Co-Ops: Five Things You Need to Know

I had never even heard of a co-op (except in the farming sense) until I became a mom. Then, I suddenly noticed all the group-buying frenzies going on across Facebook and other discussion forums. While older women might be notorious for addictions to cable TV home shopping, it seems young moms have a similar addiction: CO-OPS.

I’ve bought various items through co-ops to test the waters for myself. Many of you have too. After all, if you’re reading this, you’re probably a cloth-diapering mom, and let’s be honest: we are suckers for discounts. (Is this a blessing or a curse? I can’t decide.)

Understanding how co-ops work is no easy task, because they’re are thousands* of co-ops run by tens of thousands* of individuals and nothing is standardized. While I had fairly good experiences, many other moms aren’t so lucky. Before jumping to the world of co-ops, it’s important to know how they work and what risks you are taking.

*These numbers are completely made up. I have no idea how many co-ops are out there!

Co-Ops What You Need to Know

So What Is a Co-Op?

The broad definition of a co-op is “a jointly owned commercial enterprise that produces and/or distributes goods and services and for the benefit of its owners”.

For the purposes of this article, co-ops are online groups through which individual moms can buy products at deep discounts. The products include diapers, toys, clothing and accessories, electronics, you name it – all typically unbranded, knock-offs, or made by work-at-home-moms (“WAHMs”). These co-ops are organized by “hosts” in Facebook groups or other online discussion forums. The hosts take responsibility for finding deals, determining minimum order requirements, posting pictures and prices of available products, collecting payments, placing the group order, and sending out the buyers’ individual orders.

Five Things You Should Know Before Buying

Before you get swept away by the giddiness of perceived discounts through co-op purchasing, make sure you’re fully aware of how your particular co-op buy will work. If it sounds too good to be true, it probably is.

You should be comfortable with each of the five risks outlined below before sending off your hard-earned money to a stranger on the internet. Also, check around for feedback on the specific co-op and host you’re considering (like this spreadsheet maintained by the “Co-op Deals and Reviews” Facebook group).

#1: Delays Can Be Significant

Expect to wait a minimum of one month from the time you pay until you get your items (typically 6-12 weeks). Reasons for the long wait include:

  • The time between your own invoice payment and the time when all other buyers have paid up and the host closes the buy.
  • The time from the closing of the group buy until the co-op host places the order. (At this point, there could be additional delays if certain items are no longer in stock. The host would have to contact the buyers about what they want to do, and the group buy could fall back below the minimum order, causing further delay or even cancellation of the entire thing.)
  • Fulfillment time from when the host places the order until it ships. For group buys from WAHMs, this could take quite a while for the seller to make everything by hand. For orders from large manufacturers in China, it may be a fairly quick turnaround.
  • The time for the order to ship to the host, which depends on the shipping method and whether it’s domestic or international. If international, the order could get held up in customs – that’s a gamble.
  • The time for the host to receive the group order, sort and separate items into individual shipments, and send invoices to the buyers for their direct shipping costs.
  • The time for the host to package up and ship out the individual orders to buyers.

#2: No Payment Protection

Perhaps you’ve been warned to stay away from any co-op that asks members to pay for their merchandise as a “gift” (thus circumventing PayPal fees for the seller). After all, sending money as a gift will automatically exclude you from PayPal’s buyer protection, and that sounds like a big risk.

But according to PayPal’s User Agreement (Section 13 – Protection for Buyers, as of 10/22/13), buyers are only eligible for PayPal Purchase Protection if they open a dispute within 45 days of the date the payment was sent. Given the typical timeframe of a co-op, you’d be lucky if you paid for and received your items in time to file a dispute anyway.

However, there’s a final nail in the coffin regarding PayPal protection for co-ops buyers buried in PayPal’s Acceptable Use Policy, and it means that you won’t be eligible for PayPal protection in a co-op no matter what you do.

Section 13.3 of the PayPal User Agreement lists items that are not eligible for reimbursement under PayPal Purchase Protection, one of which is “Items prohibited by the PayPal Acceptable Use Policy“. And guess what? It turns out that PayPal specifically prohibits using its service for activities that relate to transactions that are “for the sale of certain items before the seller has control or possession of the item” (see item 3, part d). In other words, using PayPal for group buys is actually a violation of PayPal’s own terms of service, and can result in the host’s PayPal account being frozen.

While most co-ops still use PayPal, some have branched out to other platforms such as WePay. However, WePay lists “buyer’s clubs or discount clubs” as one of the prohibited activities in its Terms of Service with the summary explanation: “Basically, you can’t use WePay for anything illegal, inappropriate, or risky. Just be honest and responsible, and we’ll get along just fine.”

#3: Fees and Mark-Ups Can Add Up

Make sure you understand all possible fees before you sign up to purchase anything, because sometimes hosts will call for payments multiple times before you can receive your order. Common fees include:

  • General co-op fees scaled by order value.
  • Credit card or PayPal transaction fees.
  • “Host supply fees” to cover the costs of shipping labels, mailers, etc.
  • Duty fees that could range anywhere from 2-20%.
  • Shipping costs from the host to you.

Other times, co-ops advertise themselves as “no-fee” but charge their buyers prices that are higher than the actual prices the manufacturer had offered the group. Hosts may or may not disclose this markup to their buyers.

The bottom line is that most moms organizing co-ops spend a lot of time doing so, and they expect to be paid for that time. Fees and mark-ups are how they compensate themselves. This is certainly understandable, but there should be transparency on what fees the buyers will be expected to pay.

#4: No Guarantees on Product Quality

Generally, when you buy through a co-op, there are no product warranties. If you receive a defective product, you’ll have to deal with the manufacturer directly, not the host who coordinated your buy. With imported products, there’s no guarantee that the item will look like the photo on which you based your buying decision.

In addition, imported children’s products likely haven’t conformed with the Consumer Product Safety Improvement Act requirements (which are mandatory for children’s products manufactured in the US). Similarly, some WAHMs either don’t know about CPSIA requirements or knowingly ignore them.

#5: Some Co-Ops Operate Under False Pretenses

Finally, it’s important to note the distinction between legitimate co-ops and fraudulent co-ops. Legitimate co-ops are transparent about the companies they order from and they don’t demand secrecy in the group. Legitimate co-ops typically buy from three sources:

  1. From Chinese manufacturers selling directly through sites like Alibaba or DHGate.
  2. From companies which openly invite co-ops to do business with them (frequently these companies are importers of Chinese products with a North American presence). Examples include juDanzy (formerly My Little Legs), KAM SnapsKaWaii Baby, and Glow Bug.
  3. From WAHMs.

Fraudulent co-ops, on the other hand, masquerade as retail businesses in order to place group buys from manufacturers that don’t permit discounts for co-ops, hoping to fly beneath the radar and get away with ordering at wholesale prices until they are caught. They often use the sales tax ID number of an unrelated business to establish wholesale accounts.

Consider this: if the people organizing your co-op buy are intentionally dishonest to the manufacturers they order from, how can you believe that they will do business with you in a fair and trustworthy manner? Stay away from groups like these. (They’re easy to spot because they’re always warning members about the importance of secrecy.)

So… Caveat Emptor

The former Latin scholar in me insisted on that phrase. But it’s simply the best conclusion: Buyer Beware. You can certainly find honest, well-run co-ops if you do your research and ask a lot of questions. Unfortunately, though, there is ample room for abuse in the co-op marketplaces, which operate in a “Wild West” corner of the internet. After the costs of fees and shipping, plus the long wait time and the lack of buyer protection, you may find that those amazing deals are really just kind of meh.

Share the experiences you’ve had in co-ops – good or bad – in the comments below.