
Why was a scam company able to raise $76 Million Series B? - wenxun
I just stumbled upon this piece on Business Insider "JustFab Raises $76 Million To Create The H&#38;M Fashion Brand Of The Web". 
http://www.businessinsider.com/justfab-raises-76-million-to-create-the-hm-fashion-brand-of-the-web-2012-7<p>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?<p>I didn't have any direct experience with JustFab. The victim was my girlfriend. Back in January or so, 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. Only 8 months later, in early September 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 geting anything from JustFab.<p>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". 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.<p>According to the Business insider article, JustFab "will 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.<p>p.s. After JustFab CSR refused to refund, I decide to post this story again, hoping it will get upvoted to the frontpage of HN so that more people get to know what is really going on behind JustFab<p>pps. Anyone could just simply google "justfab scam" to see how many others have been victimized. It's outrageous such large scale scam got unnoticed.
======
reitzensteinm
So I went through their checkout process, and up until the credit card stage
there is zero indication that it's a membership site (I read everything on
every page).

I've uploaded the credit card section here:

<http://i.imgur.com/3di93.png>

It says you'll be billed month per month on the right hand side under the VIP
membership program, but I think it's pretty clear that the page is engineered
to be misleading. It looks like a standard upsell, not a mandatory part of the
purchase.

They're relying on people clicking the accept terms and conditions check box
without realizing that it's signing them up for the membership, i.e. it's the
terms and conditions of the program, not the site in general.

Terms and conditions boxes are common in the checkout process and nobody gives
them a second thought. I'm not sure I would have caught this one if I went in
naively.

Clearly unethical, IMO.

~~~
ricardobeat
Maybe I'm being too permissive, but that screen doesn't look fishy at all. I
went through the purchasing/sign-up process, and it goes like this:

    
    
        1. create a profile (answer questions on style)
        2. fill in details, click a *JOIN NOW* button
        3. get a "*first month* for 50% off" offer
        4. get to this payment screen
    

At no point it implies you are buying a single product, there are no "buy now"
buttons or calls to action.

To me it's pretty clear that it's a recurring service, like many others that
exist for chocolate, wine, beer, socks, razors, etc. The right hand side on
the checkout is clear enough, and the _skip the month_ part is there
highlighted, not in small letters.

EDIT: apparently this is just the flow after choosing something on the home
page. If you choose one of the "special" products or go to the Featured
section, it does go through a standard add to cart + checkout flow
(<http://minus.com/lA7snPkHUHOZR>). That is actually terribly misleading.

~~~
pbreit
But its not like any other subscription sites I'm aware of. The huge
differences is that you have to visit the site each month or you'll be billed
and receive NO product.

I was prepared to disagree with OP but the model does seem a little customer-
hostile.

~~~
rory096
The grandparent's link says "Each credit can be redeemed for any JustFab style
on the site."

Seems to me that they're saying if you're a member but didn't make your
decision for your free (sunk cost) product by the 6th, they charge you and
turn it into store credit. It's not like they're charging you and saying "too
bad, you don't get anything."

~~~
pbreit
Ok, I see. So that's probably reasonable. And it's now even more clear that
the whole thing is somewhat confusing.

~~~
speby
It may be different, yes, and I can relate to the OP's original complaint from
his girlfriend. Still, given the language used on the site and the (albeit
weird) use of a "credit" that can be used in the future for each month you
don't buy something, it doesn't seem unfair at all to me.

I will say that the negative attention this confusion could bring them is more
harmful to them than if they revamped the purchase process to just make it
crystal clear what you're buying.

From my experience at Poll Everywhere, the "sidebar" on the checkout process
does not get read by anyone, anytime. For some reason, the sidebar becomes a
blindspot and is ignored (at least in our testing) during a checkout process
and so is thus not a great spot to put reminders about how you're joining a
membership and will be charged monthly if that is the only place is is put.

------
tisme
Don't ask for a refund, go to your bank or CC company and charge back the 6
months. That'll hit them where it hurts. Little known fact about chargebacks:
the merchant pays an administration fee, typically $20 to $50. Per charge!

That is why the smarter scammers refund to everybody who complains, not
refunding is plain dumb. This scam has been around for a long time, usually
it's adult companies that sell you a 'free' membership with an age
verification which comes with a pack of subscriptions tacked on for other
stuff that you will never use.

This practice of selling unsuspecting consumers a subscription with auto-renew
when they think they're doing a one time transaction needs to be stamped out.

~~~
tzs
However, be careful and only do a chargeback when you are sure you never want
to deal with that merchant again. Many will blacklist you if you do a
chargeback, because of that high chargeback fee (which they have to pay even
if they have sufficient documentation to successfully fight the chargeback).

I'm kind of surprised no one has started a service for merchants to warn them
of chargeback prone customers (there are people who go straight for the
chargeback without even trying for a refund first).

~~~
tisme
> I'm kind of surprised no one has started a service for merchants to warn
> them of chargeback prone customers (there are people who go straight for the
> chargeback without even trying for a refund first).

There are plenty of such services. You don't see them because they don't
normally operate on the merchant level, they operate on the IPSP / processor /
card company level.

The reason why they don't usually operate on the merchant level is because
that would allow a merchant to pollute the pool with their 'known good' cards
to stop people from buying a product with competitors. You have to wonder when
you buy this information as a merchant whether it is clean or not. But when an
IPSP / processor or card company uses their aggregate knowledge then it starts
to be really useful.

You can do AVR checks and so on all by yourself as a merchant but most if not
all reputable IPSPs will have an anti-fraud system in place that does all
kinds of checks.

------
jonnathanson
This business model reminds me of those fly-by-night mobile subscription
services from the early 2000s. The ones who'd make you think you were buying a
single ringtone, and the next thing you knew, you'd been surreptitiously
signed up for a $29.99/month subscription.

I remember evaluating the books for one of those companies back in the day. It
was wildly successful at the surface level. But if you dipped below the
surface, you noticed that its biggest strategic weakness was "Breakage," i.e.,
the rate at which people eventually discovered they'd been duped and then
cancelled their subscriptions. It turned out that the average subscription
lasted 2 to 3 months, and _nobody_ kept a subscription longer than 5 months.
This basically meant that the company's _entire business model_ was predicated
on scamming new users at a rate quicker than its existing users could break
away. While not a Ponzi scheme in the true sense, the model operates on a
similar assumption. But the assumption is not sustainable in the long run.

I look at a lot of companies these days -- especially all the companies in the
pop-up sale business, the subscription-box business, etc., and wonder how many
are following this playbook. And I wonder why VCs keep backing them. Obviously
it's a fantastic way to earn tremendous growth up front. And, while the
getting lasts, the getting is pretty darned good. But it's sad to think that
legitimate startups may get turned down, or underfunded, for the quick buck
and easy exit that can be made on this crap.

~~~
Ntrails
It reminds me more of the book catalogues. 5 books for a pound or something as
a joining perk, but you then had to buy a book a month for 6 months or they
would automatically sell you the default book etc.

I never thought that was a shady business model, per se, and whilst it wasn't
entirely intuitive how they worked to a 14 year old, I blamed myself for
screwing up by joining- not the company.

~~~
anonymouz
But at least the book clubs (at least the ones that I know) make it obvious
that you sign up for a membership and have to buy something (monthly or
yearly).

This site seems to be entirely designed to mislead you into thinking you're
just ordering one item, while in fact you are signing up for a membership.

Signing up for the first one (book club) may be a bad business decision on the
customers part, but this second style simply seems fraudulent to me.

~~~
htmltablesrules
>This site seems to be entirely designed to mislead you into thinking you're
just ordering one item, while in fact you are signing up for a membership.

Bingo!

------
kevinalexbrown
To answer the question at hand: "Why was [this] company able to raise $76
Million Series B?" They make money.

What's more concerning to me is that the coverage in TechCrunch[0] and
Business Insider wasn't able to raise a modicum of doubt. If googling
"JustFab" returns "Class Action Lawsuit" in the first 5 results, it would seem
that the reporters either didn't do the absolute minimum required for
effective journalism, ignored it, or were instructed to ignore it.

We've all heard the "online journalism is broken" refrain, so I won't repeat
it here.* I'll just note that if it's so far gone that googling the topic of
interest is out of the question, this form of journalism is worse than I
thought.

[0] [http://techcrunch.com/2012/04/26/fashion-retail-and-
styling-...](http://techcrunch.com/2012/04/26/fashion-retail-and-styling-
platform-justfab-seeing-over-100m-in-revenue-and-expanding-internationally/)

* Edit: some forms appear to be doing quite well, e.g. nytimes.com. I'd also point out that there are some online articles I've found on TC or TheNextWeb, or AllThingsD that were quite good.

~~~
chinmoy
Then again since when TechCrunch really practiced journalism?

~~~
nikcub
<https://www.google.com/search?q=scamville>

led to an entire industry being changed

~~~
alanh
Nik, your articles would seem to be of a much higher standard (and,
accordingly, posted with greater infrequency) than most others on TC.

Plain and simple, it seems that most of the time, most of TC’s homepage is not
investigative, but sensationalized triviality.

Thanks for being a part of the exception.

------
lysol
Pretty terrible of Techcrunch to have a favorable article about it:
[http://techcrunch.com/2012/04/26/fashion-retail-and-
styling-...](http://techcrunch.com/2012/04/26/fashion-retail-and-styling-
platform-justfab-seeing-over-100m-in-revenue-and-expanding-internationally/)

That shit is poisonous to the startup sector, some people already think it's
some kind of voodoo and this kind of thing doesn't help.

~~~
niggler
I have many concerns about TechCrunch. They are the CNBC of the tech community
(essentially a mouthpiece for those that pay). All we need now is an expose
like <http://www.youtube.com/watch?v=gMShFx5rThI>

------
braveheart1723
class action lawsuit - dated oct 2011 though -
[http://www.scambook.com/blog/2011/10/justfab-com-
justfabulou...](http://www.scambook.com/blog/2011/10/justfab-com-justfabulous-
class-action-lawsuit/)

and some more people with similar stories:

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

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

[http://forum.purseblog.com/the-glass-slipper/justfab-com-
sca...](http://forum.purseblog.com/the-glass-slipper/justfab-com-
scam-757948.html)

~~~
antonej
Two comments from a consumer Internet lawyer's perspective:

\- Any company of any size in America has been sued in a consumer class action
-- many reputable companies scores or even _hundreds_ of times. Some lawyers
make their living that way. Most of these suits involve highly subjective
elements such as whether there was enough disclosure in the right place of the
right type to avoid consumers being misled. (Inevitably, in any mass-market
consumer business, some consumers _will_ be misled -- not necessarily the
sharpest tools in the drawer.)

\- Don't ever believe the version of the facts portrayed in a plaintiffs'
complaint (in _any_ suit). Ours is an adversarial system, meaning that, as in
politics, you can count on each side to overstate its version of reality about
10X or 100X so that it looks like they're inhabiting alternate universes.

JMHO.

------
patio11
This reminds me, more than anything else, of "co-registration" scams where
buying a legitimate product on e.g. Digital River would get your CC details
sent over to a seedy e.g. "buy our coupon book emails for $9 a month
recurring. DigitalRiver went through with it because they offered DR a ~$30
CPA where DRs per-transaction cut was generally below $2. A few other publicly
traded companies whose product teams _must_ have at least a room temperature
IQ started doing it, wsaying it was aboveboard and value-adding with a
straight face, until the FTC said WTF.

This just makes the coregistration first party.

------
trimbo
So basically this is the Columbia House[1] of shoes. That's not a scam, it's
"a catch". When a consumer hears the pitch -- in the case of Columbia House,
it was "get 8 CDs for 1 penny", in the case of JustFab it's "get any pair of
shoes for $39" -- they should be asking what the catch is. An ungodly number
of businesses involve catches to survive. How about cell phones? That new
iPhone is only $200... but you have a 2 year contract and a $400 fee for
leaving early.

Columbia House and the Columbia Record Club were around for 60 years. I doubt
this model will ever go away or be deemed illegal.

[1] - <http://en.wikipedia.org/wiki/Columbia_House>

edit: hey, there's a wikipedia article about this model

<http://en.wikipedia.org/wiki/Negative_option_billing>

~~~
endianswap
The difference, at least from my point of view, is that it is a realistic deal
to find a pair of shoes for $39 dollars when I don't think it's reasonable to
be able to buy X cds for a penny, for even X=1. The closer you get to the
actual or expected value of what you're buying, the more unethical I feel it
is, just because you're going to be tricking a greater number of people.

~~~
ahoyhere
If you bought into Columbia House in the 90s, as I did, the math worked out to
~$10 average for each CD over a year (the 8-for-a-penny plus the full-price
ones), back when they were $16 each at the local store.

The promotional offer was an attention-catcher, but you still saved $4-6 per
CD.

Just because you feel like "there must be a trick" doesn't mean there is a
trick.

~~~
antonej
The cleverness of Columbia's approach was that a certain percentage of people
at the margin would keep (and pay full price for) CDs that they'd never have
bothered to go out any buy on their own. Just like credit cards: Issuers hate
people who pay the balance off every month and earn them zero interest -- but
most consumers aren't quite that disciplined.

------
abyx
Yes. This is called "negative option billing"
(<http://en.wikipedia.org/wiki/Negative_option_billing>). We (at BillGuard)
see many people that fall into these kind of shady business models. It's
pretty amazing that this is still legal and VCs are throwing money at it.

------
ALee
It probably tells you more about the VCs who invested rather than the company.
The opportunity cost of where to deploy their money is likely higher these
days and a VC who is investing in a fairly scam-ridden business is probably
looking to capitalize on a quick exit.

In this case, everyone knows the jig may be up quickly, so they're looking to
expand quickly and leave before the known end.

------
nhangen
You would think that if any page explained how the program worked, it would be
this one: <http://www.justfab.com/how-justfab-works.htm>

but I didn't find a single mention of membership fees on this page.

I'd heard a lot about this company, but had no idea what they were until now.
Disgusting.

------
tzs
Could you ask your girlfriend how she didn't notice a large recurring charge
for 8 months? I would like to know because that is a puzzle I deal with it
work.

We sell a software product and service on a subscription basis (not hidden
like justfab...it is clear to the customer that they are buying a subscription
--the product is kind of pointless without the subscription).

Occasionally I find someone who bought years ago, and apparently stopped using
the product. At least, I can tell that they have not obtained updates through
our update servers for a long time. Yet they do not cancel the service. It
just goes on re-billing them a few bucks a month, every month.

I'm reluctant to cancel their accounts, because maybe they are obtaining
updates some other way, such as downloading the latest version and installing
it periodically, and their firewall is blocking the update checks. But I am
always conflicted, because it could actually be someone that really just
doesn't look at their credit card statement, and has no idea he is still
paying us years after they stopped using our product.

~~~
antonej
I've encountered the same thing in another subscription business where there
was system data showing the customer hadn't used it in a long time. My
personal (not legal) opinion is that, assuming these account for an immaterial
percentage of revenue, the safe approach is to go ahead and cancel them. The
reason is that to do otherwise would make the company look really ugly if ever
questioned by a state AG or the FTC or in a class action suit. It's tough to
say "Yes, we had computer records clearly showing the customer hadn't logged
in for 16 months but kept charging her each month anyway because she never
said stop." Folks whose jobs entail protecting consumers (even against
themselves) don't like hearing that.

------
chops
Thanks for posting this. This sounds quite the shady venture.

Obviously, the next step for you, at the very least, is disputing the charges
with the card company, seeing that the company is unwilling to refund the
fees.

------
wenxun
p.p.s. Anyone could just simply google "justfab scam" to see how many others
have been victimized. I'm surprised such large scale scam got unnoticed.

------
davewiner
It may be harder than you think to get the credit card company to stop the
charges.

<http://uncrunched.com/2012/08/26/my-undead-credit-card/>

Like it or not they have a good business model.

And the VCs probably don't care if they're ethical, as long as they get a good
ROI.

~~~
cantankerous
Some VC information on this page if you're interested.

<http://www.crunchbase.com/company/justfabulous>

~~~
troels
As an aside, one of the investors is listed as mpizldqpida - what kind of name
is that?

~~~
minimaxir
If you say his name backwards, you send him back to his home dimension.

------
mstefanko
My girlfriend had almost the exact same experience, such a scam. I was
outraged when I looked through the site a year ago. In her opinion the shoes
she did get we'rent even good quality, she gave them away. And when she called
about the $40 charge that she knew nothing about, they told her she didn't
want to cancel. When she asked why not, she was told they'd be getting some
really cute shoes in next month and wouldn't want to miss out. Even after
getting out of it, she was still called 3 times in future months to ask why
she was unhappy with her purchase/and the membership she never knowingly
signed up for. Can't stand JustFab or companies like it.

------
arbuge
No idea if this is a common experience but if you want a refund, just call
your credit card company and do a chargeback...

------
alizaki
Shoedazzle pioneered this but had to get rid of the subscription and flip to a
per-item charge because of scam complains.

------
calbear81
Similar sites like ShoeDazzle recently removed the monthly subscription model
so they will likely follow given enough complaints.

Note that as someone pointed out below, the billing provides a credit so
theoretically your girlfriend has $320 in credit at JustFab and she can go buy
some one-price-fits all items which makes no sense to me at all (t-shirt at
$39.95 wtf?).

VC investments in LA tend to leverage the celebrity power of the backers since
that gives access to a large audience and guarantees marketing/press coverage
right off the bat.

------
antonej
Assuming for the sake of discussion that there are unlawful deceptive
practices going on, either this company isn't getting the right legal counsel
or is choosing to ignore it. Either way that sounds like bad news.

There are plenty of legitimate businesses operating on continuity models
(monthly charge, keep sending you stuff until you cancel), but they _are_
regulated at both state and federal levels, and many states have laws with
very specific requirements about what must be disclosed and how (e.g., CLEAR
AND CONSPICUOUS disclosure on the checkout page, not buried in the site TOS,
confirmation by e-mail, easy-to-find link to cancel, etc.). I'm not going to
give an opinion on this particular site, but we did a meticulous 50-state
review at eHarmony for just this reason, to head off any claims that consumers
were somehow being misled about recurring charges. It has to be updated as
states change or adopt new laws. The FTC also has jurisdiction but it's much
easier to get the attention of state regulators and especially class action
plaintiffs' lawyers.

------
Osiris
From reading the sign-up page, it sounds like each month you are billed you
receive a 'credit' that can be used to purchase an item from the site.

To me, the responsible thing to do would send an email to customers that have
been billed for the month but have no yet redeemed their credit near the end
of the month. Let them know they have a credit and suggest some items that
they could purchase with the credit.

At least that would give information to the customer so they are more aware of
what's going on sooner rather than later and people may feel less that they
are being 'scammed' because the site was actually trying to help them get what
they are paying for.

However, I agree that the signup page should make it more clear that it's a
recurring charge. In fact, I would support a rule/regulation that required a
user check a box that specifically states, "I understand that I am agreeing to
a recurring monthly charge of $xx.xx".

I know that I'd be pretty pissed if I saw a recurring charge show up that I
wasn't expecting.

------
mrkmcknz
So I had some pretty angry thoughts after hearing this. I mean this is
seriously unethical and immoral and I'll be extremely surprised if this
approach stays after what seems to be an increasing amount of public pressure.

The fact some well known VC's pile a ton of money into this does not surprise
me one bit. The company is making money and to be fair they do explain it
pretty clearly IF YOU GO LOOKING. What they're doing isn't illegal. However,
more should and could be done online to protect people from bad practices such
as these.

CC companies do offer a form of protection through chargebacks, and over here
in the UK whenever I have needed to dispute a transaction the mere mention of
'chargeback' usually kicks the retailer into shape.

One company I have HUGE respect for is TeamTreehouse, I mean look how they
manage a subscription service[1]. Best practice indeed.

[1] <http://cl.ly/image/0u0B1t313e3P>

------
phaus
There are hundreds of websites that operate the same way. JustFab's membership
fee is higher than any other that I've heard of, but there are tons of
websites that are built around the idea that most people who shop online don't
think to read the fine print. While in most cases the burden of responsibility
should fall on the buyer, I think it's perfectly reasonable for a person to
assume that when they buy a product from an online store, that they aren't
going to be automatically enrolled in a membership program. I really hope that
in the near future, people who run such businesses will start getting thrown
in prison where they belong.

------
rmetzler
I sent this link to my brother who is an lawyer / attorney in Germany for
intelectual property and competition/ antitrust law. Apparently justfab.de
operates under German law. He said if another shoe retailer would be his
client, there might be good chances to give them a really good kicking. I
jokingly said, he should ask Zalando. But he refused and said a lawyer is not
allowed to ask people to be his client. So if you run a shoe e-commerce site
under German law and want to see this scam go out of business, you should NOT
ask <http://rechtsanwalt-metzler.de/>

------
yaronsamid
This is classic case of deceptive "negative option billing"
(<http://en.wikipedia.org/wiki/Negative_option_billing>). At BillGuard
(<http://billguard.com>) we see 10's of thousands of people fall into these
kind of shady business models and its our mission to end such deception and
financial abuse. It's pretty amazing that this is still legal and that VCs are
throwing money at it. Even the famed post transaction scam by Web Loyalty
Group was backed by a very prominent VC. Money sells.

------
nck4222
The page clearly says you'll be charged every month. It charges you and
applies a credit, implying you can use the credit any time. It doesn't charge
you and then not let you use the money.

Is it misleading? Yeah slightly, except it says exactly what will happen with
a bright pink numbered list. Did they create the program hoping some people
will forget about it? Yes definitely. But, this a common tactic employed by
any company with a monthly subscription.

All this outrage is a little ridiculous.

~~~
htmltablesrules
No, it's not ridiculous.

------
khangtoh
This is the way most vertical ecommerce startups are operating. My friend just
got a charge from a site that she bought a promotional item and turns out
they're a subscriptiOn service and if you didn't sign in and check skip this
month, they'll bill you without shipping you an actual good.

Which also brings up a thought, remember that there was a used one credit card
number thing a whole back, I'm betting this will get popular soon enough with
all these things happening.

------
rwhitman
Why wouldn't a scam like that be worth a $76m investment? The business is
obviously very lucrative.

If a business is profitable in the hundreds of millions, as long as it is
borderline legal, someone will invest in it. Thats the sad reality of how this
stuff works.

Though it is disappointing that Business Insider didn't take a few seconds to
make an attempt at journalistic integrity, and do some research here rather
than once again simply regurgitating a press release as some fluff piece.

------
carsongross
I thought Groupon only got 30M...

------
zxcjvk
In Poland they couldn't take any money for subscription, because all online
transactions are done with instant wire transfer, not with credit cards. Buyer
has to approve all transactions with sms code. You can define periodic
transfers, but not by accident, and you can always stop them.

There are companies (like pobieraczek.pl) that tried this scam but they had to
take money through courts, and courts decided it was scam and buyers didn't
have to pay.

------
tripzilch
Could you buy something and cancel your account immediately afterwards, so you
just pay once, log in, cancel account, and that's it?

Don't get me wrong, that does not make this right. It's just, I wonder, if
their business model is based on these "zombie subscription fees" (as
reitzensteinm so aptly called them) would they maybe lose money on actual,
singular purchases? (or an unsustainably small profit margin)

------
flexxaeon
Normally you only see these types of action pages on adult sites (and Zynga
games).

All the important info is far away from the button as possible.

Page is 'technically' letting you know that you're signing up for a
subscription, yet the button only says "Complete Checkout"...nothing about
'Signing Up'.

They went through some verbal hoops to not use terms like 'subscription',
'$39.95 a month' and to keep the '$39.95' away from the word 'month'.

------
JimboOmega
I'd also like to note that you can't cancel online; you have to call them.
There's a button to press to cancel, but it just takes you to a page asking
you to call them.

If you're intimidated by the thought of a CSR who will try to argue you out of
cancelling, it gets easier to click "Skip this month" until you forget, and
get charged.

It's a very dodgy business model.

------
nikcub
It is a Netflix for shoes. The difference is that Netflix do not mention their
price without mentioning 'per month', while JustFab never mention it.

I went through the checkout process. If you were introduced to this site as a
cheap shoe store, rather than as a 'netflix for shoes', you could easily be
mislead.

They are definitely in the grey area.

------
tzs
> 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

You called them a scam company in the title and the body, so I am curious why
the reluctance to use the word fraudulent too. What is the subtle distinction
that I'm missing?

------
serkanh
I really don't understand how companies are able to do this, based on how
stringent credit card processors are when it comes to chargebacks. With this
type of misleading selling tactics i would expect JustFab to have chargebacks
well above acceptable standarts of CC processors.

~~~
jdh
Right. Let's consider the possible hypothesis that the customers like the
service and know what they're getting into, and thus chargebacks aren't above
average (which is the actual case with this company.)

Chargebacks don't lie, not at this scale. If customers were being scammed,
they wouldn't be able to process cards.

------
orionblastar
This sounds like the book of the month or CD of the month scams we would get
in the postal mail. The first month is free and you buy discounted books or
CDs but after that each month you buy one or they charge your credit card each
month. Same thing but a web site.

------
brackin
Some of their investors don't seem very credible. Obviously investors they
spoke to picked up on the fact that many of their customers complain about
them. According to ScamBook "10,000 people viewed their article about 'JustFab
Scam".

------
mulligan
A twitter search on JustFab also shows they have hired some spammers to pump
their site. Lots of tweets like this: "Dеаr guуs, whеn will уоu lеаrn? Girls
сan nеvеr hаve tоo manу shоes! Sincеrеly, Sign uр аt JustFab & stаrt buуin"

------
danvideo
checkout the wikipedia page: <http://en.wikipedia.org/wiki/JustFab>

The criticisms are mentions as well as a lawsuit. Also note that this HN page
is given as a source.

------
kkt262
It does mention on their site that if you get charged the 39.95, you will get
a member credit, which you can redeem for one style later on. So at least they
are not just stealing.

Was your girlfriend able to redeem her credits?

------
jeremyjh
If this is such a large scale problem, how do they still have merchant
accounts? I would expect they would be flooded with reversals from the CC
companies and banks.

------
clarky07
While this is a bit scammy, I couldn't get past the part where she didn't
notice this for 8 months. Come on people. Do a budget. Stop being stupid with
your money.

------
Codhisattva
It doesn't seem out of the question that a funder could be just as dishonest
as this company.

------
brianbreslin
Frank & oak has a similar confusing model on their hunt club

------
QuintinAdamis
As crazy as this is, this is an old technique from the adult video (Porn)
industry. Recurring charges that also can't be disputed with either the
company or the issuing credit card company.

------
hcarvalhoalves
Revenue is king. Ethics are optional.

------
jdh
Biased answer but with some facts: I'm an investor in the company, and many
here on HN know me personally. JustFab is not a scam, and I would not be
involved with it if it was -- indeed it's a spectacular and very consumer
friendly company that I'm proud to be a part of and I think will be a great
success.

This comment thread has been quick to conclude that it is a scam, on some
fairly sketchy evidence. While I don't dispute that the author's friends
experience might be true, the fact that someone didn't notice that they were
signing up for a subscription product is somewhat undermined by the fact it
took them 8 months to realize the charge was appearing on their credit card.
It's possibly not a person who pays attention to details.

If you want to understand the degree to which the company's customer base
understands and is in love with the company, check out their facebook page and
the consumer engagement. Here's a pair of shoes they posted for a sneak peak
this week:
[https://www.facebook.com/photo.php?fbid=10152125991230508...](https://www.facebook.com/photo.php?fbid=10152125991230508&set=a.10150096250320508.399057.493343965507&type=1)

90 Comments, 4,800 likes in a few days -- for a commercial promotion. Read the
comments on this or any of their threads -- no one is bitching about being
scammed or not understanding they are members of a suscription site -- they
LOVE it.

Justfab has hundreds of thousands of subscribers. A new subscriber who joined
last month will, given churn rates, be likely to be a paying subscriber for
more than two years. They will make purchases in more than four months in
their first year. They understand the premise: a personal shopper has selected
a boutique for them at the beginning of the month, all the products are great
value, and their obligation is to come and check the boutique that has been
prepared. If they don't want anything that month, they just click skip and
they're done.

Now, many of you would clearly prefer a world where you would not have to log
in to say "no thanks" -- and that world is available to you at the mall.
Justfab shoes are quality identical to shoes twice their price at the mall,
because they have crushed the traditional retailer and supply value chain. But
to deliver the value that the customers want, they need to be very thoughtful
about costs.

The #1 challenge in ecommerce is customer acquisition. Pretty much every
company has to spend more to acquire a customer than they will make in margin
on the first transaction, so you're dependent on a lifetime value of purchases
to make money. The reason few outside of Amazon have been able to make this
work, and even Amazon (and it's bought businesses like Zappos and Diapers)
make very little money is because you keep having to reacquire the customers
to get their business... think of people just clicking through those google
ads at the top, whether they've been there before or not.

The idea of the subscription model is to get customers in a regular habit of
checking in. When they commit to that, Justfab can in turn commit to pricing
for the quality they provide that would be unheard of anywhere else. Justfab's
typical customer isn't wealthy but likes to look good, and can't afford to
just disregard price, and JF is the place they find a
style/quality/affordability combination that works for them.

To be clear: as stated, JustFab is on track to do $100M+ in sales this year,
from hundreds of thousands of subscribers who check in every month and
understand exactly what they're getting into. The site has a very high net
promoter score, a return rate that is less than half of Zappos.

As a general rule, if a customer signs up for a subscription product, doesn't
check in and calls in because they got charged, we explain the system and try
to keep them as a customer, but if they want a refund they will generally get
it. People who don't call for 8 months I'm less sure about what the standard
policy is.

If I go to the homepage, the biggest call to action for me (it's customized so
not everyone will get the same) is "Buy one get one free sale happening now.
JOIN TODAY." If they were trying to trick you, would the call to action say
Join?

As has been pointed out, when you join by making your first purchase, the
purchase page which others have linked has two key things:

* A very clear description that you are signing up for a subscription program. This says plainly and in bold type, in the same font size as everything else on the page: "If You Do Not Make A Purchase Or Skip The Month By The 5th, You'll Be Charged $39.95 For A Member Credit On The 6th. Each credit can be redeemed for any JustFab style on the site."

* A check box that says you accept the terms of VIP membership. This box is in a clear and large font, uses the word membership, and is not opt-out -- you have to proactively opt-in.

I don't see how a reasonable person could argue that this is a scam or a
trick. Not only are the terms presented in plain english and large fonts, the
site has a huge number of passionate and loyal customers.

~~~
hncommenter13
Josh,

I see your long answer, and, being a bit familiar with companies like
Intelligent Beauty, I raise you a long list of questions. I don't expect you
to answer them, but in my mind they can help separate "value-enhancing offer"
for customers vs. "revenue-enhancing trick" for the company.

1.) How long does the average customer stay in the monthly program before
cancelling?

2.) What percentage of customers opt-out on initial sign-up?

3.) On average, what % of the monthly subscription charged to the customer is
ultimately spent on merchandise vs. becomes breakage?

4.) If you changed the text next to the check box to say, "You will be charged
$39.95/month," do you think opt-in rates would change? If consumers aren't
being misled, you should see little-to-no change in opt-in rates.

5) If I call to cancel after N months, do you refund the unused balance? Do I
have to use it as a "store credit?" Do you offer me 100 cents on the dollar or
some fraction thereof? Are consumers given incentives not to cancel or to
convert the remaining unused balance into merchandise before cancelling?

6) Does the unused balance expire? If so, after how long?

7) Do you email customers to let them know they need to log in every month, or
is it their responsibility to remember?

8) What portion of the company's revenues (and, more importantly, gross margin
dollars) is in product sales vs. unused subscription dollars as breakage?

9) Why must consumers call customer service to cancel vs. doing it online? Is
it difficult or time-consuming to reach customer service?

If this subscription is a value-add for customers, one would expect:

\- A high portion of the charged dollars converting into merchandise sales vs.
becoming breakage. Consumers rarely find it enjoyable to be charged $39.95 and
not to get anything for it (even Columbia House sent you the CDs at the same
time they collect the money; you get the money first, and I have to remember
to come to you to get the shoes).

\- A reasonable % of customers opting-out at initial purchase. If 99% opt in,
your disclosure is ineffective, as it beggars belief that people are dying to
pay $39.95 a month. Or, if you change the language of the text box as I
suggest above, no observed difference in opt-in rates.

\- A low churn rate in the % of consumers who call to cancel once subscribed.

\- A consumer-friendly policy that allows subscribers who cancel to receive
100% on the dollar for the unused balance either in cash or store credit, at
their option.

\- The majority of the revenues and gross margin dollars come from shoe sales,
not subscription fees.

\- Easy, online cancellation. Shouldn't it be as easy to get out of the
program as to get into it? If not, why not?

[Edit: formatting, again]

------
zxcvvcxz
Because the scam works.

------
datn
Worked for Zynga!

------
jt11508
There's a big public one of these called Groupon too...

~~~
caw
That was a bit shady if you're buying stock, but I've never had any trouble
buying a groupon, getting a groupon redeemed, or getting one refunded. Overall
I think Groupon is pretty legit for its customers, and businesses actually get
paid (whether or not they can support themselves with the kind of clients
Groupon brings in is another issue).

If you have to read mice type to find out the full T&C, there's something less
than reputable about how you do business.

EDIT: Just looked at the FAQ on the site, they are up front with their 2
options. The shoes are $39.95 if you sign up for the VIP program, otherwise
they're full price. So if you want the sale price, you've got to sign up for
VIP. <http://www.justfab.com/faq.htm#Q02>

------
Mvandenbergh
This looks pretty clear in the FAQ on their website. Every month that you're a
member, you have the option to buy one of that month's items at a discounted
price. If you don't take that option, you get a credit to buy additional items
in subsequent months. If you don't want to sign up for the membership then you
can select that option at checkout (and pay more).

Did it take your girlfriend 8 months to notice this recurring charge on her
statement?

I have a story about forgetting to cancel my online newspaper subscription.
Look for that on HN soon!

~~~
htmltablesrules
Riiiight. So I should have to scour FAQ pages and TOSs in order to
disambiguate that this is an opt-out-only membership-type club with recurring
charges? Go to their home page and tell me it doesn't look like another
zappos. Does zappos continually charge me if I don't come back? No. Then click
on "How JustFab works"...does it say ANYTHING about recurring membership fees?
No, it makes the site seem to be just some kind customized shopping service.

JustFab isn't going to help disambiguate their business model up front because
that would hurt their bottom line.

