It was love at first sight when Douglas Darling spied what supposedly was a silk, handwoven Turkish rug at a recent going-out-of-business sale at a Chicago rug dealer.
“I knew that the rug was aesthetically pleasing to me and that I wanted it,” Darling relates. “I know more about rugs than the average person, but I don’t know a lot of technical details. Regardless, I knew that I wanted this one, it was so beautiful.”
It was instant infatuation, but it wasn’t blind love. Darling insisted that the salesperson include a brief description of the rug on his receipt. He paid $3,000 for the rug, which he was told was worth $9,000, and wanted the receipt to list key attributes such as “silk” and “handwoven.”
When the salesperson scoffed at this idea, Chicago resident Darling insisted, and then immediately took the rug to a long-established Evanston rug dealer for an appraisal.
Given the salesperson’s negative attitude about detailing such an expensive purchase on the receipt, Darling wasn’t too surprised when the Evanston dealer told him the rug was really worth only about $1,000.
Darling immediately stopped payment on the check he wrote to buy the rug, went back to the sale and stubbornly stood his ground until the sales manager agreed to reduce the price to $1,000.
It was a time-consuming, tough way to bag a “bargain.” Indeed, Darling gives this advice: “I would generally stay away from these going-out-of-business sales. They are not really giving deals. These are not true distress sales. They are marketing merchandise under a guise.”
Although there are legitimate going-out-of-business sales, there are enough fraudulent ones such as the one Darling encountered, that the state legislature has given the Illinois Attorney General’s Office the power to shut down illegal sales. That power went into effect on Jan. 1.
It’s a classic case of caveat emptor. With the recession, more and more businesses have legitimately shuttered, offering consumers a chance to save on remaining merchandise. At the same time, bargain-hungry customers are prey for shady operators looking to unload items under the guise that they are deeply discounted.
Explains Patricia Kelly, division chief of the consumer protection division of the Illinois Attorney General’s Office: “What often happens is that an existing business that may be in financial trouble is approached by liquidators who offer the owners cash to come in and sell merchandise through the store.”
The troubled retailer is happy to take the money and run, says Kelly, to pay off creditors and wash his hands of an ailing business.
The merchandise offered at the supposed going-out-of-business sale is touted as a bargain, when in fact it is a cheap imitation or simply not of the quality to justify the price, as in the case of Darling’s rug.
“Consumers think they are getting a wonderful deal, but in fact they are getting ripped off,” comments John Flotron, advertising review director of the Better Business Bureau of Eastern Missouri and Southern Illinois.
Fraudulent going-out-of-business sales, and their close cousin-bankruptcy sales-are concentrated in the Oriental rug, furniture, jewelry and fur businesses, Flotron says, probably because many consumers can be easily suckered buying these items because they are not expert enough to judge the quality of the merchandise offered.
However, Flotron says he is currently involved in trying to curb abuses of a going-out-of-business sale at a sporting goods chain. Moreover, experts say both small neighborhood stores and large chains can be outlets for unscrupulous liquidators.
“When Wieboldt’s Department Stores went out of business, there was clearly all sorts of merchandise for sale that was never sold before,” remembers Joan Safford, deputy U.S. attorney.
And Oscar Tatosian, a principal of Oscar Isberian Rugs, Evanston, who was one of a group of retailers who lobbied the state legislature for stricter going-out-of-business laws, says that when Colby’s furniture chain went out of business recently, loads of rugs and furniture items were brought in by liquidators.
“I believe that was the case,” Kelly confirms.
But now that the Attorney General’s Office has been granted authority to shut down bogus sales, consumers have some greater protection. Still, it’s up to consumers to protect themselves, because illegitimate operators may find ways to keep going.
Here’s what to check out
Here is a checklist of how to separate the bona fide from the bogus:
– Look for a license. All retailers going out of business should seek a license from the municipality where the store is located, Kelly says, and display that license prominently on the front door. Some municipalities, but not all, will also require businesses to post a list of their inventory to be sold during the sale.
– Beware of protracted sales. When a store seeks a license, the municipality will specify the length of time that the going-out-of-business sale can last.
In the City of Des Plaines, for instance, retailers pay $20 for a 30-day permit and must submit an inventory, says Robert Hinde, director of administrative services. “The sale can go another 30 days if the retailer pays an additional $100 and we approve it,” he relates.
Sometimes, however, retailers who are illegally selling “close out” goods switch gears from a going-out-of-business sale to a bankruptcy sale to keep their doors open longer, Kelly notes. The state’s Attorney General’s Office loses jurisdiction if a federal bankruptcy court is involved. Safford advises consumers to look for the name of a specific federal judge on advertisements touting bankruptcy sales. Fraudulent bankruptcy sales usually won’t include a judge’s name.
– Find familiar faces and goods. If you’ve frequented the store before, a red flag should immediately go up if there’s a whole new sales staff on hand, and you spot merchandise you’ve never seen before.
– Distrust undocumented merchandise. Darling discovered that salespeople who won’t agree to include even a basic description of an item on a sales receipt aren’t to be trusted. The lesson: labels and descriptive information should be included with expensive items. Ideally, you should be able to spot the item you are buying from a prominently posted inventory list.
– Suspect super savings. Unscrupulous operators mark up merchandise 500 percent or so for a fake regular price, says Kelly, and then purport to offer the item at a huge savings. Darling’s case of a rug offered for $3,000 that was said to be worth $9,000, is a good example of too steep of a markdown.
Consumers who suspect fraudulent going-out-of-business sales should contact the Illinois Attorney General’s Office at 312-814-3580.
If you’ve been duped by a bogus sale, you can also call the attorney general for a possible remedy. “Consumers can file a complaint with us and we will attempt to get money back if it is warranted,” Kelly says. “But we cannot bring a lawsuit against a business on behalf of a private individual.”
Flotron doesn’t think it’s easy to recover money lost at a fraudulent sale. “The web that is weaved by some of these operators is amazing. They go all around the country.”
