Specialty stores and Retail and Real Estate & Retail

Rug dealers' going-out-of-business sales aren't always what they seem

March 3, 2008

About a year ago, Aria's Oriental Rugs in the Fashion Mall at Keystone had a going-out-of-business sale.

But after the sale dragged on into spring, rival rug dealers became suspicious, theorizing that Aria's was duping the public to drum up sales. The Indiana Attorney General's Office contacted store owner James Fallahi to ask if it really was closing.

It wasn't. So Aria's then ran ads saying the owner was retiring, furthering the impression it soon would close. Now, that's all behind Aria's. A new print ad reads, "Something Old is Something New. A new generation with the same great service and selection."

The apparent marketing games anger other local Oriental rug retailers like Curt Churchman, owner of Fine Estate Art and Rugs in Broad Ripple.

"I'm a reputable rug dealer," Churchman said. "I'm in town to stay. But I've got to deal with these fools who are plotting these nonsensical going-out-of business sales and are taking demand away from me."

Phony going-out-of-business sales long have plagued Oriental rug retailing here and across the country, dealers say. The industry is susceptible because Oriental rugs can cost thousands of dollars, and many consumers lack the expertise to judge whether a rug's quality matches its price. That frequently makes the lure of huge markdowns effective, especially when the discount is off a grossly inflated original price.

But fake going-out-of-business sales are a violation of state law, albeit only a misdemeanor that busy prosecutors rarely pursue. The state requires that retailers going out of business purchase a license from the County Clerk's Office. Though Fallahi hadn't filed for a license, the Attorney General's Office did not refer the case for prosecution.

The Indianapolis area has about a half-dozen Oriental rug dealers, some of whom grimace at the tactics and say they taint the image of their industry.

"If a store does this, it sets an unethical tone for all of us," said Keith Caskey, director of retail operations at Kerman's Rug & Carpet Co. Inc., which is at 4605 E. 82nd St., just east of the Fashion Mall. Last year, Caskey said, Aria's employees paraded up and down 86th Street carrying signs advertising big discounts.

'I just want out'

The use of going-out-of-business sales as a marketing ploy has cast suspicion over another nearby rug dealer who says he truly intends to close.

Sarver's World of Rugs began a going-out-of-business sale in mid-October at his former location at 8301 N. Keystone Ave. That lease expired at the end of 2007, so Sarver's is in temporary space around the corner in Woodfield Crossing--a shopping center that locally based Premier Properties USA plans to demolish to make way for a $750 million mixed-use project.

"I just want out," owner Steve Sarver said. Sarver said he opened his store three years ago with several out-of-state partners. "I did not open a store to have a going-out-of-business sale," he said. "My partners didn't do what they said they'd do." Arias' Fallahi admits having his going-out-of-business sale last year, but said he hadn't realized it was against the law. "I had a couple of ads that I'm going to close my business," Fallahi said. "We were not sure if we were going to close." The Attorney General's Office told Fallahi that if he wasn't closing, he couldn't use words like "liquidation" or "closing" in his ads. "So we stopped," Fallahi said. "It was only for the first week or two, maybe three." Fallahi changed his advertising to promote his retirement as the reason for the sale.

"That was all within the guidelines within the state," he said. "I didn't see the difference. We were still going to sell our inventory."

The new advertising satisfied the Attorney General's Office, said Staci Schneider, its chief communication officer and press secretary.

Aria's retirement sale lasted another 3-1/2 months, Fallahi said.

Fallahi said he still plans to retire but isn't sure when. His son, Sascha Fallahi, may take over the Indianapolis store, which has been open for 13 years, or his other store in Cincinnati, where James Fallahi now lives. That store is having a "retirement" sale now.

After watching Arias' antics over the past year, Churchman has become cynical. He said he's thinking about having a "still in business" sale.

Licensed to close

Steve Sarver said he shouldn't be lumped in with questionable dealers. He paid the $150 fee for a going-out-of-business license, which lasted 30 days, excluding Sundays and holidays. He since has renewed it twice, paying a total of $300 more. The license can be renewed 30 days for every $200,000 in inventory listed on the original license application.

Sarver's original request stated he had nearly $3.8 million in inventory. But another local rug dealer said he is sure Sarver's inventory is worth far less.

"Sarver's is grossly high on value so they can continue renewing," said Mike Joseph, owner of Joseph's Oriental Rug Imports, 4230 E. Fall Creek Parkway North Drive. "The prices are marked up so that the going-out-of-business sale price is comparable to reputable store prices," he said.

In addition to running his store, Joseph works as an appraiser, valuing rugs for homeowners. He said he also works as an expert witness in lawsuits over purchases consumers made at going-out-of-business sales.

Often, he said, stores that normally stock quality rugs will bring in cheap rugs before and during the sales. Indiana law prohibits stores holding going-out-of-business sales from adding inventory once they start.

Sarver said he didn't bring in cheap rugs. And while he could renew his license another 18 times based on the inventory he reported, he said his sale will end by March 15--the date his latest renewal expires.

Sarver said he then will go back to doing what he was doing before--running his other business, Sarver's Oriental Rugs Inc. He's operated that business, mostly out of his house, since the 1980s.

And while a trademark of going-out-of-business schemes is closing one store, only to resurrect it under another name, Sarver said that's not what he's doing.

"That's a totally separate business," Sarver said. His home business specializes in antique rugs, he said, while the store he's closing mostly sells new rugs.

Sarver acknowledges, however, that fake sales have a long history in his industry.

"There are people who go from city to city doing this," Sarver said. "But not as much as they used to. At one time, it was a good way to sell a lot of rugs."

The Attorney's General's Office hears about problems in the Oriental rug business every few years.

"It is not an issue that has come up regularly, but the office has addressed it over the years," Schneider said. She said her office has received no complaints against Sarver's.

Sarver is a longtime member of the Virginia-based Oriental Rug Retailers of America and appears to be a reputable dealer, said Elizabeth Arnold, the organization's executive director.

However, she said his Web site--which claims "Appraisals Certified by O.R.R.A. (Oriental Rug Retailers of America, Inc.)"--might be misleading.

Her group hasn't appraised the rugs Sarver is selling; Sarver has received training from ORRA to make his own appraisals.

Sarver believes another local rug dealer he's been feuding with for decades might be fanning speculation his sale is fake.

"Back in the 1970s, I was going to testify against them," Sarver said, declining to name the dealer who still might be holding a grudge. "Guess there's still bad blood there."

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