Apple must stop iPad 2 scalpers NOW

iPad 2

One week ago today, iPad 2 went on sale. There are shortages, for which scalpers play no small part. Profiteers buying iPad 2s for resale on Craigslist, eBay or export to other countries are making it difficult for genuine buyers to get the tablets. It's time Apple put people who want to buy and use iPad 2 ahead of those who want to profit from shortages they help create. It's really simple: Put customers before profits.

From the profit perspective, a sale is a sale. Apple can let the scalpers buy up big chunks of tight inventory, knowing that genuine buyers will wait; there is no real tablet competition, so people will come back. That's more revenue, long term anyway, for Apple. From the customer service perspective, Apple would aggressively seek to deter scalping, while working even harder to make sure genuine buyers get their iPad 2s. Scalpers are technically customers, too, from the profit perspective. But the customers Apple should want more are those who buy iPad 2 now for personal or professional use and come back to buy more stuff later. These genuine buyers have potentially longer-term value to Apple than scalpers buying iPad 2s to ship to markets like China and Russia, where the tablet isn't yet available.

Four days ago I explained how "Profiteers feed off iPad 2 shortages." The eBay trade in new iPad 2s is impressive. For example, while writing this post, two auctions finished. A white 64GB iPad with WiFi and Verizon 3G sold for $1,025, or nearly $200 above retail price, after 28 bids.

The other is quite interesting -- two white 16GB WiFi-only iPads. From the seller's description: "I ordered these online on March 11, 2011. One iPad was sent to my house, and the other was sent to my office. They were shipped on March 13, 2011, and are scheduled to arrive on March 17 before 4:30 p.m. central time. The winning bidder will receive two iPad 2s." The pair of iPad 2s sold for $1,522 after 14 bids, or $524 above retail price before tax.

I think there is little more than what Apple already is doing to prevent online shoppers from buying iPad 2s for resale. But the store sales is something altogether different and a situation Apple could better control. In my March 14th post, I recounted a story from Chip Chick's Helena Stone about a Russian gentleman paying people to buy iPad 2s for export and resale overseas.

The Russian scalper wasn't ambitious enough. New York Post reporters Lachlan Cartwright and Jeremy Olshan staked out the same Apple Store -- the big one in Manhattan -- and observed even more startling scalping. They reported yesterday: "Asian black marketeers" handed out "fistfuls of $100 bills to throngs of lackeys. Within three hours, the group had managed to snag nearly all the new iPad 2s available. The Post witnessed more than half of the 400 in line at 8 a.m. -- nearly all of whom were Asian -- hand over their purchases to the group's ringleaders in exchange for cash."

Betanews reader rurikbradbury comments (would you people please use real names!): "Yes it is annoying. On 5th Ave there were 100 Chinese people in line, presumably exporting the iPad 2 to wealthy gotta-have-it-now buyers back in China, or maybe just on eBay. My wife couldn't get one." But rurikbradbury sees them as legitimate buyers as anyone else. "Apple is not really losing that much. The eventual users in China and Russia are just as 'genuine' as the ones in the U.S."

Maybe, but it's about perception, which Apple more typically manages quite well, and serving customers who live in the launch market. These black marketeers are shifting demand -- taking sales from people who otherwise would buy now in the States, jeopardizing Apple's launch plans for other markets and creating concerns on Wall Street that Apple can't meet iPad 2 demand. Apple's loose retail store sales policies enable iPad 2 profiteers.

I offer five suggestions for fixing the problem, from least to most likely effectiveness. None of these is perfect solution, although #4 and #5 together could hugely deter retail store scalping:

1. Discriminate among buyers. Apple should limit iPad 2 purchases to 1 per person, unless the buyer can show proof of being an existing customer, such as having an Apple ID. Hired buyers would be less likely to be existing customers. Unfortunately, this process might discriminate against legitimately new customers. See #4 and #5 for an easy way to prevent that from happening.

2. Require in-store activation. While shortages persist, Apple should require that all iPad 2s be set up in the stores. That means opening the box, which immediately reduces the resale value. People who want unopened iPad 2s can be directed to buy online and helped to make the order inside the store (for an option that would let these people buy in store, see #4 and #5). It's a deterrent only. There are still plenty of people who would pay for open-box iPad 2s on eBay or another country. But even a small reduction in scalping would mean more sales to genuine buyers.

3. Police the line. It's a job no employee should want or that Apple should want to give out. But if there are master scalpers handing out C-Notes so that hired hands buy and hand over iPad 2s, it shouldn't be hard to observe who they are. The question is what to do about them. I called the Manhattan store this morning to see if it had iPad 2s. Yes, but there was a line, and the store had already handed out all the voucher tickets to buy them. If Apple Store employees are going out to the line handing out tickets, they could do so discriminately. People in the line should be asked to produce local ID and credit card before receiving tickets.

4. Temporarily suspend cash sales. This morning, when I called, the 5th Avenue Apple Store confirmed what I already knew. Apple accepts cash for iPad 2, which makes it easy for black marketeers to pay people to buy the tablets. Apple should stop cash sales and accept only debit/credit cards and gift cards for iPad 2.

5. Take online orders and in-store reservations only. Apple should get rid of the long lines, which I suspect no one there really wants to do. Long lines are great marketing and help to drive up enthusiasm -- to make iPad 2 a must-have product. However, Apple should put customers first. Logistically it makes more sense to take reservations for iPad 2, like Apple did with its predecessor, and to offer online orderers a chance to do in-store pickups. 

Reservations would make it much harder for scalpers, because Apple individually notifies people when their iPads are in store. That's something black marketeers can't predict, making it more difficult to coordinate hired hands. In-store pickup would allow Apple to still group shipments -- rather than the more costly process of shipping from China to each buyer -- while providing customers an easy way to order and deterring hired shoppers from grabbing up precious stock.

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