How the Goods Are Gotten

Ever heard the phrase “It fell off the back of a truck”?

No, not like that. Pharmapacks buys from the same established, law-abiding distributors that sell to national chains like Walmart, Costco, and CVS. But ask these distributors where they get the products, and some will give an answer as gruff and dismissive as the vehicular estrangement explanation above.

Pharmapacks has agreements with 16 suppliers. Some deal directly with manufacturers. Others get their goods in more circuitous ways. These tight-lipped suppliers are known by their critics as diverters. (They prefer “secondary market distributors.”) They acquire deeply discounted goods through gray-market methods, such as buying deodorant from a company that ordered too much. But diverters don’t discuss where they get their goods. Their lawyers will cheerfully tell you they don’t have to.

When people discuss the rise of online marketplaces, they tend to focus on the tech companies that have made it possible for shoppers to find and purchase things in a matter of clicks. But that explains only the demand side of the equation. It doesn’t explain the supply side–why all this product is available so cheaply and freely in the first place.

In 2014, a guy from Vagenas’s regular pickup basketball game asked to introduce him to a guy his girlfriend had met, Jonathan Webb. He ran a similar business, called StocknGo. Vagenas grudgingly agreed. “I’m thinking, I don’t know this fucking guy from a hole in the wall,” he said. “I didn’t want to bring him to the warehouse.” He brought Webb to a tiny offsite office where Mastronardi ran the numbers.

Webb, like Vagenas, has little patience for nonsense. “He was like, ‘What kind of shit is this?'” Vagenas remembered. “You guys doing $25 million out of this office?”

Vagenas showed him a UPS statement so he could see exactly what kind it was: The shipper was processing 21,000 Pharma­packs orders a week.

Webb and Vagenas connected right away. “Definitely don’t record this,” said Webb directly into my tape recorder. “But it was like love at first sight.”

“Weird as that sounds, he’s exactly right,” Vagenas said. Webb had barely driven away when Vagenas called his cell phone to propose they work together.

Webb brought business and branding experience, since he’d previously run an ad agency. Webb also had a pertinent family connection. His wife’s uncle was the CEO of a distributor based in Ronkonkoma, New York, called Quality King, which is widely regarded as the largest and most successful diverter in the world.

As the tech companies have disrupted retail online, Quality King has spent the past few decades disrupting retail behind the scenes–on trucks, on freighter ships, and through good old-fashioned American litigation. Take, for instance, the 1998 Supreme Court case involving Quality King and a fancy shampoo maker named L’Anza Research. To preserve its cachet, L’Anza made its U.S. distributors sell only to exclusive boutiques and salons at high prices. But L’Anza sold its shampoo more cheaply in Europe, where it was less known. So several tons of L’Anza shampoo intended for distribution in Malta ultimately ended up on a ship headed for Ronkonkoma, for Quality King to sell wherever. (You could say it fell off the back of a boat.) L’Anza sued, claiming a Copyright Act violation, but the Supreme Court ruled unanimously for Quality King: A company buying products on the open market can resell them as it sees fit.

Quality King has been named in more than 50 lawsuits because of its business practices, four times under the RICO Act, the racketeering statute designed to bring down organized crime bosses. Time and again, Quality King walks away, no matter the circumstances. There was the freighter full of Paul Mitchell products that went all the way to China, where much was resold and loaded onto another ship heading to the Netherlands before ending up in Ronkonkoma. There was the con woman who promised to distribute various product samples on college campuses and elsewhere, but sold much of it to the University of Quality King instead. She went to prison; Quality King was untouched.

“Other tech companies–I’m not saying they don’t work hard,” sighs one founder, “but do you see what we have to deal with?”

And courts continue to rule that, so long as the goods are authentic and the buyers come by them honestly, they can resell them as they please. One frustrated lawyer for brand owners, writing in a legal handbook, referred to the company as the “ever-innocent Quality King.” Precedents like these mean that if market­place sellers find a product for less, they can buy it, list it on Amazon, and get the buy box until they sell out, and there’s not much brands can do about it.

In June 2014, Webb and Vagenas teamed up, with Webb and Berkowitz taking an equity position in the company. Quality King is now a supplier, although Vagenas and Webb stress it is only one of Pharmapacks’ four major distributors and not its largest–it buys more from suppliers Kinray and H.D. Smith, for example.

But it’s easy to see the influence. “We constantly get bombarded by manufacturers saying they want us to take their products off our websites,” said Webb. “Before I met these guys, they stopped selling products. They didn’t know any better. Now we have a team of attorneys.”

The same way the Pharmapacks guys won’t divulge the inner workings of their algorithm, they won’t tell manufacturers who their suppliers are, to keep them from snooping up the chain. “We don’t have to tell brands anything, and we don’t want to,” said Vagenas. “And, hypothetically, say a distributor cuts us off from a particular item. We’ll just go find it somewhere else,” said Webb. “You know who it works out for?” asked Vagenas. “The consumer. The consumer’s no longer getting gouged.”

Here is the link to the full INC Magazine Article

http://www.inc.com/magazine/201603/burt-helm/pharmapacks-amazon-warehouse.html

AIM Congratulates 2022 Case Study Winners Recognizing innovators of digital technologies that deliver exceptional traceability results Taking the win for the Blockchain category is iTRACE Technologies, Inc.. Their case study featured a large US based aircraft equipment manufacturer in the used and refurbished parts business. The customer realized including parts provenance data with the parts […]

From the original Press Release https://www.einpresswire.com/article/558553436/the-futurist-institute-releases-the-robot-and-automation-almanac-2022 Automation, AI, and Robots will be critical in 2022, as businesses and industries adapt to supply chain issues, tight labor markets, and high inflation. The year ahead will include big changes in the wake of COVID-19. The Robot and Automation Almanac – 2022 helps analysts, consultants, and leaders evaluate the […]

From the original press release https://www.einpresswire.com/article/557303086/the-futurist-institute-and-itrace-technologies-launch-nfts-for-education-certificates-and-degree NEWS PROVIDED BY The Futurist Institute December 01, 2021, 19:46 GMT SHARE THIS ARTICLE iTRACE Technologies and The Futurist Institute found JV named NFT Degree to promote non-fungible token use for professional certificates and academic degrees. NFTs present a tremendous opportunity for institutions of professional and academic learning to secure […]

The integration of both iTRACE 2DMI® with TME® creates a full suite of security and visibility applications for today’s supply chain that are easy to deploy and manage. PRESS RELEASE UPDATED: DEC 1, 2021 07:29 PST MASS Group and iTrace partnership LAS VEGAS, December 1, 2021 (Newswire.com) – Manufacturing Automation & Software Systems, Inc. dba […]

CCL Design is pleased to announce a partnership with iTRACE Technologies, Inc., a leading provider of supply chain security applications for anti-grey and anti-counterfeit markets, which will deliver iTRACE 2DMI™ highly secure smartphone authentication capability to its customers. REDWOOD CITY, CALIF. (PRWEB) MAY 04, 2021 CCL Design has over 20 years experience of developing multi-layered brand […]