Consumers' unethical business conundrum

Some yoga practitioners in Shanghai are likely feeling a bit less serene these days, thanks to the sudden closure of a chain of studios in the city. According to recent reports, three Yoga Wave outlets have shut their doors without warning, leaving hundreds of customers wondering whether they’ll ever see their membership fees again.

Membership subscriptions at Yoga Waves amount to over 2 million yuan (US$300,000), according to one local media report, which interviewed one disgruntled client who paid over 11,000 yuan for a three-year membership last October. Other customers reportedly shelled out between 3,000 and 30,000 yuan before the unannounced closure.

For the moment, some 200 Three Waves clients have come together in solidarity on a WeChat group, while authorities say the person in charge of the chain remains missing.

Sadly, such stories do happen. In fact, a similar incident occurred just days ago, involving indoor spinning company GuCycle. Although based in Beijing, the company was operating four studios in Shanghai, including one at the Kerry Center and another in K11. According to reports, the company’s Shanghai studios were the first to close without warning, with its remaining branches in Beijing being shuttered soon afterward. All told, the company was said to have pedaled off with 1.2 million yuan in membership fees, while also owing each staff member an average of 25,000 yuan.

While fitness companies and gyms have been appearing in the news lately for absconding with customer funds, late last year it was bike-sharing firms that were folding in quick succession amid concerns about unrefunded deposits. Although individual deposits were relatively small, some larger bike-sharing companies, like ofo, had racked up millions of users by the time they went belly-up.

In the pre-sharing-economy era, too, one also heard similar stories of restaurants, beauty salons and English language schools vanishing from one day to the next. In fact, when I first arrived in Shanghai more than 10 years ago, I remember hearing about several shady private school operators upping stakes in the night, leaving teachers and students in the lurch with regard to unrefunded tuition fees and unpaid wages.

While the details vary, cases like these often follow a familiar pattern. At first, seemingly stable businesses promise hefty discounts to consumers who pony up the cash for multi-year memberships, subscriptions or benefit packages.

Entrepreneurs and owners usually dangle such offers as a way to shore up cash flows, but when business starts to dry up and debts mount, some unscrupulous business people decide to flee with whatever assets they’ve got left rather than facing their obligations. Another characteristic feature of this incredible vanishing businesses is their involvement in over-hyped industries and over-saturated markets.

After so many years and so many cases, it’s alarming to read that some companies continue to vanish with their clients’ money when things go south. Of course, sometimes authorities are able to help customers and employees get the money that’s owed to them; but sometimes this just isn’t possible.

Solutions

Rather than responding to crises after they occur, for the sake of consumers, there needs to be more stringent regulation over the length of consumer contracts, membership programs and other such schemes. There should be limits on what businesses can promise, especially in a city like Shanghai where competition is fierce, costs are high and success is not guaranteed.

Even companies with globally-recognized brand names and years of experience can clear out overnight. Just look at Hard Rock Café’s sudden closure last summer. Businesses which want to offer two, three or four-year membership programs, for instance, should be able to prove to authorities that they are financially stable enough to remain in operation during the contracted period. Companies like schools and gyms should also be limited on the number of classes which customers can pre-book. Ideally, they should also have a minimum amount of solvency with which to reimburse clients.

Authorities have become tougher in recent months on regulating the bike-sharing industry’s deposits, but more attention should be paid to traditional businesses operating in the service sector. I realize that market authorities in Shanghai will have to walk a fine line on any such effort, especially as they attempt to make the city a business-friendly environment by scaling back administrative intervention. Still, while keeping the city open for entrepreneurs, officials must also keep consumers safe from those who would take advantage of them.

Of course, customers must also be wary of deals which may turn out to be too good to be true. As history has shown too many times, what’s here today could easily be gone tomorrow.

Zachary Lowell is a former Shanghai Daily copy editor. He is studying in Germany.