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DirectBuy, enter with eyes WIDE open

By George Gombossy on May 11, 2008 9:34 PM

DirectBuy, with two franchises in Connecticut, promises to save you up to 50 percent on everything from golf balls to new kitchens. All you have to do is fork over almost $5,000 to join the buyer's club for a couple of years.

Since its incorporation in 1981 under the name of United Consumers Club Franchising Corp., the privately held, Indiana-based company has grown into a giant merchandise club with franchises throughout North America.

It now generates more than $500 million in annual revenue and claims to have hundreds of thousands of members.

DirectBuy proudly points to its high renewal rate as proof of customer satisfaction. "That 80 percent of our members voluntarily pay to renew their memberships every year also tells us that our members do indeed find that the DirectBuy system works for them and saves them thousands of dollars," said Mike Georgeff, DirectBuy communications coordinator.

But hundreds of others have written complaints on Internet consumer sites saying that they wished they had not become members and that they have been victimized by fast-talking salesmen, false promises and nonexistent customer service.

Many of those who complain say that by careful comparison-shopping a consumer can get a deal as good as DirectBuy can deliver without paying membership fees as high as $7,000, which is the cost in California.

Interestingly enough, relatively few members have complained to the Better Business Bureau, attorneys general or state consumer protection agencies. And in most cases DirectBuy, to its credit, settled the complaints to the members' satisfaction.

Its sales pitches in newspapers (including The Courant), on television and on the Internet (including those annoying pop-up ads) focus on the tens of thousands of dollars some people say they have saved through DirectBuy.

Unfortunately there is a lot the company doesn't tell, or chooses to minimize to, its prospective customers:

More disturbing to me is that DirectBuy attempts to hide the fact that not all savings it sees from manufacturers are passed on directly to members.

By reviewing the 260-plus page agreement with its franchise owners, I learned that DirectBuy reserves "the right to keep rebates, discounts and other payments from manufacturers and suppliers."

It also keeps early-pay discounts, and all DirectBuy purchases are paid by the member at the time of ordering.

The agreement also reveals that DirectBuy owns the finance company (Beta Finance) that provides the 17.5 percent loans to pay for the bulk of the membership fees. It also owns the shipping company UCC Distribution Inc., which transports some of the merchandise from the manufacturer to the franchise centers.

The company makes no bones about keeping its operations largely secret, even from members, claiming that is the only way it can convince manufacturers to provide it with products at the same price offered to retailers.

The only way a non-member can visit a DirectBuy outlet is to apply for a one-day pass. If you are married, they want your spouse to also be there for the 90-minute presentation when the veil is somewhat lifted during the tour.

You must buy your membership during the presentation or you can never return - again to prevent you from gaining further access to its "secret" manufacturers' price lists.

In the presentation you learn that about 700 manufacturers provide DirectBuy with their products and the savings vary depending on retail markups. For instance, the savings on furniture are the greatest because retailers normally mark them up 100 percent or more. The savings on electronic goods are less because stiff competition keeps prices low.

The Tour

After seeing countless DirectBuy advertisements, I decided to check it out. I called and was issued a one-day pass. DirectBuy was not told I was going to write a column about their business.

From the moment you enter a DirectBuy showroom, every aspect of the presentation is scripted.

I took the tour at the West Springfield showroom, where I was joined by a half-dozen other potential customers. Chris, our tour guy (salesman), tried to warm us up in the visiting lounge with happy talk and then took us to a couple of rooms where he showed us examples of what we would pay if we joined. Snakeskin shoes for only $40. Knife sets, which sell on television for up to $80, for less than $20. Bedroom furniture for at least 50 percent off.

There were also two DVD presentations telling us about the wonders of buying direct.

Chris also told us we did not have to ask questions because the presentations were designed to answer all our concerns. If we still had questions we could then ask them individually - as opposed to in a group where others could hear them - after the tour was completed.

Not being able to follow directions too well, I raised my hand at the halfway point to ask a question about whether there were any downsides to joining the club. Chris quickly answered "none" and told me bluntly not to ask any more questions because this was his tour not mine.

At the end of the tour we were given a chance to look at the super-secret DirectBuy manufacturer library of hundreds of books containing pricing sheets that showed what an item costs if you are a member and what you would pay retail.

We were warned that this was our only chance to purchase a membership. If we did not sign the contract during the visit we would be forever prevented from joining and we could never visit a showroom again. They were sorry about the policy but insisted it was a requirement by manufacturers.

We were then directed to sit individually at different tables where salesmen would answer our questions. My further attempts to raise group awareness by asking questions the rest of my tour group could benefit from were quickly stopped when I was directed to take a seat at my table.

There, Jeff Aliperti, who I found out later is an owner of the franchise, offered to show me any of the price books from 700 manufacturers. He was much more low-key than Chris and gave a more nuanced sales pitch.

He conceded that DirectBuy is not for everyone, but he insisted that if you were furnishing a home, remodeling or building an addition, you would be a fool not to join.

Three Connecticut consumers whom I later interviewed symbolize the diversity of opinion about DirectBuy.

BettyAnn O'Shaughnessy of Fairfield says she is one of those who have benefited greatly from having joined DirectBuy's Norwalk club 11 years ago.

She said she has saved thousands of dollars beyond her membership fees and was so happy with DirectBuy that she recently renewed her membership in Norwalk.

Jerry and Linda Bogosian of Plymouth had a different experience after joining the Rocky Hill club last year.

The couple asked to be let out of their $4,300 contract after they discovered that DirectBuy's prices for what they wanted were not any cheaper than what they could obtain elsewhere. Also they found that items that DirectBuy said it could order for them were discontinued.

DirectBuy refunded the couple their money after the couple filed a complaint with the state attorney general's office.

If you are considering joining DirectBuy, do your homework before going on the tour. Check the Internet for complaints against DirectBuy.

Make a list of a dozen major purchases you are considering making in the next year or two, and research local stores and the Internet to see what you would have to pay on your own.

Also, take that list to a Costco store, where prices are reasonable, nothing is hidden and return policies and warranties are generous. It will cost you $50 to enter the store and comparison-shop, but if you are not pleased you can get your $50 back without complaining to authorities.

After doing all of that, go ahead and take your list and prices to DirectBuy and see if it still makes sense to join.

It might be. I just wish the company was more candid with potential members. While 80 percent of its members may have renewed as the company claims, I wonder how many of the remaining 20 percent felt that they had been taken.

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