Japanese metropolitan police apprehended the previous president of a drop shipping business in Tokyo this week for not declaring the truth about the profitability of their drop shipping system — the first of its kind of case in Japan.
Yoshida Minoru, the former company president of Saito located in the Taito ward was arrested on fraud charges. Others were also under investigation. His company is suspected to have obtained no more than 410 million yen from over 400 people since June 2008.
Drop shipping is a scheme where products are sent directly to contractual individuals by wholesalers. Then, the individual retailer who has entered into a contract with the company that gives out the products will set the item prices and earn revenue on the markup.
Results of investigations show that Yoshida’s firms are telling its clients that their system will enable them to gain back the fees they have paid to join in just 2-3 months, but it was never proven to be true. The company has reportedly taken money from those who register in form of fees for setting up sites that retailers would then use to sell their products.
According to authorities, the firm was created in 2007 and got individual retailers by web ads and pamphlet marketing. The primary fees when using their service ranges from 850,000 up to 3 million yen. The company promised to give products such as food items, video game programs and TV sets that the individual retailers will sell with their own prices.
The company reportedly tells people that their revenue will come from what’s left from the wholesale prices minus the set retail prices. However, there are a number of cases where the products’ prices sold to clients are way above the market price and the firm does not offer marketing to aid in selling the products contrary to what they claim. Most users could not even sell one item.
Other organizations along with the consumer affairs agency have received more than 100 complaints connected to the firm, most of which deals with the firm not responding to clients that would like to terminate contracts. In May 2010, the Metropolitan Police Department searched several company-owned locations due to suspicions of fraud reports.
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