A recent post by Akusai reminded me that I wanted to write a post about Direct Buy (warning that stupid link talks). Unlike Russel's story about Amway, this is not a tale of a cult-like business, preying on the simple minded who seem to have trouble with simple arithmetic. However, its not that easy to find much detailed information about Direct Buy, so I thought I would post some stuff about how it works, and why it works for some people. Its not a pyramid scheme, and I want to say this up front: I fully believe some people may save a ton of money by using Direct Buy. I just think that most people won't.
My wife and I renovated our kitchen recently. It cost quite a bit of dough (in the 40 grand range - wow). It looks great, we love it, and from my engineers perspective its solid (Corian is a bit wimpy, but the new stuff is nice looking). And yes, it took twice as long and cost twice as much as we expected. It seems to be a law of nature.
We also recently bought another building that we are renovating. This time, while we still wanted to put in a nice kitchen and bath, we decided we wouldn't be going full guns. We would be cool with looking nice without necessarily being nice. Since we ultimately have 3 apartments to do, we thought we would look into Direct Buy (there is one very near us).
I asked two friends of mine who did join Direct Buy if they thought it was working for them. They both said that they feel like it does. You know, that word really sets off alarms in my head. It means they didn't check. They each gave me one example where they were sure they saved a bunch. But as I pried more and more, it was clear that they didn't know about the majority of their purchases because once you join, you might as well get everything through there and presume that each item is a good deal.
So the first thing we did was schedule a time for one of their introduction meetings. They sit down with you, give a very short schpiel and then put you in a room where they give you a longer schpiel with some movies. The host was very nice and friendly. All in all it is very much like one of those sessions where you go somewhere to win free airline tickets and all you have to do is listen to a timeshare pitch for an hour or two.
The movie/talk session discusses their basic plan: You pay a fee to join, then after three years you pay a yearly fee. You are free to leave to program at any time (err, without your fee reimbursed). Their claim is that they have a direct link to the manufacturers, so that you don't pay ANY mark up between the manufacturers price. They claim that Direct Buy only makes their money from the membership fees.
To be clear, this fee is 4500 dollars. It pays for your membership for 3 years after which you pay something like 180 dollars a year. So when they tell you this, they also break down the average savings. They have a bar graph that shows the average savings for different types of products (I tried but could not take a picture of it, so I'm recalling this from memory. For example, the average savings for furniture was something like 44% off of the MSRP. Appliances were like 25%. The average of all the averages was something around 30%. I have no reason to believe that these numbers were faked in any way. But you will see how it works in a second.
The play is that since you save 30% on your purchased goods, you will get your membership fee back as long as you spend over 15,000 dollars. Will you spend 15K over the next 10 year? Of course you will, and they have everything for your house you will need: Lawn chairs, floorings, windows, kitchen cabinets, bathroom stuff, tile, couches, chairs, tables, beds, and the list goes on. They have over 700 products that you can buy.
Then came the anecdotes. Being relatively used to skeptical thinking, all of these anecdotes, even if true, have no basis in reality. The 4 people interviewed could be the only 4 people who this works for, how the hell should I know? For each anecdote they presented you can find many more who feel oppositely. So I am not a big fan when presented with anecdotes to support a case.
OK, so showtime is over. They give us a little tour. You see that there are lots of shoppers there. You see that they really do have lots of product that you would use if you renovate or are building a house. But I had no real way to evaluate their claim. I didn't have prices for things that I would buy from somewhere else. Frankly, no one sells at MSRP. So what are the average savings when you take that into account?
Folks, here is how Direct Buy can make their claims. When someone is using averages to make quantifiable claims you have to remember that an average is a single number that represents many points. So when they say they save you an average of 44% on furniture, that means that they save you 80% on some furniture and 10% on others. So, are you happening to buy the stuff that you save a lot on, or the stuff that you don't? There is no way to know without actually deciding what you want, checking some prices and comparing those prices when you get in there.
But we didn't do that. So I was trying to wean out the system from him right there. I wanted to know if this was going to work for me or not. He caught on that I was an engineer, and stereotyped me. Brokers do the same thing, apparently engineers and teachers are the worst. They want all the detailed information. Well excuse us!
Anyway, I asked about how many people continued their membership after the first 3 years. I wanted to understand the basic level of happiness from this. He told me it was close to 85%. But in retrospect, to me its amazing how many people are making choices on what 'feels' good. I asked about appliances. He admitted that they actually don't do that well on appliances. Only around 10% savings.
Thanks to my handy little iPhone i was able to pull out some more questions to ask him. I told him to describe all the costs associated with making a purchase. Now a shipping cost reared its head. He couldn't tell me what the shipping cost was, because it depended on the item. Then I asked about KraftMaid cabinets. Well those are done through a distributor, so there is an extra 1-2% cost associated with those. There were a variety of other things that were done through partners/distributors.
Other tidbits: They claim that if you refuse the offer, then you can't go back to Direct Buy for 7 years. This is to protect their 'secret' pricing. Even though the only pricing you have heard by this time was the anecdotal stuff in the movie.
I told my wife to go and try to find something she liked. The dude helping us out was friendly and explained that shopping there was different than in normal stores. You had to look through manufacturers catalogs. To be honest, its a pain in the ass, however all the sales people are quite knowledgeable and helpful if you are trying to find some sort of look. but it didnt matter, there is no real way to get an idea of the look and feel of a piece of furniture from a 3" picture.
Apples to Apples
This is something you will hear often from a Direct Buy sales person. "When you do an apples to apples comparison, you will find Direct Buy to provide significant savings". Well folks, there is one problem with that statement and its a huge one. There is almost never, apples to apples. What are really identical matresses differ from store to store by markings, stitching, the name and the price. Or oppositely, some products have the exact same part numbers, but differ from store to store by their construction. For example, a lawnmower may be cheaper by 200 bucks at one store, but it has brass pins instead of stainless steel ones. It happens for computer products. So even if you comparison shop, and find that something is cheaper at Loews, then the Direct By people will say "well that's clearly an inferior product!"
The Rest of the Experience.
My wife lost her patience and just wanted to get out. To her, she was cool with the claim of 30% savings while I wanted to press on it some more. But nothing pains me more than to see her in distress. We paid 4500 bucks and left.
We talked about it and decided with 3 apartments to do, we'll be fine.
New York State has a law that says, that anyone has 3 days to get out of any membership deal. Friday, when we joined was our first day. Saturday was the second, and Sunday (when they were closed) was our third. Further, to really see if there was savings we had to meet with their kitchen counter people to get a quote. I had to meet with their window people to get a quote for windows. Clearly we were not going to be able to check pricing within 3 days.
So, my wife went to Loews (if you don't have Loews near you, its like Home Depot, a gigantic hardware store). She walked around while I checked prices at Direct Buy. We checked on stuff we needed, some lawn chairs, a specific refrigerator, bamboo flooring, and a few other stuff. The lawn chairs were far more expensive at direct buy, simply because they had some far out name brand stuff and didn't have any of the made in china crapola. For lawn chairs, we are good with crapola. The bamboo flooring which looked identical to the stuff Direct buy had, was 26 cents per square foot cheaper than at Direct Buy. The refrigerator was about 10% cheaper at direct buy. Things were not looking good.
I told 'Todd' that I was ready to cancel my membership right now. I told him flat out that since I have not had a chance to actually check their claims, and the little that I have been able to check did not bode well, that there was no reason for me to stay. He fed me the apples to apples line again. Then he came up with a new line. This one was about long term investments. If I give 5000 dollars to a broker, what are my expectations. I told him, that on average I expect to double my money every 7 years. He said, "Right, and with this investment, on average we give you a 30% return, not just a 10% one!". Well, I must admit, I knew something was wrong but I couldn't put it together immediately. I told him "Wait a second.. The stock market is a long term investment based on future prices of stock. The difference is that I want to check current pricing for what I want to buy that you have for sale right now." It occurred to me then that, if they are so comfortable in their claims, that they should have no problem with me going to Loews, getting pricing, and coming back to have them match it, apples to apples. I told him, "Either you give me two more weeks to be able to leave with a full refund while I check this, or I am leaving today". He gave me the two weeks. I got it in writing.
In those two weeks, I had a kitchen designed for the apartment that I would really put in there. I'm not doing this for fun and games. I actually need a kitchen, and if Direct Buy is a good deal, then I am all for it. I didn't choose bottom of the line stuff from Loews, and I didn't choose top of the line either. Their Shenandoah series is middle of the road. It looks pretty good, and consumer reports rated it about what I expected, middle of the road. We didn't choose any wacked out styles, just maple shaker style, pretty common. We chose a granite counter top that we liked. I also prices out a large window we need for a renovated barn we have in the Catskills.
For a kitchen at Loews, they help you design the kitchen, choose the counter top, schedule the installation and so forth. Everything is done in one spot. Direct buy has subcontractors, who give you a better deal on their work, and vendors. So if you want a kitchen, you buy the cabinets at DB, but then you have to call the granite people yourself and schedule a design appointment with them, then you have to call the installers yourself, and schedule all that work with them. Its far less convenient, but worse.....
They couldn't beat Loews price. As I mentioned before, there is no apples to apples. DB doesn't have Shenandoah cabinets. They have other brands that Loews doesn't have (Omega, diamond). Diamond is lower end than Shenandoah, both consumer reports says so, and so did the DB people, by their own admission. So I told them to price it out with their lowest end stuff. Diamond has maple shaker style, so no biggie to me. THey simply could not beat the price. I handed them the exact drawing and parts list that Loews made.
So I go over to the windows. I priced out a Pella window. Same thing, it was cheaper but only 10% and the installation was more expensive.
Leaving Direct Buy
So, I told Todd I was leaving. He sat me down in his office and he told me he was mad at me. He went on about how I didn't do an apples to apples comparison. I told him about the cheaper bamboo flooring at Loews. He went into the rant about how DB stuff was better and as an engineer I should know that there are differences, and that he was very disappointed in me. I said I just wanted bamboo flooring. I had no way to evaluate the binders they used, and know way to know if one was better. Loews guaranteed their stuff for the same amount of time as DB. I told him that I asked their cabinet people to price out their lowest grade stuff and they still couldn't beat Loews midrange stuff. The funny part was that they had the consumer reports ratings out there in the open. It showed that Omega was top of the line, Shenandoah was middle and Diamond was lower (mills pride being at the bottom). I said, "why is your low end stuff more expensive than Loews midrange stuff?". He then went into why things aren't really apples to apples. I responded with "I know!". They seem to try to use the Apples to Apples argument in both directions.
In the end he kept his word and let me out.
Clearly Direct Buy was not for us. It limited our choices if we wanted to save money on each purchase, and it made shopping harder. Worse, our choices of stuff never lead to a 30% discount from other places.at best it was 10% which would mean I would have to spend 45,000 dollars before my initial membership fee paid off. Forget about the extra shipping charges, or their 'qualified' vendors and partners that end up raising costs to you.
I have no doubt that someone could save a lot of money. But you have to think about the type of things you buy. do you generally buy high end, name brand stuff? Well Direct Buy might be good for you. I think most people don't and don't bother to check if they are getting a deal. I think with their system, most people are not getting a deal.
One bit of information I should have asked was if those average savings they like to blab about are averages for the products they have, or average savings of their customers. I strongly suspect its the former.
One quick hint. I will not do this, but both of my friends offered that I could use their membership to get the stuff I wanted. I told them not only would it be cheaper for me if I didn't do that, I don't have any desire to scam Direct Buy. But I know its being done, the way they are set up, means that anyone can 'lend' their member ship to anyone.
Lost in Averages
I wrote this post mostly to document how Direct buy works. But while writing it, I am realizing that many things are lost in averages. For example: what if Washington DC's gun ban actually did bring down violent crime by 10% on average. What if it brought it down by 50%? What gets lost in those averages is individual rights. I for one don't see how the constitution says anywhere about an individual right to own a gun, but apparently extreme right wing judges disagree with me (big surprise there).
Often individual rights are lost in averages. Its important to look for these when discussing the effectiveness of one program or another.
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