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With DirectBuy, it will cost you a lot to save

Consumer Reports News: September 13, 2007 02:42 PM

Your town or city might have been blanketed recently with newspaper ads and TV commercials for DirectBuy. The nationwide buying club, with headquarters in Merrillville, Indiana, promises members access to 700 brand-name manufacturers of home goods and the opportunity to buy merchandise with no “hidden store markups and middlemen costs.” Ads invite you to an open house, where you’ll see “confidential” wholesale prices. “We can’t show you the brand names and we certainly can’t show you the prices,” read one ad. What it also doesn’t show you is DirectBuy’s steep membership cost.

The Real Deal
To evaluate the pitch, we went undercover at two DirectBuy franchises in New York. Both gave us the same hard sell and offers of up to 70 percent off retail prices if we were to join. Only after an hour and a half of sales pitches and video testimonials from members did we learn the membership fee: $4,900 to $4,990 (plus tax) for three years and then $190 a year for seven more. Financing is available at 17.75 percent.

After the fee disclosure, we discovered that we had to sign up on the spot or never come back. We couldn’t bring DirectBuy’s “confidential” prices elsewhere to comparison shop, the representatives said, because this would likely anger retailers who might then retaliate against the manufacturers by refusing to sell their merchandise.

The fine print in the DirectBuy contract says you cannot return items, cancel orders, or terminate your membership. When we asked if, after plunking down $5,000, we could cancel and get a refund, a salesperson said, “You’ll have to check state law.” A review of New York state law revealed that the three-day cooling-off period for canceling contracts wouldn’t apply in this case.

Tacked onto the cost of merchandise—which you select from catalogs since DirectBuy has limited showrooms—are a 6 percent handling fee, shipping fees, and tax. Goods are typically shipped only to your local center, so you might pay additional fees to actually get your new stuff home.

Just how good are the prices? We compared them against those of other retailers. Prices for electronics and appliances were often only slightly better than those at online retailers and in some instances higher. For example, a 46-inch JVC flat-screen TV selling for $2,586 on DirectBuy’s site cost $2,095 elsewhere. We did find deep discounts on flooring and high-end furniture. In fact, one member we interviewed estimated that she saved about $50,000 over several years on furniture and a kitchen remodel using DirectBuy. Yet the club did poorly on some basics. We found a Kohler bath faucet for $300 less on a kitchen-and-bath Web site.

Some DirectBuy members complained to us about poor customer service and long waits for merchandise. But since DirectBuy outlets are franchises, service varies by location. Most outlets have a good record with the Better Business Bureau, though some have a poor one or have been suspended from the BBB.

The Bottom Line
The lack of price transparency makes it hard to evaluate whether you’ll save by joining DirectBuy. But even if you were to save 25 percent on purchases after joining, you’d need to spend more than $20,000 just to recoup your membership fee. DirectBuy might save you money if you’re furnishing a house from scratch or doing a major renovation. But since you can’t shop around beforehand, you’ll be joining blind.Chris Fichera

This article first appeared in the September 2007 issue of Consumer Reports Money Adviser.

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