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Is there a Vitacost scam? Back in 1987, a major stock scam unraveled when a consumer raised hell about excessive credit card charges on her carpet cleaning bill. Once her story got picked up by the Los Angeles Times, the company went into a free-fall after massive fraud was uncovered. For those of you old enough to remember, the company was ZZZZ Best which was established by celebrated boy wonder Barry Minkow. The company went public when he was nineteen and he got sentenced to 25 years for securities fraud when he was 21.
The scheme to defraud investors and consumers was simple enough. ZZZZ inflated its income and assets by over-charging customers on their credit card bills and claiming it had non-existent contracts with insurance companies to do some major clean up and refurbishing jobs.
Fast forward to 2010. A few weeks ago, a friend of mine, Charlie, noticed a few charges on his credit card statement and for vitamins he never ordered. Not one to overlook that kind of thing, he complained to his credit card company which advised him to contact the Vitacost (symbol: VITC) to reverse the charges. But the folks at Vitacost wouldn’t back down and the next thing he knew, they billed him again on the next month’s statement. My buddy contested the bill but still couldn’t get Vitacost outfit to remove the charges. He finally got ticked off and cancelled the card.
Instead of just walking away and putting the incident behind him, Charlie went snooping around to find out more about the vitamin company that was screwing with his credit card. It’s an intriguing story because Vitacost turned out to be a recent IPO that was boasting about record growth in its revenues. What made their claims all the more remarkable is that most of the companies pedaling vitamins have flat or negative growth and it’s a fairly competitive landscape.
Charlie’s experience with Vitacost was not unique. I checked some of the reviews on resellerratings.com and the feedback from customers was alarming. One customer comments “I just received a box from Vitacost for an order I did not place. I checked on their website and they charged my credit card for something I did not order. I never received an order confirmation or anything.” So maybe Charlie's story wasn't an isolated incident.
When I checked, there were 162 comments posted and the vast majority were extremely negative. These were definitely not isolated gripes by a few disgruntled customers. I picked up on a few common themes. The most common complaints were about late delivery or the failure to deliver ordered product. These were followed by delivery and double-billing of products that were not ordered and receipt of orders that were not complete. In virtually all cases, most reviewers complained about the extreme difficulty of reaching customer service by phone or email. Fairly odd for a $200 million publicly traded company that should be better run.
Some sample complaints should give you a general idea of what appears to be a company with serious internal control issues. “Their website states products are in stock and shipped within 3 days. I've been waiting 25 days and still no shipping confirmation. I sent them a cancellation e-mail. They don't respond to e-mails!” yet another writes “This is the worst company I have ever dealt with. They "confirmed" my order, but did not bother shipping it.” “I purchased 6 items valued over $100 on March 8. I received a confirmation email which contained a tracking link, but that link NEVER worked. The money was withdrawn from my account very quickly though.” ”Vitacost is the worst internet supplement supplier I have ever dealt with!" How about this comment “they always say it is a computer problem or they are upgrading their systems. They never reply to phone calls or emails, you are ignored (until you go to extreme lengths and - checkout never tells you if an item is back-ordered. They charge you again to ship back-ordered items.” Overall, their rating on ResellerRatings is a pitiful 3.5 out of 10 vs a more respectable 6.0 by better known GNC.
Vitacost's negativer reviews don't stop at ResellerRatings. Over at the BBB, Vitacost sports a D- rating and the complaints are of a similar nature. At RipoffReport.com a user stated, "Vitacost's poor customer service only masks their shady business practices." Over on ePinions, much of the same, "Vitacost is a scam. I shipped the protein powder back to them and paid for the shipping out of my own pocket. If that isn't bad enough, they did not credit the protein powder. I called 7 times. Each time they told me that they credited my credit card. I called my bank and was told that a credit was never issued. When I called customer service to tell them this, they hung up on me. I will never order from them again."
Vitacost went public about a year ago at 12 dollars a share and has traded as high as $13.45 in the last 52 weeks. It now trades for $6 and that’s no bargain because a publicly traded company with lack of internal controls spells trouble for both consumers and investors. Occasionally, consumer fraud and stock scams go hand in hand. What Charlie witnessed on his credit card could be a form of channel stuffing. If you will, VitaCost might be pushing its products into client’s hands to inflate sales or billing for inventory it never delivers. Even if the charges are later reversed, the company gets to report these sales as income as soon as they are charged to a customer’s credit card. I noticed that quite a few complaints came from overseas customers who won’t make six or seven international calls to get a $50 refund. A good percentage of impatient clients frustrated with making contact with customer service are likely to pay their credit card bill, chalk it up to a bad online internet experience and forget about it. If a customer complains, they hold him at bay until the issue is ‘resolved.’ The goal is to create an extended lag time between when they claim the sale as income and when they reverse it as a charge back for returned items. In the meantime, the company gets to report increasing sales to their happy stockholders. It’s a hell of a potential business model, except companies with unhappy customers don't grow for very long.