Why can a scam company raise $40 Million Series C + $76 Million Series B?

1065 points by wenxun 12 years ago | 461 comments

Just learned from Venturebeat & Techcrunch that JustFab closed $40 million in a Series C round of funding [1][2].

It kept me wonder why a company with very questionable (I will try to avoid using the word "fraudulent") business model was able to raise big money. Didn't the VCs have to do the due diligence?

I didn't have any direct experience with JustFab. The victim was my girlfriend. Back in January 2012, one of her friends emailed her a link to JustFab, then she bought a pair of shoes from www.justfab.com and never visit the website again. Then 8 months later, in September 2013 she finished her Master study in the US and returned to her home country. She was appalled to find out that her credit card has been charged a $39.95 fee for the last eight months. Yes, $39.95 for 8 months, without getting anything from JustFab.

I then did a bit research on the internet. It turned out my girlfriend wasn't the only victim. Apparently JustFab works like this: once you buy something from their website, you become their "VIP member" without your knowledge. Then you will have to log into their website between the 1st-5th of each month and click “Skip This Month”. If no action is taken (either skip this month, or cancel your account), they just charge you a $39.95 fee every month.

According to article published on BusinessInsider, JustFab "generate about $100 million this year" in sales, I wonder how much of this $100 million are from people like my girlfriend who simply didn't read their entire 2,500 words Terms of Service and were unaware that they were charged $39.95 a month for nothing.

[1] http://venturebeat.com/2013/09/26/justfab-sews-up-40m-to-become-global-fast-fashion-empire/

[2] http://techcrunch.com/2013/09/26/justfab-has-raised-another-40m-led-by-hong-kongs-shining-capital-to-take-its-fashion-subscription-commerce-model-to-asia/

ps. This is a re-post of my last year's post [3], hoping it will get upvoted to the frontpage of HN so that more people get to know the shady business JustFab does. Apparently VCs don't do due diligence any more, as long as scam companies like JustFab can bring them money.

[3] https://news.ycombinator.com/item?id=4592778

abalone 12 years ago |

Every single person who has been misled into signing up for a recurring charge should do this one thing:

Dispute the charge with their credit card company.

You'll get your money back and it will issue a bunch of chargebacks to JustFab, which will penalize them financially. If enough people complain their penalties will escalate and their credit card processing rates will go through the roof. This is how the credit card system weeds out crappy businesses like this.

Unfortunately the very people who this model is designed to exploit are the least likely to know about their consumer protections.

nugget 12 years ago | |

You can also file an action against them in your local small claims court. Depending on where you live, it takes about 30 minutes to fill out the form and costs around $25 in filing fees. Most likely the company will not respond to your complaint, and you will receive a judgment for all of the money you paid them. Assuming they don't go bankrupt, they will eventually pay you and satisfy the judgment. I did this against similar scams like Video Professor in the early Facebook era and it worked surprisingly well for 2 years worth of scam rebills to which I had been completely oblivious.

jtbigwoo 12 years ago | | |

>> Assuming they don't go bankrupt, they will eventually pay you and satisfy the judgment.

Let's be honest, though. It's 80% certain that they're going to go bankrupt. They're clearly not building a company to last. Your best hope would be to get your money back before bankrupcy proceedings start.

aqme28 12 years ago | | |

Why? A chargeback is basically an automation of that process, with the full backing of your credit card company.

ghshephard 12 years ago | |

Totally not the case that you get your money back, at least with WellsFargo Visa, they will investigate to determine whether your card was used by some other party.

Saying, "I didn't read the terms of the agreement" is not grounds for a chargeback.

What's worse is when you've signed up for a One year recurring payment and you have to jump through hoops to cancel such as a registered letter to cancel.

Wells fargo will refuse to cancel for you, saying it is between you and the vendor. Further to that, you can't even cancel your credit card, as Wells Fargo will transfer the recurring charge to a new card.

About the only way I could figure out how to get out of that type of recurring scam is to just cancel my bank account.

jseliger 12 years ago | | |

That's not been my experience with AmEx. Some scammy company began billing me for monthly charges, and I couldn't get anywhere through the telephone number listed on the bill. I called AmEx, disputed the charges, and got all the money back—but the company kept charging me every month anyway! AmEx said they'd put a block on the company, and since then I've been fine.

haimez 12 years ago | | |

That's why you should use a credit card and not a debit card for online purchases. If you dispute the charge, it's their money instead of yours that they're recovering.

bitJericho 12 years ago | | |

And that's why you shouldn't bank at Wells Fargo.

dataminded 12 years ago | | |

I can confirm that Bank of America is great about this on the debit side (though I have started using a credit card for online purchases). BoA gave me my money back instantly, stopped charges from the vendor and went off to investigate.

aestra 12 years ago | | |

How can WellsFargo transfer a recurring charge to a new credit card? That makes no sense. How can they associate old card with new card? That means if there was fraud going on WellsFargo would have no way of stopping it ever.

It also sounds like you are talking about a debit card, and not a credit card, and it sounds like you gave a scammer your bank account number, not debit card number. Those are just guesses.

arbuge 12 years ago | | |

Chase is also being a hard ass about charge backs these days...

halviti 12 years ago | |

Except for there is a time window for these sorts of things.

His girlfriend isn't going to be able to dispute charges that are 8-months old.

downandout 12 years ago | | |

The window is usually 180 days, and some of the more lenient credit card companies will go back even further depending on the circumstances. She can easily get back 6 of the 8 monthly charges.

A simple way to avoid issues like this is to always generate a virtual card for each purchase, and then turn the virtual card off the moment the transaction is completed. You can do this through Netspend prepaid cards - you just open their site in another tab, generate a card with two clicks and turn it off with another two clicks. It costs nothing and the whole process adds about 1 minute to your purchase. I do this for every "free" trial I take on - if I like the service, then I will consciously make the decision to change the billing to a real card. No one gets to make that decision for me.

logn 12 years ago | | |

Then also file a complaint with the attorney general of a state in the US and the Better Business Bureau. Also write an honest Yelp review (make it fair and truthful but not slanted as you don't want to be sued over libel). All of those things matter a lot to businesses, in addition to their standing with credit card companies and banks.

abalone 12 years ago | | |

It may be possible.. I've gotten refunds going back that far. But definitely the more recent months will get refunded. And that's enough to put some financial hurt on JustFab, as there are additional penalties they pay with each chargeback.

maaaats 12 years ago | | |

Well, in my country the credit card company's police on time window isn't very relevant. If there is a scam involved, it becomes a legal matter and for that the time window is years.

PeterisP 12 years ago | | |

For most cases, 8 months are out of scope, but his girlfriend should be able to successfully dispute the last 3-6 month bills anyway.

In some places, like EU direct debit legislation, the maximum time window for such disputes is 12 months after you receive that invoice/bill, so ~13 months in effect.

darkarmani 12 years ago | | |

That is the time window for chargebacks, but not for small claims court.

chmars 12 years ago | |

Dispute the charge with their credit card company.

Who is their credit card company?

I have not had a credit card complaint for years but I would probably ask my credit card issuer for a refund, in particular because I have an agreement with my credit card issuer but not with the vendor's credit card company.

DanBC 12 years ago | | |

Yes, that's what the parent says.

When Bob has a problem with Ann's scummy business Bob should ask Bob's credit card company for a refund, which generates chargebacks for Ann's business.

cs702 12 years ago |

JustFab is not a 'scam company' (in the sense that they may not be doing anything technically illegal), but they are using DARK DESIGN PATTERNS[1] to trick at least some people into doing things they don't want to do.

The checkout page[2], in particular, seems designed specifically to trick people into signing up for recurring monthly charges. Any person who adds merchandise to the cart and then clicks the big 'Continue Checkout' button -- without stopping to read all the surrounding text -- will unintentionally sign up for the $39.95/month "VIP" plan.

My mom, who is trusting by nature, would never stop to read all that surrounding text, because she has been conditioned by years of online ordering to add items to a cart and then find and click the big checkout button. She would be tricked into signing up for recurring charges.

[1] See http://darkpatterns.org/

[2] http://imagesup.net/?di=15138026329215 -- this was posted by one of the company's investors elsewhere on this thread. It's a canonical example of a dark design pattern.

tonywebster 12 years ago |

This sort of thing is infuriating. Nowhere on this page does it say "we will charge you every month." http://i.imgur.com/ctMDiCJ.png

I just went through the whole checkout process to see how bad it really is. There were upsell interstitials at least four times, they did the 20-minute countdown clock thing to add a little pressure, and the checkout page looked like I was getting boots for $19.95. If you look on the right side in pretty small grey text it says that you're activating your VIP membership. You have to read down several paragraphs to figure out what they're trying to get away with, and nowhere does it actually say in clear terms "we will charge you every month." Entering in your shipping and payment information and it again completely fails to indicate there's a monthly fee — just a little checkbox "I accept the terms..."

All the state attorney generals should join together to sue them and get their victims' money back. At least we know they have the cash to pay the settlement now thanks to RHO, Matrix, and TCV.

cortfm 12 years ago |

Heh, yeah. There's a class action against them filed in 2011, though not being a part of it I haven't heard anything since.

I wonder sometimes if the corporate shield isn't too strong -- that is, if someone (say, Adam Goldenberg or Don Ressler, the co-CEOs (that always goes well) of Justfab)) is executive of a company which conducts deceptive practices, why shouldn't they be personally responsible? Where, exactly, do we draw the line? I would argue that once the Notional Reasonable People learn about the fraud, we have not only a responsibility but a duty to admit justice. More specifically -- if you know about this deception, but you do nothing, you are complicit. You are now responsible. It's not a matter of choosing to ignore it -- as a participant in the venture economy, you have an obligation. And it would be entirely legitimate to punish you for failing to live up to it.

Specifically, the executives and funders of the VC companies that invested in JustFab should be held personally accountable. The people who reveal the names and home addresses of the executives of those companies will be fulfilling their obligation and doing the world a service -- permitting these individuals to hide behind layer after layer of legal protection is tantamount to personally committing that fraud. Individuals must fear the punishment for them and their families that comes after the commission or effective endorsement of fraud; they must know that we, the technical community, will not protect their abandonment of ethics.

wenxun 12 years ago |

Some people asked why it took her 8 months to find out [3]: she was studying for her Master degree in the US, didn't have a SSN, was using a credit card issued by a bank in her home country, her father paid the bill for her at home and didn't notice anything unusual until she finished her study and came home to look at the credit card bills.

[3] https://news.ycombinator.com/item?id=4592778

phyalow 12 years ago | |

Total scam.

tiatia 12 years ago | | |

Yes, great Business. Great ROI if your are into it ;-)

kokey 12 years ago |

What worries me is that the what is probably one of the major credit check agencies in the UK and some other countries is also running business the same way. Experian offers a service where you can check your own credit score online for around £6, but actually also signs you up for a £13/month service after that which is also easy to miss in the small print. You also can't cancel this online, you have to phone them. The whole phone call covers two things, one is that it's another method to retain you by letting you update your personal information and then letting you check within a day or two if the updates brought you more information about your credit score. The other is that the personal information helps them have better information about you to give to their customers who use them for credit checks.

stuaxo 12 years ago | |

The law should be:

Where reasonable you should be able to cancel by the same method as you signed up.

E.G. if you can sign up on a website, you should be able to cancel on the same website.

aestra 12 years ago | |

This is why Federal law in the United States says consumers are eligible for a completely free credit reports from each of the 3 credit reporting companies. (http://en.wikipedia.org/wiki/Fair_and_Accurate_Credit_Transa...)

This report can be accessed though https://www.annualcreditreport.com which is jointly operated by the big 3.

This is the only site for a free credit report. Everything else is a scam.

EDIT: I see you actually meant credit score, that's a bit different.

Erwin 12 years ago |

In DK (possibly EU) we have laws that mandate the actual total minimum cost to be prominently shown when you buy something and companies are regularly fined by the marketing board for misleading information there.

So if you buy a $1 cell phone, but it requires you to sign up for a 12-month $50/plan and oh, there's also several $5/month fees in small print -- then that's the total minimum cost you pay must be shown

For loan type products, the effective yearly percentage cost for the loan must be shown. So if you look at one of those typical "quick loans" like https://folkia.dk/ where everybody can get a loan..., well you an see that borrowing 3000 DKK for 30 days is going to cost you a yearly effective interest of 987% if you asked a bank for it.

_delirium 12 years ago | |

While that helps in a lot of cases, I don't think it would here: the minimum cost is not any higher than the one pair of shoes, because there's no required contract period, and you can cancel immediately. The scammy part is that this isn't made particularly clear at all, and so people end up unwittingly paying for months of a subscription before they realize and cancel.

drakaal 12 years ago |

Most of you are too young to remember, "Buy now and we'll send you CD's each month for just $9.95 per month, keep only the ones you want, cancel anytime"

This is the same thing. It may feel scuzzy, but they do tell you this up front, and while they hope you forget, it isn't a scam, it is just preying on the uninformed.

bane 12 years ago |

Thanks for the post. My wife shops online a lot and has a new sites checkout process almost in muscle memory. After looking at the site and the screenshots here I can say that she would absolutely fall for this scam and we'd end up dealing with the hassle of cancelling things and reversing charges and all that.

Total and outright scam. I bet in a class action, the plaintiff could even make a decent RICO case out of it and triple the damages.

mrtron 12 years ago |

Clearly indicated on:

http://en.wikipedia.org/wiki/JustFab

Obviously the VCs did diligence - however they must have considered the shady business as an acceptable risk factor.

I think the answer to what you are asking is many businesses start in the grey zone. Recently many folks made huge bank with recurring billing with no notice. Ring tones and internet games both went that path. Justfab seems to be breaking into a new industry with that same business model.

You should consider that most people consider this nonsense the fault of the purchaser, 'buyer beware'. Gym memberships are a classic example of this.

wenxun 12 years ago | |

If you look at the edit history of JustFab wiki page, you'll see most of the stuff related to their shady business practice was added after last year's discussion [3]

[3] https://news.ycombinator.com/item?id=4592778

ceejayoz 12 years ago | |

I don't think it's common practice to look up an e-commerce site on Wikipedia before purchasing.

unclebucknasty 12 years ago |

The company's tactics have been thoroughly eviscerated here, as they should be. This is clearly misleading and I don't think I can add much there.

But, here's something else that I find funny: the membership fee is $39.95/month, which then entitles you to buy a pair of shoes for an additional $39.95/month. They state that this price is "up to 50% off". So, if you only buy one pair of shoes in a month, and the discount is anything less than 50% off, then you actually lose by being a VIP member.

And, even given the maximum discount of 50% off, you would have to buy at least two pairs of shoes each month to come out ahead vs. just breaking even.

I am sure that there are people who buy shoes at this rate, but I am willing to bet that many do not consider this in their calculus, and the company knows it. I would guess that many assume they are getting a deal, as long as they "use their memberships" and buy at least one pair of shoes each month. And, almost certainly, none of them think think they could actually lose as a VIP, so long as they make one purchase.

This is not as overtly deceptive as their site design, but it underscores that their primary business model relies upon their customers' lack of understanding in one way or another.

FiloSottile 12 years ago | |

Even if I agree that this is a scam and a dark pattern, with the subscription they give you a "credit" to buy a pair of shoes, so you get (at least) one pair each month for (at least) $39.95/month.

IF, you go there to choose them.

unclebucknasty 12 years ago | | |

Thanks for the clarification. I stand corrected. So, we're just back to the original scam, then.

stickydink 12 years ago |

Just checked out their UK fan page for Facebook, 20k likes.

Of the most recent 15 "posts by others", all in the past week, 5 of them are people that appear to be furious about being tricked into subscribing.

http://i.imgur.com/NDVZbHM.png

farrel 12 years ago |

Because VCs aren't interested in building a sustainable business, only something they can dump on a greater fool in 3 - 5 years for 10x return.

ryan-allen 12 years ago | |

The spin of the whole "disrupt everything" kind of cons the young and energetic in to do the hard yards before the flip.

You don't often hear about individuals making any kind of real difference in social areas of society that are hurting, yet if you build some kind of online service that provides some kind of marginal benefit you're cast as a hero as long as some cashed-up multinational buys you out?

I'm all for fun and profit, but I'll call a spade a spade, and all this flipping at the expensive of multibillionare corporations ain't really disrupting anything. Especially if the service is bought out and shut down, which appears to happen often.

It seems a nice safe bet is to iterate quickly on a niche that big-co is trying to break in to. They see you as a threat and their strategy is to buy you out and either a) integrate you, or b) shut you down completely.

Hooray for progress! Or is this the bad side of capitalism?

jdh 12 years ago |

I'm the Series A investor in this company.

We in fact have done plenty of due diligence, and you will be pleased to know it is not a scam company. In fact, the company has very high customer satisfaction ratings, including an NPS that is in the ballpark of Amazon, and a very high customer retention rate. More than half of the people who subscribe to the service are still subscribers after two years, which is unusually high for a subscription service.

I obviously cannot speak to your girlfriend's experience. With nearly a million subscribers, there are certainly people with bad experiences -- same is true with any service. Netflix is great but I am sure there are a number of people who have had a bad experience.

I would encourage the HackerNews community to consider the opposite: if we assume the investors in this business do perform due diligence, is there another possible explanation? Is it possible that this case is not representative of the average case?

But hey, we don't have to be he-said-she-said here, anyone can just go to the site and verify if this claim is true. In essence, the claim is: "The site tricked me. I went to buy a single pair of shoes, and in doing so, they actually started taxing my credit card every month, and no one warned me."

Folks are right to be skeptical -- a lot of businesses have done this, tried to hide the fact there would be future charges. Does JustFab?

I just went to the site -- you can do this -- picked a random pair of boots and put them in my shopping cart. I then clicked checkout, and here is what that page looked like:

http://imagesup.net/?di=15138026329215

"I wonder how much of this $100 million are from people like my girlfriend who simply didn't read their entire 2,500 words Terms of Service and were unaware that they were charged $39.95 a month for nothing" -- Seriously, please look at the link above to the checkout flow and tell me that's how you see it, that you have to read the 2,500 word TOS to figure out that this is the case.

Seems pretty clear to me. You can get the boots for $39 if you join the VIP program. "With this purchase, you will be activating your VIP membership"

Under "How VIP Membership Works", it explains: " If you do not take action between the 1st and the 5th of the month, you will be charged $39.95 for a member credit on the 6th. Each credit can be redeemed for 1 JustFab item, so use it to shop later!"

It's in plain English, and in the same font size as everything else on the page. Over 800,000 people can manage their subscription account every month without racking up credits. I'm sorry it didn't work for your girlfriend, and I recognize she is not the only one who has not grokked the subscription element and been surprised -- but it's a tiny minority, and the information is quite clear on the site.

Finally, one may ask: why subscription at all? Well, $39 for a high quality pair of boots is a really, really good deal. Most e-commerce merchants have to reacquire their customers for every transaction. By asking members to commit to come back to the site once a month, the company doesn't have to constantly pay google or other traffic sources to acquire members, and to have prices like this you have to keep costs low. That's the deal. There are plenty of higher priced places to buy shoes if you don't want to subscribe.

Double finally: credits never expire. If you have 8 credits in your account, you can go get 8 pairs of shoes.

Justfab is an awesome company and is creating and H&M or Zara experience online: fast fashion at great prices. I'm not sure HN is the target demographic, but it's a great service and customers love it, and VCs have poured money into because of that.

akrymski 12 years ago |

Just Wow, what a clever scam. Hardest thing must have been getting a merchant account for this - does anyone know who provides them with a merchant account / credit card processing? And how do they manage to tolerate the chargeback rate without being shut down by Visa etc?

Lots of these operations around, but usually remain small due to credit card companies shutting them down quickly. JustFab has been around for a couple of years. How did they manage to stay under the radar of credit card companies? And/or keep their chargebacks under the limit?

sudonim 12 years ago | |

My girlfriend's sister got bitten by the Justfab scam. Apparently when she called to cancel, they refunded her easily. That's probably how they manage chargebacks. If people are pissed enough to call, don't make it so hard they do a chargeback.

pbreit 12 years ago |

It's not quite that bad. The 39.95 ends up being a credit that can be applied to a future purpose. And they are pretty upfront about how it works without one needing to "read the entire 2,500 word" TOS.

I don't love the model but I don't think "scam" or "fraud" is accurate.

mschaecher 12 years ago | |

Here's the above the fold of their How it Works page as seen on an apple LCD.

http://d.pr/i/ltch

Is how it works clear or am I missing something?

Here is their FAQ

http://d.pr/i/beRt

It takes over 2800 characters and 507 words before a single mention of a membership charge with no mention of recurring until the following paragraph.

Is that clear?

smsm42 12 years ago | |

If the goods being sold (subscription) is not what the reasonable consumer thinks is being sold (one-time purchase), it is a scam, regardless of points and credits. Just like if you stay once in a hotel and they subscribe you to a timeshare without your knowledge, it'd be a scam regardless of the fact that you could use your timeshare for a week every January.

wenxun 12 years ago | |

Check out their previous checkout page:

https://news.ycombinator.com/item?id=4592827

shiven 12 years ago |

It is because of websites like these, I love my credit card's Virtual Account Number generator. It gives me a new CC number every time, with 'Dollar amount' and 'Valid until' limits. I always use a new number to sign up for all sorts of 'trials' etc. Never ran into problems with zombie billing.

That said, scammy company is very scammy!

mratzloff 12 years ago | |

Which credit card company is that, in which country?

aestra 12 years ago | | |

There was a discussion earlier in this thread about virtual card numbers.

https://news.ycombinator.com/item?id=6456044

Jagat 12 years ago | | |

India's HDFC bank has this facility. And you can even create instant virtual credit cards out of your bank account with a custom limit and expiry dates.

shiven 12 years ago | | |

In this instance, Citi Dividend World MasterCard in the US.

mehwoot 12 years ago |

Because it's not technically illegal what they are doing and they're doing it successfully. If there are people who think it's ethically ok to run a website that way, then there are probably people who will invest in it.

To me, it seems borderline.

alan_cx 12 years ago | |

When some thing is not technically illegal, but still fools consumers, it is a scam. Other wise, it would be illegal. The borderline, is exactly where scammers try to dance.

javert 12 years ago |

"The company's business model and credit card practices have been criticized as deceptive. In October 2011 a national class action lawsuit was filed against Just Fabulous, Inc."

- Wikipedia: http://en.wikipedia.org/wiki/JustFab

limejuice 12 years ago |

I've never heard of this site before, but looking at their page 'How it works', it seems clear it me it's a shoe-of-the-month club, and works similar to things like Disney Movie club, Harry and David Fruit of the month club, or one of various Book Clubs.

The only scummy part would be if they still charge $39.99/month if you don't cancel / skip / select a shoe, without sending you anything. Compare to Disney Movie of the month club where if you don't make a selection or skip that month, you get sent the "Featured" title for that month. Maybe justfab should send you the shoe of the month if you don't make a selection, or maybe they should send a "beauty gift basket".

Otherwise, it looks legit, if you like this sort of thing.

avalaunch 12 years ago | |

But why would anyone ever look at the "How it works" page? Even if a link to the page were prominently featured on the site (it's not - it's only in the footer), how often do you wonder how a shoe store works?

People go to JustFab to buy a pair of shoes, not to join a shoe of the month club. Check out their front page. It looks like a online shoe store. It doesn't mention the VIP program at all. That's tossed in during the checkout process and it's pretty easy to miss the fact that you're buying more than a pair of shoes.

wenxun 12 years ago | |

They have engineered their checkout page to be less deceptive. This is their previous page:

https://news.ycombinator.com/item?id=4592827

priley 12 years ago |

This website should definitely be part of the Dark Patterns UX Library. It's sad how people compose UX (and investors invest in) shady user experiences designed to trick people.

http://darkpatterns.org/

tuananh 12 years ago |

Ah, I still remembered your old post.

To me, trying to mislead people (on purpose) is equivalent to scamming. the purpose is the same, just a different method of doing thing.

seferphier 12 years ago |

Wow, they have a lot of negative reviews.

http://www.consumeraffairs.com/online/justfab.html

jdh 12 years ago | |

Oh for god's sakes, did you even look at the site you just linked to? A site that gathers negative reviews to get companies to pay them>

Did you read Amazon's review -- 1 out of 5 stars with 690 reviews, worse than JustFab's? http://www.consumeraffairs.com/online/amazon.html

I'm sure you'll enjoy 1SaleADay, with 5000 reviews and a 4 star rating! http://www.consumeraffairs.com/online/1saleaday.html

mmvvaa 12 years ago | | |

Are you really going to try to keep repeating yourself in an attempt to compare this shady business to amazon?

Amazon is in it for the very long run (they just turned a profit this year). Good luck trying to continue to dance this song to the tune of amazon. It won't last. It is likely a legal practice, and your background might blind you into believing that unintended actions by well-meaning consumers is a perfectly reasonable business model to profit from (at least it is more transparent in the beating industry). At least you know that you are in it against the house, in most cases.

Shame on you.

ddebernardy 12 years ago | | |

Hehe. To that site's credit, its business model is just as scummy as JustFab's.

ericd 12 years ago |

Huh, sounds like a rebill scam with the lent legitimacy of VC funding.

brazzy 12 years ago | |

> lent legitimacy of VC funding.

Does VC funding really lend legitimacy to anyone except other VCs?

ericd 12 years ago | | |

Sure, someone public who was given lots of money by big institutions voted for it with their money. There are a lot of fly by night operations doing this kind of thing, not many VC funded ones that I'm aware of.

pacofvf 12 years ago | |

I think that the real scam is the VC funding. C series!. really!?

rdl 12 years ago |

I'd expect Amex to charge back the full amount (including the cost of the shoes, actually). If it didn't, I'd be inclined to go for small claims court action against the company, as it's unlikely they'd send an employee to defend $39.95.

gozmike 12 years ago |

Frank and Oak (frankandoak.com) does something similar to JustFab. They just raised a large Series A.

I've been burned by this personally, but ultimately it's really a case of buyer beware so I can't really hold a grudge - even if the tactic is sleazy imo.

nutanc 12 years ago |

This is the reason in India the central bank does not allow companies to store credit card information. In such a case, the consumer has to authorize every transaction, so scammers cannot get away by taking the credit card details once.

twistedpair 12 years ago |

RoadRunnerSports has the same model. I got VIP on checkout (actually the agent on the phone gave it to me) four years ago for free shipping. It them autorenewed for $25/year the last three years, despite no interaction on my part with the company.

The reason it annoyed me is there was no billy email telling you you'd been renewed, no disclosure that this would happen, and even your billing and purchase history when you logged into the site had no mention at all of the charges. Clearly an effort to prevent you from noticing. Also a reason they've got a heap of BBB complaints. Quite sad that this remains a business model.

goshx 12 years ago |

Funny thing... this post just disappeared from the home page.

LispShmisp 12 years ago | |

At first I thought it would be on a second page, or third but it's not. Story has a lot of comments/upvotes, isn't it what makes story stay on the first page, high up top? How does it work? Was story moved manually?

goshx 12 years ago | | |

Very likely. Big money talking here, it seems. It was almost at the top when I first spotted it, I opened the link on a second tab and after going through the comments I went back to the previous tab to refresh and see how many upvotes it received since I started reading it. And... it was gone.

ttt_ 12 years ago |

Business such as this is what makes us have to raise our consumer shields up 100% of the time.

I'm so very fucking tired of this.

bane 12 years ago |

Lots of speculation about how hard this is for people to navigate, here's some examples of people bitten by this

http://www.elkgroveonline.com/forums/topic/105057/beware-onl...

and the text of the class action filed in 2011

http://www.scambook.com/blog/2011/10/justfab-com-justfabulou...

sgustard 12 years ago |

Their "how it works" page explains this, with far fewer than "2500 words", though it could be clearer.

http://www.justfab.com/how-justfab-works.htm

They have 2 million likes on Facebook. Were all these users scammed?

The "monthly subscription" has recently been a hot e-commerce category. Other sites with a similar model are shoedazzle.com, fabkids.com, musthave.popsugar.com and so on. See: http://www.quora.com/E-Commerce/What-are-the-most-interestin...

So a question is, what's the tradeoff between transparency & making it easy for the customer to cancel at any time, versus locking them in? Lots of businesses make money off of customer inertia where the easy path is to keep paying. Netflix, Tivo, your cable service, phone service, could all plausibly have much worse retention rates if they actively asked you each month if you want to continue paying. Additionally, my cable company certainly isn't going to tell me when my one-year promotional rate is expired and my rate suddenly doubles. Does that make cable service a scam?

Beyond that, you are labeling the business a "scam" because you assert they are hiding the recurring payments from their users. Maybe so, but it would help to have data, rather than "wondering" how many users were unaware of the payments. When they become aware, does the company refund their money? Do they a/b test their signup process to optimize signups versus the later cancellation rate? I would certainly expect they do, and that they have a pretty specific idea of what their dissatistfied customer rate is, what the acceptable (non-zero) rate is for them, and how to avoid skyrocketing it while increasing their signups.

It's not a pretty business on those terms, but it's real, and plays on human behavior, both positive -- people like to receive new stuff in the mail every month, it's an addictive cycle for many -- and negative -- people sign up for stuff online without reading the fine print, or bothering to check their credit card statements.

wenxun 12 years ago | |

A quick count from these three websites showed several hundreds customers have fallen victims:

http://www.sitejabber.com/reviews/www.justfab.com

http://www.scambook.com/company/view/146/JustFabcom

http://www.consumeraffairs.com/online/justfab.html

If you google "justfab review" or "justfab scam" or "justfab fraud", there are surely many more.

jdh 12 years ago | | |

You've posted this comment three times, and I won't reply on every thread, but let's be clear: these "review" sites are shady operations that extort retailers by aggregating negative reviews and charging to hide them.

Amazon's review is worse than JustFab's on the same site: http://www.consumeraffairs.com/online/amazon.html

You can Google a lot of e-commerce sites with the word "fraud" or "scam" and find a lot of negative stuff. This is the internet.

I don't dispute the fact that there are probably several hundred unhappy customers, as reported the site will do >$100M in revenue and everything costs $40 or less, with 2.5MM+ transactions, it's inevitable, but it's not indicative of a problem.

gergles 12 years ago | |

The salient difference between JustFab and any other "of the month" club is that you don't actually get anything every month. You get a JustFab fun buck that is only usable on their site and they go to great lengths to hide that you're suddenly buying those. In a "__ of the month" club, you get a physical thing dropped on your doorstep every month that reminds you of the recurring billing relationship.

In my opinion, JustFab deliberately deceptively does not give you anything to remind you of the price you are paying and therefore is a scam.

aestra 12 years ago | |

Are you kidding me?

When I sign up for TV service, Cable service, or Internet service I'm aware I'm signing up for a service. I wasn't made to believe that I was making a one time purchase, and being sucked into a service I didn't want or was aware I was signing up for. I presumably am aware I have cable and internet.

Nobody is criticizing them for not asking every month if they want to continue. They are criticizing them for tricking users into signing up for something they didn't want and didn't know they were signing up for!

This is an analogous situation. I walk into H&M and see some boots for a good price, and they have said they now only take credit card. Ok, no prob. I sign the credit card receipt and walk out the door. A few months later I notice H&M has been charging me $40 a month every month. I go back there and ask what's up with that? They say, well when you bought those boots, you signed up for our store club, you signed the credit card receipt saying you were signing up! You should have known, it was printed on the receipt! Signing a credit card receipt is part of a normal checkout worflow, and 90% of customers aren't going to notice if there is a subscription printed on there as well.

The point is, the store is set up to be a normal online store, and seems to go out of the way to hide that it is a subscription service.

darkarmani 12 years ago | |

> Beyond that, you are labeling the business a "scam" because you assert they are hiding the recurring payments from their users. Maybe so, but it would help to have data, rather than "wondering" how many users were unaware of the payments. When they become aware, does the company refund their money?

I think the class action lawsuit might satisfy your curiosity.

abalone 12 years ago | |

The customer they're trying to acquire is the kind that doesn't check their credit card statement in detail every month. So A/B testing cancellation rates and customer satisfaction levels are all mostly irrelevant.

Their lifeblood is the zombie customer who is completely unaware they've got a leech sucking at their credit card account.

benologist 12 years ago |

Leeching money off people this way is a time honored tradition - record, cassette, cd and book clubs etc, arguably AOL dialup, any "free trial" that discretely rolls over into indefinitely charged accounts till you realize and go back and cancel that service you barely tried once.

They can raise money because it works, it's legal if not ethical or tasteful, and in their particular case ... they've figured out how to scale enormously.

avalaunch 12 years ago | |

I think the big difference is that each of your examples are clearly marked as X of the month clubs. You know what you're buying. With JustFab, you don't. You think you're buying a pair of shoes.

mktgtheweb 12 years ago |

Hey HN- I am an insider to this business and in the subscription commerce space and know these companies well. Here are a couple high level insights about this business:

Dark Pattern: of course, but we call this conversion optimization. We try to make the checkout process as easy as possible to minimize friction. Give customers a great offer, get the credit card, and they will opt-in to the subscription and forget tomorrow.

Negative Option: The billing model is one in where you purchase, or get a free trial, and you are automatically enrolled until you cancel. Think about the old Columbia House DVD club or BMG (if you are old enough to remember). We call this "breakage". This is what makes the model work. If every customer picked out shoes every month, or they automatically shipped every month, they would lose money. This is because the cost of the shoes + shipping doesn't leave to much room for margin. This also allows them to front load their marketing dollars and scale - spending $50+ to acquire customers, which eventually become profitable as customers continue to get billed month over month.

Tricks & FTC Compliance: I do notice on the billing screenshot that they have an opt-in checkbox to the VIP club (subscription terms). However, these are behind a link, which is against the FTC guidance on negative option marketing. The FTC and Visa & MasterCard require any subscription to have an opt-in box which the customer agrees to the amount, billing frequency, and customer support info to cancel. They clearly are not doing this, and apparently haven't been caught since it "looks" like just typical ecommmerce.

eCommerce vs. Subscription: Interestingly, JustFab recently acquired ShoeDazzle, who was their primary competitor for years. That was, until ShoeDazzle decided to move away from the subscription model, and go to a retail model. Pando Daily did a whole series about this, and the CEO they brought in to lead it. Guess what? The pure e-commerce model didn't work, ShoeDazzle struggled, returned to subscription, but eventually sold the company for a deep discount of the valuation to JustFab.

Bottom line, they shoes they sell are cheap and fashionable. In fact, they lose money on a unit basis. Yes, there is a small percentage of the revenue from customers that love the service, pick out shoes and pay monthly, but a a majority of the revenue is coming from consumers who just wanted a deal on one pair of shoes.

Nitramp 12 years ago |

Never invest in a company that doesn't provide a genuine profit to its customers (and other stakeholders). Businesses are cooperative relationships between stakeholders, if a business just exploits its customers, it won't be a business very long.

Whether the checkout page is deceptive or not (and it is!): does anyone actually want to get a 40$/month minimum 1 year membership? Who would want to buy all their shoes on this one particular website, an willingly enter a contract where they have to click a button once per month or get a 40$ penalty? That's just bogus, all of the conditions are so strongly in favour of the vendor that it's clearly not a business - it's just exploitation/a scam.

You might be able to make a quick win and run away with something like this before the business falters, but more likely you won't be that lucky.

tyang 12 years ago |

Most VCs delegate diligence to 22 year olds that don't really try the site or startup of the startup they invest in.

This should not be surprising.

VCs deliver risk-adjusted returns way below the S&P 500Most

http://www.avc.com/a_vc/2013/02/venture-capital-returns.html

http://www.kauffman.org/newsroom/institutional-limited-partn...

And VC's subtract value from the startups they invest in.

http://techcrunch.com/2013/09/11/vinod-khosla/

yashg 12 years ago |

I think it is definitely fraudulent on the website's part, but I am intrigued by the fact that you girlfriend did not notice the charge on her card for 8 months? May be she was away from her home and busy with her studies but didn't keep a tab on her finances? Where the money is coming and where it is going? Didn't she get her credit card statement in email or she can't see it online on her card issuer's website?

I really don't understand how can one fail to notice a monthly charge, month after month after month. I think this kind of gross financial negligence on part of the customers is what bolsters these fraudsters and their business model of charging a monthly subscription.

wenxun 12 years ago | |

The credit card was issued by China Construction Bank. China's financial & banking system is not as advanced as the US, many Chinese people don't use online banking at all.

Her father was the main card holder, and she was using the second card, her father paid the bills every month as soon as he received the paper statement, he didn't notice anything suspicious.

wildgift 12 years ago | |

What you just did was "blame the victim" and basically green-light the asshole company's behavior.

You're shifting the blame away from the scammers.

jacquesm 12 years ago |

This thread and it's companion thread about the class action suit against justfab have just been pushed right off the homepage. Too bad, it seems like it is a thing that can't be spread far and wide enough.

Pxtl 12 years ago |

See, this is why PayPal manages to skim off the top of everybody's purchases and make bank - I no longer trust any online purchase company with my credit card information, because credit card companies don't do a great job at preventing this stuff except for after-the-fact chargeback mess (which is bad for both consumers and vendors).

Paypal et al force this kind of agreement to be properly explained up-front. Paypal's monthly recurring thing is clumsy and half-broken, but it's not unclear and can't trick you.

protez 12 years ago |

What an innovative company that wraps up a questionable practice into an yet another good looking shop with "amazing growth." The VCs might have taken that as an innovation.

dleskov 12 years ago |

This is why I keep the balance on the debit card I use online at $1.xx, trading the inconvenience of having to transfer funds to it before each transaction for peace of mind.

stef25 12 years ago |

She didn't check her credit card statements in 8 months?

rms 12 years ago |

They must have unusually low chargeback rates. It doesn't seem like they are that bad of a deal in the scheme of purchasing clubs like this, right?

fartface 12 years ago |

this has the potential to be much worse than a shady checkout screen. for every vip charge they aren't even shipping a real product. they give credits. if a company files bankruptcy those credits and gift cards will be worthless because it is considered a liability. so they don't even have to keep a real inventory (which would be an asset with real value).

(1) get funding (2) ? (3) bankruptcy (4) profit

Tichy 12 years ago |

I think it's a scam, however I'd like to point out that by virtue of being honest, it could be avoided. If you are honest, you'll think "this is too good to be true", and rather than thinking "ha ha, fools, they'll make a minus on this and I get cheap shoes" you'll look closely for a catch.

That's not an excuse for the company at all, of course.

aestra 12 years ago | |

"This is too good to be true?"

Um... no... Not at all. Not in the least.

They are your classic fast fashion shoes (http://en.wikipedia.org/wiki/Fast_fashion) fast fashion is cheap. Go into your local Forever 21 and look at the prices, especially the shoe prices. I can buy a whole wardrobe there for under $100.

These shoes aren't built to last. They are built fast and cheaply to capitalize on current trends.

I bought some boots last year for $30, and now they need replacing this year because they are starting to fall apart. I don't wear them every day, or even close to every day, and not during the summer. They were not built to last. I knew they weren't built to last.

Tichy 12 years ago | | |

Yeah but I think they said the shoes cost 79$ for non-members and 30$ for members (don't recall the exact prices). So you could wonder what they get out of membership to make up for that.

tzs 12 years ago |

Interesting that I don't see these kind of complaints at this level about book clubs.

The most popular book clubs all use a negative response model, where when you sign up you get a certain number of books at a great price, and agree to buy a certain number of additional books at the regular club price.

They send you a monthly list of books available that month, with one marked as that month's featured selection.

If you do nothing, you automatically receive the featured selection and are charged for it at the regular club price. If you do not want the featured selection, you tell them via a return card or their website.

An example is the Science Fiction Book Club [1]. The front page has a link to a "how it works" page [2]. Note that the "how it works" page doesn't actually tell you about the negative response aspect. It tells you to read the membership agreement for complete details and links to the agreement [3]. It is in there that you get the details of automatically receiving the featured selection.

(Things are similar for the Book of the Month Club, the Scientific American Book Club, and a whole bunch of others--because they are all actually run by the same company, and are using the same template for their web sites. The Columbia House DVD Club too).

Compare this to the JustFab page. That too has a "how it works" page [4], which is linked to from the front page. That page tells you about the negative response part.

The front page of the book club does say, when touting the initial book offer, that it is "with membership", so it is clear on the front page that you are going to probably have to sign up for some kind of membership to get that deal. The JustFab page does not make it clear that you must become a member to purchase.

With the book club, if you fail to make your negative response, you get a book not of your choosing. With JustFab, you get a credit that you can use on an item of your choosing. My guess is that the vast majority of JustFab's customers buy several times a year, and so they are able to fairly quickly put the credit to use.

So why does JustFab draw so much more fire, when the seem ostensibly quite similar to the book club? I wonder if the fact that their subscription if for credits makes a big difference? The book club pushes a featured selection each month, presumably something they have made a volume deal for in order to get a good price. For this to work, they really need their featured selections to sell well. With JustFab, the credit is generic. If they need to push some specific item in order to support a good price for it, selling credits does not help. Would people find JustFab more acceptable if instead of a credit, they actually sent you an item once a month?

[1] http://www.sfbc.com

[2] http://www.sfbc.com/howitworks

[3] http://www.sfbc.com/membership-agreement

[4] http://www.justfab.com/how-justfab-works.htm

thenewone 12 years ago |

Here's the Form D for the latest JustFab raise: http://www.sec.gov/Archives/edgar/data/1531017/0001531017130...

Confirms JH (see above..) sits on the Board and represents Matrix

useflyer 12 years ago |

I will never accept venture funding from anyone who has invested in JustFab. Investors are the gatekeepers, and in this case have failed their moral obligation.

https://twitter.com/rleshner/status/383675138153017344

purpleD 12 years ago |

While it seems to me like this is a scam, the bottom line is that everyone's interpretation of the communication of the terms of service is subjective.

The site could stay exactly as is and not be a scam if they let you at any time "return" your $39.95 shoe credits for a full refund, no questions asked.

brianmcconnell 12 years ago |

This is why I have my credit/debit cards cancelled and re-issued once or twice a year. I can't be bothered to spend several hours on the phone trying to cancel scumbag/parasite operators like this (AOL was notorious for this back in the day).

cicloon 12 years ago |

I don't see this different from what MS used to do with Xbox Live subscriptions in summer... at first the charged $1 for one month, but you have to cancel the subscription before the month ends in order to not being charged again.

alain94040 12 years ago |

Taken straight from Matrix Partners's website (investor in JustFab): "Don and I are aggressive guys, and Matrix approaches our business the same way. - Adam Goldenberg, JustFab"

Choose investors that match your ethics I guess.

zby 12 years ago |

How can I short this stock?

mattsfrey 12 years ago |

Nobody seems to have mentioned the fact that a well known celebrity, Kimora Lee Simmons, is the president and creative director of this company, no doubt a huge factor in attracting VC attention.

mkr-hn 12 years ago |

This will be a great sample for the study a few years from now that tries to identify the source of the next boom and bust. I hear the real estate market is heating up globally.

batemanesque 12 years ago |

guess it's time for HN to wise up to the fact that investors aren't just benevolent gods handing out opportunities from above

ethanazir 12 years ago |

meetup.com misled me into a recurring charge. i thought I would need renew the next month. guess i didnt read the fine print right.

guilloche 12 years ago |

voted up the topic and let more people be aware of it to avoid traps.

calimac 12 years ago |

Pay attention. There is no solution to this dark design short of caveat emptor. I agree, justfab.com are using deceptive design practices; dark design frustrates me as well as many who understand that it is designed to take advantage of the less sophisticated consumers.

Why did your girlfriend not look at her credit card bill for 8 months?

Godaddy.com was one of the first to cross the line to unethical dark shopping cart design. what about their domain registration privacy product. It is free for the first year but impossible to cancel.

contextual 12 years ago |

Let's face it, the owners and investors of this scam are likely engaging in criminal behaviour and should be charged. Have the police been notified?

onurozkan 12 years ago |

launder all the moneys!

just kiddin.

ds_ 12 years ago |

Amazon do basically the same thing with their prime membership, although they do refund if you notice and complain early enough (offer a free month and then start charging unless you opt out, whilst making it far from obvious that you have to do so).

dragonwriter 12 years ago | |

> Amazon do basically the same thing with their prime membership, although they do refund if you notice and complain early enough (offer a free month and then start charging unless you opt out, whilst making it far from obvious that you have to do so).

No, its quite obvious that you need to opt out if you don't want to pay -- they explicitly say the membership will be billed to the credit card attached to your account at the end of the free period, and force you to attach a credit card to your account if you don't have one already attached in order to sign up for the free Prime trial -- when you sign up, though its also easy to forget afterwards. But they give you a complete refund anytime in the paid period if you ask, as long as you haven't used any Prime-exclusive benefits during the paid period.

And its a zero-friction, click-a-button, cancel-and-get-refund thing.

smsm42 12 years ago | |

Amazon explicitly says it's a paid program that costs money and you have to explicitly join it through process separate from buying stuff. Offering free trial period and then charging is very standard approach, automatically enrolling with sale is not.

ds_ 12 years ago | | |

They were offering it with a purchase (as a way of getting free shipping), if I remember correctly. Alright, I wasn't automatically enrolled, I had to check a box. It was still deliberately misleading.

vvvVVVvvv 12 years ago | |

The other difference worth noticing is that albeit being a bit unclear, Amazon's Prime is far to be as shady as JustFab's darkpattern since there's a huge modal window popping during the order.

ds_ 12 years ago | | |

Perhaps I shouldn't have said 'basically the same thing'. They both deliberately mislead users into subscribing, Amazon is just more subtle.

ds_ 12 years ago | |

There was already a refund request process in place, preempting the inevitable complaints. They knew they were misleading people so they could make money on the back of those that aren't too attentive to their bank statements. I suppose everyone down-voting me thinks that's just great?

GrinningFool 12 years ago | | |

Nope. EVeryone downmodding is well aware that Amazon doesn't hide the subscription - in plain sight or elsewhere. When you sign up for prime, you know that you're signing up for a subscription service. There's no doubt. Things like "try it free for 30 days" in bold letters make it very clear.

I've also never seen a default behavior of enabling prime.

skelsey 12 years ago | |

Prime is a membership. It even has it in the name! How is that the same level of misleading?

ds_ 12 years ago | | |

It was offered with a purchase as a way of getting free shipping. It was not at all clear to me that I would have to opt out rather than my membership just being cancelled unless I paid a fee. It felt deliberately misleading and it seemed many shared my surprise when I went looking for complaints afterwards.

AsymetricCom 12 years ago | |

Nice try shady investor.

"Plaintiff Edna Betances-Harold, on behalf of herself and others similarly situated, brings this class action complaint against Defendant Just Fabulous, Inc, based on its practice of deceptively marketing and billing consumers for unauthorized charges relating to its retail website."