Co-Op’s, The GOOD, The BAD and The UGLY Truth!

Update 11/09/2012  There are many types of co-ops and I am in no way trying to make it seem that ALL co-ops are wrong or bad or dishonest or that ALL people who run co-ops are dishonest.  However I stand by MY opinion that un-authorized and secret co-ops are dishonest and risky.

If you are new to co-ops then you may find this post informative.  My hope was that it would give you something to consider. Authorized co-ops are a great way to save money on products, food, clothing, produce, cloth diapers and more.  Just make sure you know what you’re getting yourself into and who you’re working with before ordering.  Again, that’s MY opinion.

This post has been brewing for a while now, years to be exact, and while it may not be the popular opinion, it’s my opinion.  I hope it helps some of you gain a little better insight and understanding of co-op’s, which are legit, which are shady and how co-op’s affect and benefit or harm businesses small and large.

Let’s start with what is a co-op?
Co-op’s are group buy opportunities.  An organizer will collect orders for a group of people for a product or product line and those participating will receive a discount on retail prices.  Sometimes it’s 10-15%, sometimes it’s the wholesale cost of the products.  The organizer usually collects the funds, pays for the order, gets the order shipped to them and then sends each person their products.

Sounds great right?  Well saving money is a huge draw for most people to co-ops but what they don’t know is that there are good and bad co-ops and ethically, there are many that you should NOT be supporting or participating in.  So how can you tell which are good and which are bad?  I’ll go over the different types, in my opinion.

• The Authorized Co-Op:  *legit and okay* An “authorized” co-op is an approved group buy.  The organizer has a tax-id, just like a business owner would, sometimes they are business owners, and the company/brand publicly and knowingly sells at wholesale or reduced pricing to the co-op organizer.
• The Un-Authorized Co-Op:  *in my opinion, dishonest* A retailer, person who had once intended on becoming a retailer, or person pretending they want to become a retailer, of a certain brand/product line, organizes a group buy (behind closed doors) and then presents their order to the company/brand.  They receive wholesale pricing, as if they were an existing store or soon to be opening a store, and the brand/company does not know that they are running a co-op and selling the products at unauthorized prices.
• The Secret Co-Op:  *in my opinion, shady and dishonest* The same situation as the “un-authorized” co-op mentioned above but in this case the brand/company knows they are selling to a co-op.  The brand/company publicly claims to not allow co-ops but secretly they do, and in most cases they’d deny knowing they were selling to a co-op if confronted.

How do un-authorized and secret co-op’s hurt small businesses?
Small business owners typically have to buy into a brand/company with a minimum order amount, which ties up a lot of their funds, and then they are required to sell the products only at MSRP pricing.  This means they are very limited as to the sales they can have, often even a discount of 10% is against policy and selling at less than the MSRP can result in that business owner losing their account with that company.

So, you can see that if consumers are able to purchase the products at wholesale through a co-op then they are less likely to purchase at full retail price, and the business owner who just invested $5000 into that product line is likely going to have a hard time selling/moving the product.  This is not that big of a deal if the small business owner knows that co-ops are authorized by the brand, then they’re knowingly taking their chances with that line.  Companies who allow authorized co-ops often have much smaller retailer order requirements, if any,  and less stringent MSRP pricing policies so that their retailers can compete with the co-ops fair and square.

How can participating in an un-authorized co-op or secret co-op hurt you?
It’s my opinion that running an un-authorized co-op is dishonest.  Knowingly giving your money, in advance, to a person you likely only know from online, who is obviously willing to do dishonest things, is not that great of an idea.  I have seen co-op leaders collect funds, never follow through and drop-off the face of the earth with their groups money.  Often co-op orders can take weeks to come in and sort.  After 90 days you are no longer able to file a dispute with paypal which leaves you totally unprotected.

If you’re participating in a secret co-op then the organize is being a little more sneaky and a little less dishonest.  But in this case the company you’re buying from is dishonest.  It’s likely that if your “secret” co-op is outed publicly online, your group order will be canceled, the existence of your co-op denied, and who knows how long it could take for your funds to be refunded to the groups organizer and then refunded back to you.

I encourage you to examine the fairness in secret and un-authorized co-ops.  Imagine you had just opened up the small business you’d been dreaming of. You just invested a bunch of your money in a product line only to discover that a huge group of people were getting their order together through a co-op, and they are receiving those products at the same prices you paid, without them having to own a business or meet minimum orders like you.  You’d be PISSED.

I encourage you to report any secret or un-authorized co-ops to your nearest retailer or to the manufacturer in question.

Lastly, let me just say, companies who “authorize” co-ops are not BAD.  Often a new company will allow co-ops for a limited time to help get their products into the hands of consumers fast.  Perhaps they need to move inventory and make room for new stock.  The MAIN thing is that companies are up-front with their retailers when asked if they allow co-ops and that they’re not secretly trying to “have their cake and eat it too.”

What are your thoughts on co-ops?  Do you care if they are secret or un-authorized or is it just about being able to save money and ignoring the fact that it’s hurting legit business owners struggling to earn an income for their families?