Big news! A seller has revealed that a certain cross-border internet celebrity has been cutting leeks, and has lost 13 million yuan in a year

Cross-border internet celebrity loses 13 million yuan in a year by cutting leeks, according to seller's revelation

Many bloody lessons from previous cases have taught us that cross-border agency services are unpredictable and often mixed with a large number of deliberate “sheep shearing” scammers. Some newly-entered Amazon novices are often deceived by the exaggerated language of these scammers due to lack of experience, resulting in the loss of both store and wealth.

Recently, another seller exposed a fraudulent sheep shearing scheme in cross-border agency, lamenting that a certain cross-border internet celebrity had caused them to lose millions.

A seller revealed that a certain cross-border internet celebrity had lost 1.3 million in a year due to sheep shearing

In January 2022, the seller revealed that they signed an agency agreement with the cross-border internet celebrity named Xi, and paid a deposit of 200,000 yuan. According to the contract, an investment of 2 million yuan was required in a year. If there is a profit, the seller gets 70% of the profit and Xi gets 30%; if there is a loss, Xi covers 70% and the seller bears the remaining 30%.

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The seller chose to enter the pet category, with the seller being responsible for the money and Xi taking on the entire operation process such as product development and logistics. It is reported that Xi has more than 300,000 followers on short video platforms, and the seller, as a longtime follower, despite being warned by a lawyer that there were many loopholes in the contract, still paid a membership fee of 4,999 yuan and invested 50,000 yuan to become one of more than 40 original shareholders based on trust.

After the contract was signed, product design and development officially began in February, and the first product was not launched until the end of June. Due to improper cooperation in the early stage, the product was rejected for more than half a month despite being at the top of its category. Soon, the seller realized that things were becoming more complicated than expected.

The following content is all disclosed by the seller, and has been summarized and sorted by BusinessDialogue:

1. Falsifying store data and false advertising, causing ACOS to skyrocket and burning advertising fees

In August 2022, Xi promoted the seller’s brand incubation ideas through DingTalk live broadcast, packaging pet chew toys that cost only a dozen dollars as home products with high unit prices of 60-80 dollars, inducing students to buy 400,000 yuan of agency operation services by fabricating store data.

Throughout August, the seller invested nearly 700,000 yuan, but did not receive the first payment until December, and the store and single products have not yet achieved profitability. Moreover, Xi’s team only downloaded advertising data twice during the 83 days of operating the store, and the main operator was a novice born in 1999.

▲ Picture from the seller’s disclosure

From July 17th to September 17th, 2022, the store’s ACOS reached as high as 100%-800%, burning tens of thousands of advertising fees, but the operation did not find any abnormalities and adjust them in time. If advertising costs are not included, the product’s gross profit margin is only 0.16%-20.48%, and if the advertising expenses are added, the negative gross profit margin directly skyrockets.

2. Falsely quoting prices to earn price differences, and privately stealing the seller’s patents

In September, Goupinpan was launched, and the factory price of similar products on 1688 was basically a dozen yuan, and the price on Pinduoduo was even lower. However, Xi raised the price to 54 yuan on the grounds that the cost of environmentally friendly materials was high, and required the seller to pay half of the mold opening fee in advance.

The seller paid 55,000 yuan for the mold opening fee on September 9th, but did not receive a detailed quotation until November 22nd when the remaining half of the payment for the mold was paid. The other party did not label the mold with the specified exclusive code as required by the seller, and even unilaterally terminated the cooperation in January.

▲ Image source from seller’s disclosure

Starting from May last year, the seller repeatedly asked the legal and supply chain manager of the Xi team to apply for a design patent, but failed. On October 21st, when inquiring about the patent processing matter again, the seller was told that the other party had registered the patent under the name of Xi company without authorization. Since applying for a patent takes 6 months and transfer takes about 2-3 months, the seller needs nearly a year to obtain the patent.

3. Falsely reported mold opening fee of 280,000 yuan as 680,000 yuan, with a factory price difference of 70-80 yuan

For the same mold, other mold factories quoted 280,000 yuan, while Xi falsely reported it as 680,000 yuan, and lied that the manufacturer was willing to bear 280,000 yuan, and the seller only needed to pay the remaining 400,000 yuan for the mold opening fee. In terms of unit price, the general estimated factory price per unit is 70-110 yuan, but Xi quoted 175 yuan, swallowing a huge price difference of nearly 80 yuan, and refused to disclose the specific product price list.

At the same time, another project, a pet feeder, also had a major mistake due to Xi’s choice of unreliable factory. Under the insistence of the seller, the other party finally revealed the factory information, and the seller found that the factory had no experience in producing pet feeders after inspecting it. However, Xi still entrusted the project worth hundreds of thousands of yuan to the inexperienced factory.

▲ Image source from seller’s disclosure

4. High defect rate of products and crazy complaints, plagiarizing patented products 100%

In addition to the incubation project, the seller also asked Xi to make a pet water dispenser. In October 2021, he met with Xi to express his needs, and the design draft was produced in December. It was not until the end of August last year that 2,000 water dispensers were delivered. However, general water dispenser factories promise to deliver within 3 months, otherwise they will pay high liquidated damages.

While the product delivery cycle is too long, the accessory quotes have doubled. The market price of the filter element is generally 1 yuan, with a minimum order of 1, but Ximou started quoting 4 yuan with a minimum order of 3000 sets (15000pcs); the market price of standard water pumps is generally 10-16 yuan, with a minimum order of 1, but Ximou company quoted 32 yuan with a minimum order of 1000.

Due to Ximou’s wrong choice of manufacturers, the seller invested more than 300,000 yuan and spent more than a year but missed the best entry point, and also received a defective product that could not be sold normally. Due to multiple complaints about water accumulation caused by filter defects, the seller had to give up after pushing tens of thousands of links.

While the water dispenser manufacturer adjusted the filter, the seller was also testing it synchronously. Although the seller repeatedly urged that the patented standard filter must not be infringed during the production process, the manufacturer still copied the standard product exactly, with a hundred percent infringement of the product.

▲ Image source: seller’s exposure

On November 2, 2022, Ximou agreed to the seller’s request to terminate the cooperation in advance, but then went back on their word and demanded that the seller continue to invest 2 million. On December 7th, Ximou asked the seller to supply an additional 13,000 units (worth more than 200,000 yuan) with an order quantity more than 5 times the monthly sales in the off-season, and without any operational plan.

Due to the overbearing clause signed by both parties, the seller could only continue to cooperate with them. As of December 2022, the seller has invested more than 1 million yuan, but only received 100,000 yuan in return. On January 6th, Ximou announced that the seller had breached the contract and unilaterally terminated the cooperation. Not only did they not make up for the loss or compensation, but they also swallowed up 200,000 yuan in deposit, withheld 5,220 yuan in AGL prepaid expenses, and withheld more than 40,000 yuan in water dispenser compensation, totaling 250,000 yuan.

After the seller took over the store, they only then realized the reason for the unilateral breach of contract by X: nearly 20,000 items of inventory, a rating of 3.5, the vast majority of which are junk, not accepted by external sites or clearance merchants, and unable to be cleared through normal sales. 5 out of 7 SKUs need to be removed in bulk by Amazon, with products costing only a few dozen dollars and a return of only a few cents. Despite this, such products burned over 600,000 dollars in advertising costs in six months, with only 20,000 dollars in returns for January.

The involved internet celebrity responded, with controversial clauses in the contract

As the situation continued to escalate, internet celebrity X also released a video on their personal social media platform in response to recent disputes. According to X’s account, the disclosing seller tampered with the facts and deliberately smeared them, causing many uninformed people to be misled. X clarified the following points:

1. Key clauses

According to the contract rules, the seller is responsible for funding, and the brand, store, and return account all belong to them, while X’s team bears all human expenses. There are two key clauses: one is to share profits based on actual profits, meaning that cumulative profits must be achieved before sharing can begin; the other is a bottom line clause, which starts counting after the first product is listed. After one year, if the store incurs an overall loss, both parties share the loss at a 70/30 ratio.

Due to the huge risks involved in this cooperation, the two parties negotiated a third clause, in which the seller would pay a deposit of 200,000 yuan. This deposit would begin to be calculated after the product is launched for sale, and after one year, the two parties would settle the account and the deposit would be fully refunded, provided that early termination is not allowed.

2. Fabrication of store data

Due to the outstanding performance of the new product, X intended to share the seller’s store data in their social circle. Due to the seller’s concerns about product information leakage, some of the data was changed to ensure information security.

3. Abnormal Advertising Data

On October 25, 2022, the seller pointed out that there were problems with the advertising promotion method of the West team. The response from the West team was that many keywords with good performance would have more advertising matching methods. Set a reasonable ACOS for each product, and all keywords aim for this goal, and then optimize the bidding regularly. This explanation was also recognized by the seller.

4. Termination of Contract

On November 1, 2022, the seller suddenly proposed to terminate the contract and requested West to buy back in advance. The West team did not agree to this. On November 8, 2022, the two parties conducted profit accounting. According to West, the store had already made a profit in four months. By cutting off the failed products and leaving profitable products, the store had basically taken shape.

5. Patent Grabbing

On December 6, 2022, the seller again pointed out that the West team had not processed the mold code and had grabbed product patents. West’s explanation is as follows: 1. The mold was developed not long ago, and the other party happened to terminate the cooperation and did not pay the mold fee, so the factory could not code it; 2. The seller requested to register a domestic patent for each product produced, but did not have an account for registering patents. Therefore, after consultation, West Company registered it in advance and then transferred it later.

Some sellers who are interested pointed out that the clarification video of West seems to be logically clear, but it is actually based entirely on chat records and does not provide valid evidence. It completely avoids the sensitive operation part and focuses on questioning the customer’s character. The reason why West can confidently demand legal procedures is mainly due to the huge loopholes in the contract signed by both parties at the beginning.

One of the clauses stipulates: From the day when West Company proposes the capital demand, if it has not been received after 14 days, the partner shall pay a compensation of 0.05% per day delayed. If the funds are not received after 28 days from the day when West Company proposes the capital demand, it has the right to unilaterally terminate the contract, require the partner to compensate for the loss, and not refund the partner’s deposit.

▲ The picture is from the seller’s disclosure

“I happen to make pet supplies myself, and this seller’s store brand is called YO**E. After checking their listings, I am shocked. This is not a matter of whether the technology for operating on behalf of others is good or not, it is simply fraud. Among them, the mold fee and the exaggerated price difference of the product, so even if the operating cost and bonus are low, Mr. Xi can still make other money.” said a seller.

Another informed seller revealed that he had known the cross-border internet celebrity Mr. Xi since the early 20s. At first, he mainly provided some basic knowledge of cross-border operations, which was helpful for novices. Later on, he started a long road of cutting leeks, from customized membership to brand incubation, agency operations, Sass software, etc. Perhaps Mr. Xi provided product customization services on the surface, but actually made high membership fees, and agency operations were for eating sky-high mold fees and shocking procurement price differences.

As of now, both parties involved have different claims, but the truth has yet to be determined.

This incident also rings the alarm bell again. Many inexperienced sellers, after initially tasting the sweetness, become more and more deeply involved and invest more and more money, only to wake up to the fact that they have fallen into a scam and regret it too late. In any case, all sellers should be vigilant, carefully identify various agency operation scams, and not become someone else’s “leeks” for the sake of greed.

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