Rug Dealers Bemoan Fake Sales

Fraudulent going-out-of-business sales undercut established Oriental rug retailers

LET the buyer beware.

That is what Oriental rug retailers such as Barry and Lois Kolgian of Kolgian Oriental Rug Galleries in Brookline, Mass., say about going-out-of-business sales, dubbed GOBs by municipal officials.

As much as 40 percent of Oriental rugs are sold fraudulently at GOBs and motel auctions, says Emmert Elsea, owner of Xanadu, an Oriental rug retail store in Leesburg, Va. GOBs constitute the largest organized type of consumer fraud in the nation, says Mr. Elsea.

While legitimate GOBs do occur, retailers says deliberately orchestrated ones have become a widespread practice in the rug industry. Some dealers launch a business in an area intending to ``go out of business'' almost immediately, selling low-quality rugs with inflated prices. After the dealer has exhausted the market in that area, he ``decamps'' and moves to another area. Elsea says he has seen a GOB dealer move in Monday and hold a GOB sale Friday. Uneducated consumer

Retailers say false GOBs are successful in part because consumers are uneducated about Oriental carpets. ``An Oriental rug is a blind item,'' says Steve Sarver, owner of Sarver Antique Oriental Rugs in Indianapolis. Few consumers know what they are buying, and GOBs play on that, says the 24-year veteran of the industry.

Mr. Kolgian and his sister run the Oriental rug business their father started more than 70 years ago. Consumers have to be careful when buying from GOBs, he says. Dealers often misrepresent the country of origin and quality of an Oriental rug, and they falsify the rug's value. The average markup on an Oriental carpet sold at a GOB is 13 times what the dealer paid, Elsea says.

There is no guarantee on a rug purchased at a GOB sale, since GOBs are in business for a short period of time, Kolgian says. ``An established rug dealer stands behind his goods.''

GOBs hurt legitimate Oriental carpet dealers two ways: They sell low-quality merchandise that ruins the reputation of all rug dealers, and they can run reputable dealers out of business by offering prices that they cannot match.

``A good GOB in a major city can kill the [rug] business for six months,'' Mr. Sarver says.

He notes a typical scam. He saw a dealer go from $90,000 to $30,000 to sell a rug at a GOB sale. The customer bought the rug for $30,000. A true appraisal revealed the rug to be worth $20,000.

To protect themselves, Sarver says, consumers should shop around. If a rug dealer has been in business three years or more, he says, he probably is in the business to stay. To maintain a reasonable sales volume, reputable dealers sometimes need to slash prices and still can not make enough of a profit to stay in business, Sarver says. Tough business climate

``It's sometimes very tempting for an honest rug dealer to become dishonest,'' he says, ``because a lot of the dishonest rug dealers are very wealthy people.''

Most GOBs get their rugs from wholesalers, usually in large cities such as New York. Wholesalers sell to GOBs because it is a convenient way for them to liquidate their overstock of low-quality rugs, says Tom Atiyeh of Atiyeh International Ltd., in Portland, Ore. Mr. Atiyeh is an Oriental rug wholesaler who says he refuses to sell to GOBs.

``We don't believe that it [a GOB] is a legitimate way of merchandising Oriental rugs,'' he says. ``The consumer usually pays more for the product than they should, and the product is usually inferior to a regular-established retailer's merchandise.''

Most states have laws that prohibit a dealer from going into business with the intent to go out of business. (Some states specify how long a dealer must be in business before he can file to go out of business.) A dealer also cannot suddenly add to his inventory to sell goods at a GOB. And a GOB sale is limited to a certain length of time.

Some going-out-of-business sales can be closed down by proving that what the dealer is advertising misrepresents what he is selling, Sarver says.

But the consumer protection agencies, the attorney general's office, and local law-enforcement officials do not have the time or the interest to investigate GOBs, he says, partly because they do not see GOBs as a threat to the American public.

Edgar Dworsky, an assistant in the consumer protection division of the Massachusetts Attorney General's Office, says GOBs are not a ``high priority'' complaint from consumers. It is more common, he says, to hear complaints about losing a deposit at a store that is going out of business.

The attorney general's office has not taken any GOBs to court, Mr. Dworsky says, but it has had a number of dealers in the office to ``lay down the law'' on advertising. ``We are not in the business of closing companies,'' he says.

Leslie Stroh, publisher of Rug News magazine, says he is not completely opposed to GOBs.

What GOBs can do is offer wholesalers cash. Wholesalers often supply rug retailers credit on their purchases, says Mr. Stroh, a former Oriental rug wholesaler. But wholesalers need cash to import rugs from manufacturers, and GOBs tend to be better suppliers of cash than other retailers, Stroh says.

Elsea has started Carpet Group International. He tries to encourage manufacturers to sell directly to retailers. This would eliminate the markup retailers pay on rugs from wholesalers, Elsea says, which in turn would reduce the price retailers charge consumers.

But Stroh says wholesalers are afraid Elsea will detroy their business. Elsea responds that many retailers will always need a provision to buy merchandise on credit, since they will not always have cash to buy directly from manufacturers.

A GOB is the most expensive way to run a rug business, Stroh says, because the cost of advertising is relatively high. GOBs only last as long as the ``gullible public'' continues to patronize them. If GOBs obeyed state laws, Stroh says, they probably could not make money.

``Yes they operate illegally. Yes they violate the law. Yes they probably overprice the goods to the customer. Yes they mislead and misdirect the customer,'' Stroh says. ``But at the end of the day, the customer buys a halfway decent rug.''

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