normal guys who claimed they were making thousands of dollars working less than two hours a day on Amazon. The pair promised that anyone could do the same—all they needed to do was pay $3,999 for three months of coaching that would teach them everything they needed to know about the business. They’d learn how to source and ship a product from China, how to list it for an attractive markup on Amazon’s third-party marketplace, how to advertise it to consumers, and how to get them to leave good reviews. Amazon would take care of the logistics of storing and shipping, for a fee, through its Fulfillment by Amazon program. Behdjou and Gazzola even provided class participants with a manufacturing contact in China, and organized paid tours of Chinese merchandise markets.

At the time, the couple was living in a tiny New York apartment, struggling to make rent. McDowell was working a job she hated. Behdjou and Gazzola were offering a way out, and they seemed credible. They even posted screenshots showing the money they had made from selling supplements on Amazon. Bjork emailed a few people who had taken the class, all of whom said they were happy with their experience.

So the couple put the class fee on their credit card, started attending Monday night webinars, and picked their first two products: a glass wine decanter and plastic wine aerator, both sourced from China. Following Behdjou and Gazzola’s advice to purchase the minimum mass order possible, they ordered 3,000 decanters and 1,500 aerators and had them shipped directly to Amazon warehouses across the country, from which the company would send them directly to consumers.

Six months later, they had sold only about 100 decanters and a few hundred aerators. Customs taxes and shipping costs were starting to add up. The aerators kept breaking, and so Bjork and McDowell had to pay for returns. Amazon charged a seller fee of $39.99 a month, a per-piece fulfillment cost of a few dollars a unit, and a storage fee of 70 cents per cubic foot that increased during the holiday season. Then there was the cost of advertising, which they needed to actually get their product noticed amid the thicket of other people also selling wine accessories, also bought cheap from China, also on Amazon.

Maybe worst of all, the couple told me they were left alone to deal with all these headaches: Though their payment guaranteed them three months of coaching, they couldn’t reach Behdjou after the first few days, they say. (Behdjou disputes that he and Gazzola disappeared, writing in an email that all students get a response within 24 hours Monday through Friday.)

Within six months, McDowell and Bjork had spent nearly $40,000, with almost nothing to show for it. So they auctioned off what inventory they could, paid Amazon to destroy the rest, and got out of the business. “It’s not a passive income; [it’s] a ton of work,” McDowell told me. “We lost all our savings—everything we had.”

View: A visual story on the Amazon gold rush

They’re frustrated with Amazon, which they say is making money off the failures of people like them. But they’re even angrier with Behdjou and Gazzola and their company, which was, at the time, called Amazon Secrets. “It’s a scam,” McDowell said. “They take your money and don’t deliver.”

Behdjou and Gazzola deny these allegations. They say that one of the first things they teach students is to make sure the product will be profitable, and that anyone who loses money simply isn’t following their advice. Losing $40,000, Gazzola told me, would be very difficult following their methods. In an email, Behdjou told me that nearly 1,000 students have paid to receive training from him, with only a “small handful of complaints.” People are quick to complain when they aren’t making money, yet are less forthcoming when they succeed, he said. Some, he said, generate more than $200,000 a month in revenue.

Behdjou and Gazzola declined to put me in touch with any of their clients, even happy ones. But I spoke with 34-year-old Travis Tolman, who sells a travel product—he didn’t want me to say what specifically, in case competitors tried to copy him. He makes roughly $4,000 a month, he said—enough to allow him, his wife, and four children to leave Houston after Hurricane Harvey and travel throughout Southeast Asia for four months, working just an hour or two a day.

But Behdjou and Gazzola have a growing list of unhappy clients. One, Molly Cox, lost around $40,000 selling meal-prep containers on Behdjou and Gazzola’s advice. Others told me they’re out $4,000, $4,600, $9,000. In a secret Facebook group, dozens of them have gathered to discuss attempts to get their money back and seek advice about how to unload hundreds of unsold jar openers, locking carabiners, and lemon squeezers.

They all thought they’d bet on the right horse: Amazon captures nearly half of all online retail spending in the United States, and more than half of its sales come from third-party sellers. It’s where America shops online.

But if selling things on Amazon is the new internet gold rush, the web abounds with people pledging to help followers find the treasure, for a hefty fee. They have names like Amazing Wealth System and Sellers Playbook, and their pitch is not dissimilar from the various iterations of “make millions working from home” schemes that have cluttered chumboxes since the dawn of the internet. Yet instead of touting shadowy multilevel-marketing schemes or obvious scams, they’re pitching something we can all understand: Amazon, opaque as it is lucrative, and the bottomless appetite of the American consumer, who can’t seem to stop buying wine aerators and meal-prep containers and insulated water bottles. It’s an irresistible sell to a nation that loves the side hustle.

In the first nine months of 2018, 48 consumers filed complaints with the Federal Trade Commission about “business opportunity schemes” regarding Amazon, according to data obtained in a Freedom of Information Act request filed by The Atlantic. That’s up from 18 in 2017, and 14 the year before that. Nearly half of those complainants say they lost more than $35,000. One of them, who described himself as a disabled veteran, lost $45,000 trying to sell a work-out kit on Amazon. Another said he had just lost his job, and used his retirement savings to pay for coaching.

In March, the FTC sued the three men behind Amazing Wealth System, alleging that it made unsubstantiated earnings claims. Vulnerable people—including retirees, students, and non-native English speakers—were lured in through free “Amazon workshops,” where they’d be pitched on a three-day, $1,995 seminar, according to a complaint filed by the Washington State attorney general. After that, the proprietors would offer more “education” packages that cost anywhere from $4,000 to $35,000, and would encourage people to apply for multiple credit cards or obtain third-party financing to pay for the workshops, according to the complaint. A settlement in June required the defendants to pay $10.8 million to the FTC. (In the settlement, the defendants neither admitted nor denied the underlying factual allegations.)

And in July, the agency charged Sellers Playbook, run by the former Apprentice contestant Jessie Conners Tieva and her husband, Matthew Tieva, with making false claims. According to the complaint, the Tievas charged customers up to $32,997 for Amazon coaching sessions, raking in more than $15 million through credit-card payments from April 2017 to May 2018. In November, a Minnesota district court required the defendants to surrender any assets related to the company, requesting $20.8 million in a judgment. (In the settlement, the defendants neither admitted nor denied the underlying factual allegations.)

Neither Matt Behdjou nor Mike Gazzola have been accused of any wrongdoing by the FTC. The agency prohibits deceiving customers about moneymaking potential, and requires that any earnings claims be supported by proof. But it leaves a crucial bit of wiggle room: If sellers say somewhere in tiny print that their method doesn’t work for everyone, they can still promote the stories of their successful clients without mentioning that hundreds of people have lost money. Behdjou and Gazzola both make those disclaimers in their promotional materials.

Amazon declined to provide comment about Behdjou or Gazzola. A spokesperson told me the company worked closely with the FTC to bring both of last year’s cases. Entrepreneurs and small businesses are important to Amazon, according to the spokesperson, “and we aggressively pursue those that attempt to harm their selling experience.”

In 2016 and 2017, Behdjou and Gazzola were a coaching powerhouse—in the summer of 2017, their podcast about earning a passive income on Amazon reached No. 3 on Apple’s charts. But in February, they parted ways, and now offer competing coaching services, and, respectively. They say they’re both doing well on their own. Gazzola told me his videos have been downloaded “millions” of times and that he’s helped “thousands” of people; Behdjou, meanwhile, told me that he has trained “thousands upon thousands” with his free and paid classes.

Because Behdjou and Gazzola no longer work together, I spoke with them individually. Gazzola told me that in the beginning, the two just wanted to share the mistakes they had made selling on Amazon, so other people didn’t make the same ones. People need coaches, he said, because Amazon changes its rules so often that it can be difficult for an individual to keep up. But he still maintained that students could make a lot of money following his advice, and when people don’t succeed, it’s usually because they quit too early. “There’s no such thing as get rich quick,” he told me. “But it would be hard for you to fail if you literally worked your butt off.”

Behdjou told me largely the same thing: that many of his clients have actually made a lot of money selling on Amazon. He recently put out a series of video “case studies” with happy students, some of whom say they’re making hundreds of thousands of dollars. “You can’t deny video proof,” he said. Those who have failed selling on Amazon, he maintains, usually haven’t followed the steps he outlined. Besides, people who fail aren’t bitter, he said—they understand that selling on Amazon is a financial risk, and it’s a risk they’re willing to take. What’s more, it’s a risk they can afford. “Looking at people in the red, it’s not like they’re losing their shirts,” he told me. “It’s a loss anyone can take. It’s not like they’re losing their home because of this.”

Indeed, none of Behdjou and Gazzola’s former clients—those who paid thousands to join what the pair call the “Inner Circle”—told me they lost their home. But several lost their savings, or went into deep credit-card debt, or took time off from high-paying jobs to pursue what they thought was a can’t-miss opportunity.

It may seem surprising that so many people—many with stable finances and professional careers—gave money to two strangers they’d met on the internet. But Behdjou and Gazzola’s disappointed former clients told me it took them a while to discover the many obstacles to making a passive income on Amazon.

One of them is Jeffrey Sanders, a 61-year-old white-collar aerospace-industry worker who lives in Seattle. He told me he believes that Behdjou and Gazzola’s pitch is deceptive by design. Customers pay for three months of webinars and coaching, but, he told me, it takes much longer for products to actually arrive in Amazon’s warehouses from China and start selling. The fees from Amazon don’t start accumulating until then, either. (Gazzola disputes this, saying many people could actually start selling in two to three weeks.) By the time people realize that selling on Amazon is harder than it looks, he said, the three months have passed, credit-card companies won’t refund the money, and Behdjou and Gazzola tell clients they need to pay more for more advice. “They advertise all this money you’ll be making, but by the time the bottom drops out, they say, ‘Too bad, it’s been more than three months,’” he said. “It’s really the perfect scam.”

Eight former clients told me that Behdjou and Gazzola failed to deliver even on their promise of basic coaching. When the clients asked for help, they’d either be told that their coaching had expired, or given an answer that didn’t help at all. “They can help you with rudimentary problems,” said Sanders, who lost $4,000 trying to sell wine-bottle openers.  “But as soon as it gets below surface depth, they have no answers.” He founded the secret Facebook group to share tips about solving problems Behdjou and Gazzola wouldn’t address, he said.

Brian Ash, who signed up for Amazon Secrets in October 2016 and tried to sell miniature camping tarps, told me that when he mentioned in a webinar that he was having trouble signing up to sell on Amazon, Behdjou’s solution was for him to email Jeff Bezos, the company’s CEO. He also told me that although Behdjou and Gazzola promised one-on-one coaching and small group sizes, they often took weeks to respond to questions. He and others were asked to write positive reviews of their coaching experience in exchange for a chance to win a financial prize that never materialized, he said. Ash said that it seemed that while the pair were good at marketing, they actually knew little about how Amazon worked. “I don’t want to sound like a sore loser, but it’s definitely deceptive,” he told me. “They hyped how easy it is and disguised the risks.”

Some of the advice Behdjou and Gazzola gave the group violated Amazon’s terms of service, Ash said. According to six former clients, Behdjou and Gazzola told them to use their Inner Circle Facebook page to encourage other members to buy their products and write five-star reviews, after which the sellers would compensate the buyer for the cost of the product through PayPal. Amazon has banned the practice of giving away products in exchange for reviews since 2016, but, according to the former students, Behdjou continued to tell them to use the method to boost reviews.

One former client sent me a dozen screenshots from Inner Circle members who had bought his product and asked to be compensated via Facebook in 2017, long after Amazon had changed its policies. (Gazzola told me that Behdjou handled the Facebook group, but Behdjou said that both were in charge of it. Behdjou said that he never advised students to compensate one another for products, or to solicit five-star reviews.) When Amazon figured out what the Inner Circle members were doing, it wiped the reviews from the site. Products without reviews rank lower in search results, so many clients saw a precipitous drop-off in sales as a result.

Molly Cox and her husband flew from Texas to China on a trip organized by Behdjou and Gazzola, only to find that the prices quoted by Behdjou and Gazzola’s Chinese suppliers were higher than ones they could find online, she said. Behdjou and Gazzola were often unavailable for questions, and when they were reachable, they gave bad advice, Cox told me. “They are selling free information, all of which you can find yourself online very easily,” she said. “But they package it up and market it as if it’s some secret that only they can tell you, which is very misleading.”

Behdjou told me, in an email, that he and Gazzola merely introduce clients to a sourcing agent, and that some students do find better pricing on their own. He again denied that he was unavailable for questions, and said that he never encouraged students to give away products in exchange for compensation. As for violating Amazon’s terms of service, he said, the rules change all the time, and he encourages students to understand them and keep up to date on changes.

Sanders said that Behdjou and Gazzola give students too little information about the challenges of selling on Amazon, though. They brag about how much money they’ve made, he said, yet seem unable to help most students follow a similar path, disappearing when complicated problems arise. Indeed, he said, they make struggling students feel like failure is their own fault—a way to mask their lack of knowledge about the intricacies of selling on Amazon. “They say, ‘Nobody else is having problems,’” he said. “‘It must be you.’”

In late July, Behdjou invited me to attend his Ecommerce Mentors LIVE Mastermind seminar, held over two days at a Marriott in Woodland Hills, California, amid the sunny sprawl of the San Fernando Valley. It was free to Inner Circle members, though attendees still had to pay for their own airfare and lodging. About 50 of them had, coming from places as far as New York; one couple had driven all night from Arizona. They included an ER doctor who wanted a passive income so she could get a vacation home in Cancun, a young couple celebrating their wedding anniversary, and a man who owned a brick-and-mortar medical-supplies store trying to migrate his sales online.

Behdjou, who is 31, opened the seminar by repeatedly emphasizing his success stories. He pointed to two young men in the back of the room who he said were making $100,000 a month selling sunglasses on Amazon, and encouraged people to seek advice from those in the room who were “killing it” with their business. Another man, who said he’d made $30,000 from selling a wrist exerciser on Amazon, implored his fellow guests to “trust the process—it’s amazing.”

But most of the attendees were not so effusive. When Behdjou asked everyone in the room to introduce themselves, many said they were struggling. “I have launched, but I really need to crank up sales,” said Alicia Nager, a 52-year-old from New Jersey. She launched a knife-sharpener business in October 2017 after deciding to stay home with her son, who has juvenile Huntington’s disease. Another man noted that he’d made money in Bitcoin but hadn’t been able to crack Amazon yet, despite trying to sell vitamins for eight months. A Maryland woman, Allyson Pippin, who sells slime, said she was about ready to scrap her product and start all over. Henry Serrano, the man with the brick-and-mortar store, had spent $4,600 on wholesale medical kits, and hadn’t made any money back at all.

The first day of the seminar was broken up into lectures by Behdjou and other experts. Much of the content was focused on how sellers could get onto what those in the Amazon business reverently call “page one”: the first page of search results, placement on which is widely considered to be crucial to moving products. Their names included “Finding the Hottest Products that YOU can run on Page 1 in 10 days or less,” and “Keyword Research & Optimization for Page 1 Ranking.”

Behdjou’s spiel was similar to the one he gives online. “If you just stick with this, you will get amazing results,” he said. “It’s not going to guarantee that you make money. But it’s going to be very difficult to lose money.” He reminded attendees to pay for a subscription to a site called Jungle Scout, which monitors which Amazon stores have good sales, so they could then pick a product in one of those stores that can be retailed for five to 10 times what it costs to produce it in China. He advised clients to find keywords that will rank their product top in search results, and to offer discounts and giveaways that generate a lot of web traffic.

Behdjou is no stranger to coaching businesses. In October 2015, he paid $25,000 to attend a seminar put on by Russell Brunson, an author, an entrepreneur, and a self-described marketing expert. There, he met a few people who were making thousands of dollars selling stuff on Amazon, so he decided to try it out. He and Gazzola, who previously coached people on how to make money investing in real estate, started selling supplements on Amazon. In their first 90 days, they had $60,000 in sales, Behdjou told me. They launched their coaching program in 2016.

Yet Behdjou himself isn’t a particularly convincing authority. He loses his train of thought easily. His lectures are punctuated by phrases like “I forgot how I got sidetracked,” and “Where was I? What was my damn point?” He spent much of one session teaching attendees how to pick the right keywords to sell a baby carrier, because “anything having to do with babies is pretty much going to sell well”—but then seemed to know little about why people would buy baby carriers or what search terms they’d use. When attendees asked simple questions like how many words they could have in their product description, he didn’t know.

And then there are the everyday issues that come with shipping and selling internationally: People at the seminar told me the products they’d ordered from China were defective, and customers started leaving bad reviews. Or they got hit with a copyright-infringement lawsuit and Amazon took down their listing, even if they’d diligently researched their product to make sure it did not violate any copyrights. Advertising on Amazon is necessary and expensive, storage fees are unavoidable, and new competitors pop up every day undercutting prices.

“It’s not as easy as it looks,” said Nager. Though Behdjou said at the seminar that people who followed his methods “will always get to page one” of search results, Nager said she had never made it anywhere close. Altogether, she’d spent around $4,000 on her product, shipping, and storage, and $5,000 on the class. She doesn’t blame Behdjou completely—Amazon’s algorithm changes all the time, the page-one system is nebulous, and what it takes to sell products is changing as more sellers go online. But, she told me, “there is a little bit of deceit to it. They’re making it out to be a little easier than it is. I don’t even know if they really know what they’re doing.” After attending the seminar in Woodland Hills, Nager decided to give up selling on Amazon. Her disabled son is requiring more and more care, she said, and it turns out that selling things on Amazon is actually closer to a full-time job.

Behdjou disputes all these accounts. He told me that Nager must not have read his disclaimers that say selling on Amazon is not a get-rich scheme. He said that he, like all entrepreneurs, is learning and growing, and never claimed to know everything. And when I expressed doubt that it was easy to make a passive income on Amazon without working very hard, he wrote me this: “That’s funny my new store is doing 100k per month on Amazon and I work on it maybe 3 hours per week because I have a team who handles it for me. So I can easily prove that it is very possible to make passive income with Amazon.”

Many of the seminar attendees I interviewed seemed determined to keep following Behdjou’s methods on Amazon, even if it cost them more money. When I asked Pippin why she thought her slime hadn’t sold, even though she’d followed Behdjou’s advice, she blamed herself. She’d picked the wrong item, she said, and because she works a 9-to-5 job as an IT consultant, she hasn’t been able to put in the hours at night to work on her site. Like many of the clients I spoke with, she had come to the seminar because her products weren’t selling, and emerged from it more determined than ever to make her business work. The world is moving online, Pippin told me, and she doesn’t want to miss out. “Amazon is going to take over the world,” she told me.

It may seem obvious to an outsider that most people aren’t going to become rich by selling things on Amazon. But that’s the thing about gold rushes: Some people do find gold, and it is sometimes hard to tell what distinguishes the people who make it from those who don’t. Travis Tolman, the travel-product seller, is about to launch his second product on Amazon, and said he thinks he’ll be able to make about $8,000 a month. When I asked him why he succeeded while so many others at the seminar failed, he said he wasn’t quite sure. “I think I just did a really good job of following directions,” he told me.

There’s something uniquely American about believing that with a little bit of hard work, anybody can make money fast. In the 19th century, advertisements promised people exclusive selling rights to a certain product, for a fee. They’d pay the money, and then find out that the product didn’t exist, or that dozens of other people were selling it. “In the U.S., the depth of commitment to social mobility and uplift seems to give some degree of distinctiveness to how fraud operates,” said Edward J. Balleisen, a professor at Duke University who has written a book on the history of fraud in America.

The success of the Amazon-coaching market says something about the current state of the economy. As the American middle class disappears, many people feel as if they’ve lost their financial footing and are seeking an easy shortcut back to stability. “The best indicator of whether someone will be amenable to being defrauded has to do with financial insecurity,” David Vladeck, the former director of the Federal Trade Commission’s Bureau of Consumer Protection, who is now a professor at Georgetown, told me.

Earning extra money is especially appealing to people who look around during economic booms, see all the people benefiting, and wonder how they can benefit, too. They hear the pitch and think they are that one gold digger who is going to strike it rich. “There is a really strong democratic ethos that suffuses the marketing—anyone can do this, you just have to have the guts,” Balleisen said.

It’s not low-income people who fall victim to online frauds, Vladeck said—they don’t have the thousands of dollars needed to pay scammers in the first place. It’s people who have a little bit of extra money, and want to invest it to get more breathing room. When, during the Great Recession, millions of families lost jobs or saw their income reduced, business-opportunity scams proliferated, he said. Many of the people I talked to at the seminar said they just wanted a little bit more money than they had—to build a bigger retirement fund, work less, buy a vacation home.

Investigating potential fraud is hard: Regulators have to find the bad actors, get proof of the claims they made, subpoena their records, talk to credit-card companies, see how many of their clients actually lost money, and engage in the thorny business of separating the criminally defrauded from the merely naive. The Federal Trade Commission is staffed “significantly” below where it was in the early 1980s, Vladeck said. And it can be difficult for investigators to even learn about get-rich-quick schemes because so many people are embarrassed that they’ve been so gullible.

“One of the constant themes is the silent sucker—the person who was taken in but doesn’t want anyone to know,” Balleisen told me. Today’s America is very pro-entrepreneur, anti–big government; many Americans don’t have sympathy for people who lose their money to these kinds of schemes, he said. We celebrate the self-made man who starts a successful business from scratch, but mock the people who get duped trying to do the same thing. No one wants to admit that they’re the only one who can’t make it work.

The Internet has made it easier for salesmen like Behdjou and Gazzola to find a potential audience, but it has also made it easier for those who believe they have been victimized to find one another. One D.C. woman who lost thousands trying to sell balance boards on Amazon with Behdjou and Gazzola’s help told me that she might still be trying to sell on Amazon had she not been invited to Jeffrey Sanders’s secret Facebook group. In the original Inner Circle Facebook group, everybody was positive, she said, and no one discussed the troubles they were going through. It wasn’t until she signed onto Sanders’s group that she realized that lots of other people were losing money, she said.

Behdjou seems determined to quiet malcontents. Though people who paid to take the class were guaranteed “lifetime” membership in the Amazon Secrets Inner Circle Facebook page, he kicked out anyone who joined Sanders’s separate Facebook group, McDowell, Ash, and Sanders told me. In emails to his original Facebook group, Behdjou warned members that they were allowed to post only “POSITIVE” comments, and that he had a “zero tolerance” rule for negativity. He demanded that Sanders shut down his separate Facebook group, saying another client asked for a refund after seeing that group. “We do not want any of our members in that group under any circumstances,” he wrote to Sanders. Behdjou told me, in an email, that coaches were available to answer questions about setbacks, and that he was trying to create a positive environment in the Facebook group. “If anyone was removed it was for good reason,” he wrote. He acknowledged that he had told Sanders to shut down the secret Facebook group, and said that group was in violation of the terms of the class.

In August 2017, Nick Sanders, Jeffrey Sanders’s youngest son, responded to a Quora thread asking if Amazon Secrets is a “get rich quick” scheme. In it, Sanders alleged that Gazzola and Behdjou had breached contracts with customers, censored criticism, and faked podcast reviews, and that when he traveled with them on a trip to China, they wrote him a $2,000 check that bounced. They sued him for libel. In the lawsuit, filed in Los Angeles County Superior Court in October, Behdjou and Gazzola alleged that Sanders’s Quora post has lost them $300,000 in revenue. Gazzola told me that Sanders is a “disgruntled employee” and said that his check bounced because Sanders had tried to cash an American check in China. In separate court filings, Sanders denied all of Behdjou’s and Gazzola’s allegations and requested that the court dismiss the libel suit. The case is currently stayed, pending Sanders’s appeal of the trial court’s rejection of his motion to dismiss.

Yet below Sanders’s Quora post, there are other skeptics of Behdjou and Gazzola, as well as many answers supportive of the pair. One supporter of Behdjou and Gazzola, “Huxley Finch,” is accompanied by a photo that appears to be of a Yemeni boy who talks in a BBC video about cutting off his leg to escape a burning building after a bombing; another, “Nail Brain,” uses a photo of a male model named Heath Hutchins; another, “Tomas Kulo,” is accompanied by a photo of Jeff Bezos. (Some of the accounts that support Behdjou and Gazzola are real—I corresponded over email with an actor named Anthony Preston, who told me that “their coaching is stellar and I’ve made good money on products.”)

While the Sanderses characterize Behdjou as confrontational, in person, he can be affable and relaxed, and admits that as Amazon changes, he’s trying to understand the changes, too. Watching some of his and Gazzola’s early videos, it’s easy to see why someone might sign up for the class: Dressed in button-down shirts in a dimly lit room, speaking earnestly into a webcam, they seem like two average guys who had cracked the code and wanted to share their knowledge. They would talk about how many people had tried to get into the course and how many weren’t able to join, and listeners might feel as if they’d stumbled across one of those rare and wonderful secrets of the internet.

“Time freedom is more valuable than anything,” Behdjou says in the introductory video for his solo project, telling people that if they work all the time and don’t see their spouse and kids, “that is not living.” He talks about how he’s now able to take care of his mother, pay her rent every month, and buy her a new car. “It’s up to you to decide whether you want to be typical or nontypical,” he says. He has figured out how to sell something online that people didn’t need, and he is making a good living doing it. For all the people out there who don’t believe in what he does, Behdjou is living proof: There are people out there willing to give away their money online. You just have to perfect the art of the sell.

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At the age of 31, Larry Lubarsky was $100K in the hole and unemployed. Luckily, instead of finding a dead-end job that barely paid the bills, Lubarsky taught himself about “wholesale arbitrage.”

Wholesale arbitrage involves buying massive quantities of products from wholesale and retail stores and flipping them online for a profit.

After finding early success, Lubarsky got aggressive with his new business. That was seven years ago.

So how’s Lubarsky doing now? He’s killing it.

In 2017, Lubarsky’s business pulled in roughly $18 million in revenue, including a net profit of $4 million, from selling products on Amazon. Lubarsky only launched the business in 2014, and he brought in more than $3 million in that first year.

While Lubarsky’s story is a real rags-to-riches tale, he did have a little help along the way. A friend made a $60K believed in his idea enough to invest that much from the jump.

The budding entrepreneur used that loot to invest in his venture.

Lubarsky spent about $10,000 of that amount on renting a small office space and on shipping supplies (to ship the products he’d sell on Amazon). He used the rest of the money of to buy his first batch of inventory, including almost 100 different wholesale products that he knew would sell well on Amazon and return a respectable profit.

Lubarsky shared some tips with CNBC in case anyone else wants to give wholesale arbitrage, or item flipping, a try and doesn’t have the initial $60K from a very trusting friend.

  1. Get the products wholesale – “What I basically do is buy directly from big national distributors, or brands direct,” Lubarsky told CNBC. “I open wholesale accounts with them, and I basically have access to their products and to their catalogs, and I go through all those tens of thousands of products that I can get my hands on.”
  2. Do your homework – “In order to decide what to buy, Lubarsky and his employees research extensively using Amazon’s Fulfillment by Amazon (FBA) site, which offers sales-tracking tools to third-party sellers that can tell Lubarsky how many units of a particular product are typically sold each day.”
  3. Remember ROI – Return on investment (ROI) is crucial to Lubarsky’s success. “He wants any product he’s buying to give him at least a 30 percent ROI so that if he buys something for $10 per unit, he’ll make about $3 on each sale. And Lubarsky requires a minimum of $3 profit per item, because otherwise, the margin is too small to be worth the effort.
  4. Put the profits back into the business – Don’t spend the money on a fat ride or new kicks. All profits should back into buying more inventory.

Finally, Lubarsky warns that a business like his isn’t a side hustle. It takes long hours and tons of work because after all, it is a business.

If this all sounds like too much, maybe the side hustle is a better idea.

[via CNBC]

Learn How To Flip Amazon Products

Amazon is having a “platform” problem, an issue shared by big tech peers like Facebook and Google’s YouTube.

The e-commerce giant, while branding itself “Earth’s most customer-centric company,” has been called out for product safety issues in its online marketplace. Numerous lawsuits have been filed, alleging products bought on are defective — for instance, causing a house to burn down or a person to go blind. A recent investigation by the Wall Street Journal found over 4,000 products sold on Amazon (AMZN) were deemed unsafe by federal agencies. U.S. senators have sent a letter questioning the company’s practices on product quality control.

As the commander-in-chief for its marketplace, Amazon is not catching up with bad actors and relies too much on algorithms to flag product issues, 10 third-party sellers from around the world and three former employees at the company told Yahoo Finance. They say that Amazon has a reactive system and fails to enforce its own rules, which some sources argue encourages third parties to risk selling non-compliant products. Some sellers revealed to Yahoo Finance how they exploit existing loopholes. Others expressed frustration as they feel Amazon is doing little to punish unfair competition practices, which allows unsafe products to proliferate on its platform.

Pricing race to the bottom

Amazon has been growing its online marketplace, which CEO Jeff Bezos says accounted for 58% of its total sales in 2018. By using Amazon services like Fulfillment by Amazon (FBA) to handle shipping and return, sellers don’t need to hold or see inventory before products have been delivered to customers' doorway.

A lot of sellers use FBA services to import products from foreign countries like China to Amazon warehouses in the U.S. Despite inspection at customs and Amazon warehouses, there is little check on safety issues. Amazon checks to see if a product is what it claims to be, but rarely tests if it actually works or if it complies with U.S. federal requirements, according to multiple sellers.

As the sheer amount of sellers and products flood into its platform, Amazon has adopted a reactive approach to regulating them. It’s easy for a seller to list a product on the site. Unless Amazon’s algorithm flags a product after the listing has been created or someone reports a listing for quality or brand infringement issues, a product can be sold on Amazon.

When asked for comment, Amazon directed Yahoo Finance to a blogpost published in August, in which the company claims it has “industry-leading safety and compliance program”.

“Every few minutes, our tools review the hundreds of millions of products, scan the more than five billion daily changes to product detail pages,” the post stated. “Our tools use natural language processing and machine learning, which means new information is fed into our tools daily so they can learn and constantly get better at proactively blocking suspicious products.”

Competitive prices and good reviews are critical for products on Amazon. In a pricing race to the bottom designed by Amazon and played by third-party sellers, sellers worry spending money testing products or buying insurance could eat into their margins. As a result, many sellers ignore such expenses to be able to provide the best offer.

Peter Koch, a Serbia-based seller who uses Fulfillment by Amazon to sell strollers on Amazon’s U.S. site, said he needs to pay an extra $300 for testing and certification for each shipment he imports from China, while some of his competitors skip the inspection to cut the cost.

Toys, for example, are required to come with certificates like Children's Product Certificate (CPC) to be sold to U.S. customers. On a Chinese seller forum, toy sellers are currently scrambling to figure out how to obtain such a certificate after they received a random check from Amazon related to products they had already been selling for a while. Rice Cheng, a founder of a Chinese seller community, attributes selling non-compliant products to ignorance of the foreign country’s safety requirements and negligent sellers who need to manage hundreds of products.

Amazon also requires sellers who generate more than $10,000 a month in sales to carry product liability insurance in the “terms of services.” But several sellers who spoke to Yahoo Finance say Amazon never checks it or asks for it.

“We used to have [insurance] in the past. And now, it's becoming to this point where a lot of times it's easier to shut down your company than actually get product liability insurance. So that's how most companies are acting on Amazon,” said Dave Bryant, a Vancouver-based longtime Amazon seller who also runs a company on advising other sellers.

Heather Oberdorf, an Amazon customer who bought a dog collar with a retractable leash from a third-party seller, says she became blinded in her left eye when the leash broke. Her lawyer, Dave Wilk, argues Amazon should be held responsible for her injury since the product did not have insurance. The U.S. Court of Appeals for the Third Circuit in Philadelphia has ruled Amazon could be held liable as a product “seller,” but Amazon has asked for the court to review the decision.

The listing you see is not what you buy

When customers browse a product page on Amazon, chances are there is a line on the right side of the page saying “also available from other sellers.” After clicking on the link, customers can see a list of sellers that provide the same product for different prices and different shipping options.

Amazon says it groups variations of the same product onto one detail page so customers have an easy and intuitive shopping experience. With such a feature, listing pages for any search results are not flooded with identical products, and it pushes sellers to compete with each other in a more direct format to make better offers.

Amazon merges the 75 listings of the alarm. But no one checks if they are all selling the same product. (Screenshot/Yahoo Finance)

Sellers can upload any products they claim to be the same without any due diligence on Amazon’s part. Some ill-intentioned sellers can take over the listing by selling a counterfeit or low-quality version of the product, masking it in different colors or sizes.

“This is one of the biggest loopholes on Amazon to exploit. There are so many ways to play with it,” said a Chinese seller who asks to be anonymous.

The practice, known as hijacked listings, has upset customers as well as legitimate sellers, because customers who place an order from the hijacker would receive a counterfeit or low-quality product. Instead of leaving a negative review on the hijacked listing, the user will leave the bad review for the seller with the original listing who is not responsible for the defective product.

In a statement, Amazon said bad actors that try to break its trust and abuse its systems make up a tiny fraction of activity on the site.

“We are making it increasingly difficult for bad actors to hide. We block bad actors before they reach our site and we work with sellers and law enforcement to hold them accountable by withholding funds and pursuing civil and criminal penalties,” an Amazon spokesperson told Yahoo Finance. “These bad actors show a flagrant disregard for our community, our policies, and in some cases, the law, and do not reflect the flourishing community of honest entrepreneurs that make up the vast majority of our sellers.”

Only Amazon can fix it

Several sellers expressed frustration over the listings hijack issues, because sellers don’t have the ability to edit or remove listings, which Amazon controls. Any issues with the listings need to be reported to Amazon to investigate. This reporting-based system creates loopholes that allow bad actors to manipulate sellers' listings without immediate consequences, some sellers argue.

On Amazon sellers’ forum, many complain about Amazon’s delayed response to complaints. It could take weeks for Amazon to investigate and respond and they may eventually take down the illicit listings, sellers say. But at that point, the potential sales are already lost.

“We work hard to support the millions of entrepreneurs worldwide that sell through our store, Amazon said in a a statement. “Our teams are based in our Seattle headquarters and around the globe in order to provide sellers with quick, 24/7 support via email, phone, and chat.”

The reviews sections for an adaptor sold on Amazon is about an iPad case in a different color. (Screenshot/Yahoo Finance)

“If Amazon does finally decide you are a hijacker and selling inauthentic items, they will withhold the funds from you. So Amazon wins in the end. The customer never notices,” said a seller whose listings have been attacked and asks to be anonymous for fear for retribution from Amazon.

Amazon told Yahoo Finance that it reacts quickly to take down counterfeit goods. “Amazon strictly prohibits counterfeit goods and more than 99.9% of pages viewed by our customers did not have an infringement concern. We take counterfeit seriously and pursue criminal and civil litigation against bad actors that attempt to evade our systems,” an Amazon spokesperson said.

What’s worse is bad actors can attack competitors by flooding Amazon’s investigation team with false infringement complaints. But Amazon doesn’t have a good system to tell whether the complaints are from sellers with a good track record or those simply using it to attack their competitors, according to Rachel Johnson Greer, a former Amazon employee who now runs Seattle-based Cascadia Seller Solutions.

Some sellers also use the loophole to fake reviews, one of the most important metrics for purchasing decisions. They could sell on top of an inactive listing with many reviews, so that a new product can take over the reviews, even though they are not relevant to the product. This doesn't help consumers make purchase decisions and impedes fair competition in the marketplace.

“The problem is not so much that black hats exist, they'll always exist. The problem is that Amazon isn't catching this behavior and doing something about it,” said Chris McCabe, a former Amazon employee who now works as a consultant for sellers.

The punishment for Chinese sellers is limited

Amazon’s innocent-until-proven-guilty approach helped the boom of its platform as third-party sellers have grown to take over half of the company’s sales. Stock keeping units (SKU) have expanded exponentially now that foreign sellers can sell to countries outside of its own.

Amazon opened the door to global selling opportunities for Chinese sellers in 2012. The move greatly benefitted Chinese sellers, who are close to the manufacturing hub and already home to many products. Among the top 10,000 Amazon sellers in the U.S. who sell at least $1 million or more annually, at least 40% of them are based in China, according to Marketplace Pulse.

On Oct. 26th, 2017, Amazon launches a "cross-border e-commerce park" in partnership with the government in Hangzhou, China. (Credit: Amazon)

If a seller’s account is involved with potential fraud actions, the account could face suspension. The move could be devastating and is supposed to discourage sellers from violating the rules, because Amazon explicitly prohibits sellers from registering multiple accounts. If a seller loses an account, it could effectively mean a seller is banned from the platform. When the seller tries to register with the same address, card information or IP address, it could raise a red flag for Amazon’s system and fail.

Amazon says its new seller account vetting “includes a number of verifications and uses proprietary machine learning technology that stops bad actors before they can register or list a single product in our store.”

But some e-commerce companies dedicated to selling products on Amazon see this as a reminder of the importance of having multiple Amazon accounts. They have come up with ways to establish multiple accounts that can’t be detected by Amazon, which involve using different VPNs and fake addresses.

An employee at a selling company in Henan, China told Yahoo Finance his team runs 38 seller accounts. In China’s sellers' groups, an active Amazon seller account for selling to the U.S. can be sold for around 6000 yuan ($840 USD).

Chinese sellers who don’t have established operations in the U.S. are more likely to take risks to violate Amazon’s rules, including selling unsafe products, according to experts. Lawyers say that since Chinese-based sellers don't need to submit themselves to the jurisdiction of U.S. courts, they are less likely to be sued by Amazon and customers.

“I look at the real crux of the matter, is that people who are headquartered in the U.S., or at least have significant assets in the U.S., tend to be a lot more careful about following rules,” said Greer. “I think it's the legal and liability risks, because when you have something to sue or you have assets to seize, then you run a risk of not complying.”

In Oberdorf’s case, the dog leash seller registered with a fake U.S. address. Amazon sent someone to Nevada to knock on the door of the address on file, but still wasn’t able to find the seller. It’s unclear if the seller is based in China.

“They’ve grown without any kind of effort to control the monster they're creating. And so now, it's out of control,” her lawyer, Wilk, said. “Amazon wants to say how can we be expected to keep track of all this stuff? Well, you're the one that's making $43 billion a year on third party sales. I think it's going to be on you, not on the people who buy bad product.”

The story has been updated with statement from Amazon.

Do you think Amazon should change its way of managing the marketplace? Write to Krystal Hu via [email protected] or follow her on Twitter.

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