Failed dot-coms worry consumers waiting for goods

Online shoppers are getting caught in the gap between companies that are open one day and closed the next: They order goods and pay for them, but sometimes the goods don't get delivered.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
4 min read
Rhonda Mikel felt panic rising inside her.

Five days after buying $100 worth of jewelry from Jewelry.com, she stared at a message posted on the site's front door saying that the Web luxury-goods store had gone bust.

"I tried to email the company and it bounced back saying 'undeliverable,'" said Mikel, who classifies herself as an avid online shopper. "You know that's not good when that happens...I thought, 'Now what do I do?'"

Although many consumers do feel helpless when they discover their online order has disappeared, people can protect themselves.

Because of the nature of the business--most online retailers are seeking another round of funding or trying to build their businesses up--the companies generally operate at full speed right up until they pull the plug. Once that happens, the company usually posts a "We're closed" message on its Web site, emails are bounced back or go off into the ether, and phone numbers ring endlessly--if they are even still connected.

Some companies are turned over to lawyers and bankruptcy officials, and former employees are barred from answering even simple questions.

That can leave customers frustrated.

"I felt I'd been cheated," Mikel said.

Some customers are getting caught in the gap between a company that's open one day and closed the next: They have ordered goods and paid for them, but the goods have not been delivered.

And while that can be shocking, it should not cost the customer anything. Since most online purchases are made with credit cards, the customer is usually protected against financial loss by the credit card companies.

The safety net
Most credit card companies guarantee that their cardholders get what they paid for or the charge is removed from their account, Visa USA spokesman Sean Healy said.

Visa "stands for guaranteed payment and guaranteed products and services," he said. see A News.com webcast: Dot-coms: Down and out?

Internet transactions make up only a small percentage of Visa's overall business--about 2 percent of the company's $760 billion annual total, Healy said. So far, the Foster City, Calif., company said it has not noticed any spikes in the number of dot-com customers asking for their money back. But Visa said it expects Internet transactions to increase up to 10 percent within two years.

But Mikel said it took a while before she thought to contact her credit card company.

First, she said, she called Jewelry.com. After being on hold for an hour, she gave up when no one picked up the phone. Sending emails had failed. She finally was able to track down a former executive from Miadora, Jewelry.com's parent company, in the phone book and called him.

Don't panic
What you can do if you have bought items from a Web store that is unable to deliver the goods:

• Try to contact the company by email or phone to find out what its situation is.

• If it is indeed closed and unable to reimburse customers, contact the bank that issued the credit card used for the purchase and explain the situation. The bank will probably mail a form for providing detailed information about the situation.

• The bank can take anywhere from one to two months to examine the case.

• In the meantime, the bank should place a hold on the disputed charge and prevent it from building interest on your account. If the bank finds that the company is unable to reimburse you, it will remove the charge permanently.

She said the executive told her there was little chance of her receiving the merchandise and gave her some phone numbers of other former Miadora executives. None of them returned her calls, she said.

"He was very gracious, but he couldn't help me," Mikel said.

Barry Gilbert, chief executive of Miadora, declined to comment.

Throwing her hands up, the Indianapolis woman decided to call her credit card company. That's where she got some answers.

Visa told her to contact the bank that issued the credit card and file a "purchase dispute" form. She did, and the bank temporarily pulled the charge from her account so she would not be responsible for any interest. Once the bank verifies Mikel's story, the charge should be pulled for good, Healy said.

Mikel's bank will not be out of the money, either. It will pass the charges to the bank that handles Miadora's credit card transactions. More than likely, Healy said, it will be that bank that must stand in line with the rest of Miadora's creditors to collect its payment.

Retailers must follow one important federal law, the Federal Trade Commission says: Merchants must cease taking customer orders once it becomes clear that they are going to close their doors, said Heather Hippsley, assistant director of enforcement at the FTC.

"For instance, a company that hasn't paid its vendors, knows the vendor won't ship, but continues taking orders is going to have a problem," Hippsley said. "We take issue with that."

Among the scores of online retailers that have shut down their e-commerce operations are Disney-backed Toysmart.com, Value America, Boo.com, and most recently, health store Gazoontite.com.

As for Mikel, she said that she feels even better about shopping online now that she knows she is protected. But she said she won't forgot what has happened to her.

"This is my first disappointment buying online," she said. "I've shopped extensively online. I usually stick with names that I know. It's safe to say that I won't be checking out companies that I'm not familiar with."