Jessica Gardner Reporter

Jessica covers Australia's technology start-up scene, writing on breaking news and trends in entrepreneurialism, media and marketing. She was previously named Australia's best New IT Journalist for 2011.

View more articles from Jessica Gardner

The flip flop flap

Published 23 November 2011 14:50, Updated 28 November 2011 09:41

+font -font print

On August 6 this year Martin Shew bought a voucher from group buying website LivingSocial. He expected to receive two pairs of Havaianas thongs for $24 from online retailer OzThongs. Almost three months later, Shew and the other buyers of 49,232 thong vouchers had not received their footwear.

Customers were furious and both companies – which had failed to keep their customers up to date about when they would receive their goods – were taking a bashing on social media.

On October 25, LivingSocial emailed customers to say the deal had been cancelled. As part of the LivingSocial guarantee, customers could get a refund or, as a peace offering, it offered to source a supply of Havaianas from Brazil.

Shew was tired of the back and forth and elected to receive a refund but says “it’s not about the money, it’s the principle. I’m disappointed because at the end of the day I wanted the thongs and it was a great offer . . . I’ve lost confidence in LivingSocial.”

It’s not clear whether this deal gone wrong was the result of an overwhelmed start-up, bombarded with demand, or something more sinister. Whatever the case, it should be a lesson for daily deal websites and businesses that use them in what not to do, should a deal go awry.

Do you know more or have you experienced something similar with another deal? Email the journalist.

LivingSocial has taken the matter to court, although it will not describe the action it is seeking.

The total value of the vouchers sold was $1,253,224. Usually with group buying deals the website takes a 50 per cent commission. LivingSocial won’t comment specifically on the OzThongs contract but chief executive Colin Fabig confirms it is common practice for merchants to be paid the remaining 50 per cent in two parts – half up front and the rest on evidence of full delivery.

If this practice was followed it means OzThongs has been paid $313,306.

Fabig is refreshingly candid about LivingSocial’s role in the Havaianas debacle. On checking out merchants before deals are offered to customers, “we’re responsible and we take full responsibility”, he says. “We’re just lucky that we’re a big company now and we can afford to protect our customers.”

But what of the other side of the equation? As part of the dispute before the Supreme Court of NSW, the proprietor of OzThongs, Canadian born 34-year-old Mark Robert Ross Neal is not permitted to contact the media or contact LivingSocial’s customers about the failed deal. This injunction, applied for by LivingSocial, also prevents Neal or agents of OzThongs portraying that LivingSocial breached its contracts or acted “dishonestly, improperly, or against good faith” in its dealings with OzThongs. BRW tried to contact Neal, through his acting law firm and OzThongs, but received no response.

Records kept by the Australian Securities and Investments Commission show that OzThongs was established on May 19 this year and a Facebook brand page was created soon after. The OzThongs website began less than two weeks before the first LivingSocial deal went live.

One month after he placed his order, Shew tried to contact OzThongs using a generic sales email address from the company website. He emailed four times in a week and each time received an automated response. He also called a phone number that OzThongs had provided to customers, which was listed in Yatala, Queensland. Again he received no response.

Public conversations between OzThongs and its customers on Facebook, as well as posts on unofficial groups that have sprung up, including “Complaints to OzThongs” and “OzThongs can suck it”, show some customers received goods, even if it did take two months.

Although customer Lucy Crossley-Croffin had already requested and received a refund from LivingSocial, OzThongs sent her two of the four pairs of thongs she ordered.

She believes they are either fake or seconds. Her reasons include: a difference in sole thickness (one 2.1cm and the other 2.5cm); the thongs had no Havaianas tags; the plug part of the thong was “sunk into the sole” and the rubber on the sole was “squishy” as opposed to “dense and heavy”.

“Straight away I thought ‘they’re looking a bit skewiff’,” she says. “We [with her husband] compared them to thongs we’d just bought [from another retailer] and the quality was completely different.”

LivingSocial says it has been shown no evidence from OzThongs that the thongs were delivered. “But we have had customers come through [to us] and say ‘hey, we’ve got some thongs’,” Fabig says.

“We don’t know where he [Neal] has got them from,” LivingSocial chief operating officer Adam Rigby adds.

To fulfil the orders of people who don’t want a refund, LivingSocial employed a Portuguese translator and sent representatives to Brazil to find a supplier.

“All we can say is that we know where we are getting them from now and we know that they’re an official partner of the [Havaianas] factory,” Rigby says.

What Fabig and Rigby are able to talk about is what they’ve learned and what they are changing. “I think we were too slow to realise the merchant wasn’t going to deliver and that was a lesson we learnt,” Fabig says.

Due diligence was done on OzThongs, Rigby says, including credit checks at a personal and company level. LivingSocial was aware that the company was a new entity.

“They had thorough explanations of why that was the case,” Rigby says.

Nonetheless, the company’s vetting procedure will be improved. A risk analyst has been hired and time lines will be put in place that give clear instructions to staff when and what action should be taken if it looks like a merchant will not be able to fulfil an order.

The responsibility for dealing with merchant delivery has been taken away from sales staff. “[Sales people] are scared to lose a deal,” Fabig says. “The bottom line is the merchant had a silver tongue and every time we phoned [he said] ‘the goods were arriving the next day’. They strung us along.”

This was a factor in LivingSocial running a second deal with OzThongs, which in hindsight, Fabig says, was a mistake. “We knew there was more of a demand because we sold out that first deal,” he says. “In our eagerness to do a deal we organised another deal.”

“And he represented that it would be no problem,” Rigby says.

“And so we took his word,” Fabig adds.

LivingSocial’s bread and butter is service deals and this makes up about 90 per cent of the company’s annual $100 million turnover, Fabig says. However, for future product deals, the merchant will be asked to show proof of available stock.

Shew and Crossley-Croffin are disappointed with both LivingSocial and OzThongs. However, Shew believes LivingSocial probably will suffer greater damage to its reputation. “It’s on their brand and their platform,” he says. “It is their responsibility to find suitable vendors or products or parties that have the capacity to fulfil orders.”

Crossley-Croffin says “no way” will she ever buy from LivingSocial or OzThongs again. Although she will keep buying vouchers, the experience has tempered her enthusiasm.

“I recently bought a voucher from Stardeals to go to on a holiday to Thailand,” she says. “I said to my husband ‘I hope we get there and it’s an actual resort and not a tent’. It’s really made me nervous.”

The writer purchased the second LivingSocial and OzThongs deal.