AMAZON

Brandon Young sells around $10 million worth of products a year on Amazon. But he's one of many sellers frustrated by what they say is a tilted playing field on the platform, particularly when it comes to competing Amazon private labels.

SEATTLE - When Jeff Peterson's Amazon seller account was hacked recently, he frantically tried to reach Amazon's customer service for help restoring access to his sports memorabilia store.

As nearly 4,000 fraudulent orders rang up, the Garden Grove, California-based seller called Amazon's seller support line, phoned its main customer service number, reached out via a separate account on its Canadian site, and even sent an email to chief executive Jeff Bezos. Nothing worked.

"I can't get any answers from Amazon at all to fix this," Peterson said, as negative reviews of his service accumulated, decimating his business.

One thing he hadn't done was pay as much as $5,000 a month for a program Amazon offers sellers as a way to get quick help from a real person.

Amazon has become a powerful marketplace alongside its role as an online retailer, with more than 2.5 million third-party sellers who have become global businesses on its platform. Early on, Amazon compelled sellers to use its warehouses to guarantee speedy Prime shipping, in addition to other programs that largely benefited consumers. But now, sellers and former employees familiar with Amazon's internal strategy say the company is increasingly focused on boosting its profits on the backs of its sellers - often without any clear upside for customers.

The services include charging sellers thousands of dollars to speak to account managers, as well as making it necessary to purchase ads to guarantee the top spot on a search page. Plus, Amazon is aggressively pushing its own brands - something that may be cheaper for consumers in the short run, but demonstrates its overall power over pricing and merchandise on the site. That gives it an advantage over rival products and sellers who rely on Amazon for their livelihood and have few alternatives if they want to thrive selling online.

Amazon says its success is dependent on those sellers and insists it always prioritizes shoppers.

As much as a third of every dollar merchants make goes back to Amazon, according to consultants and sellers. That helped Amazon generate $42.7 billion in revenue from seller services such as fees and commissions last year, a number that has nearly doubled in two years.

That has drawn the attention of regulators and lawmakers both in the U.S. and abroad, who are investigating Amazon and other large tech companies for potential violations of antitrust law and abusing dominant marketplace power. Traditionally, U.S. regulators have focused on consumer harm, but officials recently emphasized the need to look at the way several tech giants are using their market clout to lower quality, reduce innovation and diminish consumer privacy as officials consider regulating giants of the digital economy.

With regard to Amazon, the Federal Trade Commission appears to be probing how the online retail giant decides who wins each sale and at what price, as well as how Amazon can harm competition by suspending seller accounts or changing its rules with little notice and without appropriate ways to appeal those decisions. The FTC, which has taken on oversight of Amazon, has been reaching out to sellers on those topics in recent weeks, according to sellers who declined to be named due to concern about retribution from Amazon. FTC spokeswoman Cathy MacFarlane declined to comment.

In July, the European Union launched an investigation into Amazon's conflicting roles as both a platform and a retailer of its own products. And the German competition agency reached a deal with Amazon, in part requiring the company to offer third-party sellers 30 days' notice before suspending accounts. Amazon said at that time it would cooperate fully with the EU "and continue working hard to support businesses of all sizes and help them grow."

Amazon's approach is similar to the way Apple built its iPhone app store, in which developers both play by its rules and compete against the tech giant. And it also resembles the way Microsoft, decades ago, used technology to restrict the types of software that could run on its Windows operating system even as it developed its own competing applications.

Amazon notes that third-party sellers sold $160 billion in merchandise on the site worldwide in 2018, or 58% of all physical merchandise sold. "Third-party sellers are kicking our first party butt. Badly," Bezos wrote in his annual letter to shareholders in April, winning against the company's own retail operations. (Bezos owns The Washington Post.)

Sellers are a crucial piece of Amazon's business, and the company invests billions of dollars in digital tools and physical infrastructure to help them thrive, said spokesman Jack Evans.

"Amazon only succeeds when sellers succeed and any claims to the contrary are simply wrong," Evans said. "Sellers have full control of their business and make the decisions that are best from them, including the products they choose to sell, pricing, and how they choose to fulfill orders."

Evans disputes the company has prioritized profits over serving consumers, noting that it invests heavily in driving traffic to its site and improving its infrastructure, which benefits third-party sellers, too. Many of the company's fees are for optional services, and it has recently lowered some.

Still, many third-party sellers say they worry about Amazon's dual role: a massive open marketplace and a giant competitor in that marketplace. Those sellers complain - increasingly publicly - that Amazon's ever-increasing power has resulted in a system in which only a few can succeed, and only through paying up.

For every dollar that shoppers spend on products from third-party merchants, as much as 30 to 35 cents goes back to Amazon to cover commissions, advertising buys, account management deals and more, said James Thomson, a former senior manager in business development at Amazon and now partner at brand consultancy Buy Box Experts.

Two-thirds of U.S. shoppers usually start their search for products on Amazon rather than on Google or another retail website, according to a March survey from Feedvisor, a company that helps Amazon's third-party sellers with pricing. When people shop on Amazon, they often don't recognize whether they're buying products directly or from a third-party.

Amazon is the largest online retail site, and it should account for about 37.7% of U.S. e-commerce sales this year, according to the research firm eMarketer. And many sellers say business from Amazon accounts for 75% or more of their annual sales.

It can be less costly to do business on other platforms. Some other marketplaces don't charge the same broad range of fees on top of their commissions. Walmart's commissions for sales by third-party merchants are similar to Amazon's, according to the companies' websites. EBay is cheaper still, taking, for example, just 9.2%the cost of jewelry sales compared to 20% at Amazon. EBay, though, also charges another roughly 3.5% payment-processing fee, company spokesman Ryan Moore said.

But eBay, Walmart and other retailers make up a fraction of U.S. third-party marketplace space. Robert W. Baird & Co. analyst Colin Sebastian estimates that third-party sellers generated roughly $90 billion in U.S. sales for the online retail giant last year - a little more than half what it generated globally. Amazon doesn't break out the domestic number. That compares to $33 billion at eBay, he said. And third-party sales at Walmart are "negligible in comparison," Sebastian added.

Amazon, though, views the market differently. Amazon argues that it is part of the total retail market, of which it accounts for less than 4% domestically.

Its e-commerce dominance has allowed Amazon to make major changes that can result in a ripple effect across its marketplace. For example, late last year Amazon struck a new deal with Apple to sell its products on its website. But the deal also made it much more difficult for third-party merchants to sell used iPads, Macbooks and more, according to some sellers. Now, they need to use genuine Apple replacement parts on those refurbished items, among other requirements, Amazon's Evans said.

Josh Gibson says his Seattle-based CTG Inc.'s sales plummeted after removing his Apple stock from the site. "We peeled out because we weren't going to compete against Amazon," Gibson said. "The house always wins."

U.S. lawmakers are also looking at Amazon's efforts to boost its advertising sales, a business that accounted for roughly $3 billion in revenue in the second quarter of 2019.

At a House hearing in July, Rep. Val Demings, D-Fla., said, "Because businesses are increasingly dependent on Amazon, some of them are concerned that Amazon is using its ad business to squeeze more money." Amazon lawyer Nate Sutton replied that advertising isn't necessary to succeed on Amazon.

Jason Boyce, a onetime merchant on Amazon who is now a consultant to those third-party sellers, disagrees. "If you don't advertise, you lose organic sales," Boyce said of transactions not driven by ads. That's because Amazon directs shoppers to products that sell well, in turn hampering items without ad dollars behind them.

His outdoor company Dazadi.com sold an air hockey table that won hundreds of positive reviews and consistently landed in the top three search results, free. A few years ago, after Amazon introduced sponsored ads, his hockey table dropped in results, he said. Boyce decided to pay $5,000 to $10,000 a month for advertising to recover top placement.

When Boyce left Dazadi last year, it was spending nearly $400,000 annually - about 2% of its total sales - on all its Amazon advertising, just to make sure its product pages were among the leading results.

"It was freakin' painful," Boyce said. Dazadi did not respond to a request for comment.

The vast majority of sellers have built and run their businesses without advertising on Amazon, company spokesman Evans said.

Lawmakers have also pointed in hearings to Amazon's ever-increasing fees as potential evidence of a monopoly.

Recently, a hacker hijacked Sanjay Chandiram's Amazon listing for a kids' walkie-talkie and recategorized it under "sex toys," a tactic employed by rogue sellers as a weapon to ensure a product drops out of competition. Chandiram, the chief executive of Bellevue, Wash.-based Kaliber Global, spends $5,000 a month for a service called Amazon's Marketplace Growth, where he has an account manager who fixed the problem within 48 hours.

Despite Chandiram's seven-year record selling on Amazon, as well as being a top-150 seller, he said it can be nearly impossible to get help from Amazon's mostly automated systems without the service, so he pays up. He now also has to spend millions of dollars advertising on the site.

"The overall treatment sellers receive from Amazon is nowhere close to the way they treat their customers," he added. "We are not treated as partners in this relationship. Things are pretty one-sided."

But if sellers aren't willing to pay, they say the results can be devastating.

Peterson, the hacked seller of memorabilia and collectibles supplies, said it took three-and-a-half weeks before he was able to access his account. But the damage was done. Amazon froze the payments for the 4,000 orders, and has since refunded them to customers. Shoppers trashed his store, Perfect Sports Fan, in reviews as "untrustworthy" and a "scam." Those negative comments are key factors in Amazon's search algorithms, and have tanked sales. (Amazon removed the comments after Post inquiries.)

Before the hack, Perfect Sports generated about $5,000 a day in sales on Amazon, which accounted for about 75% of the company's total revenue. Peterson estimates he lost about $225,000 in sales during the 45 days his business was paralyzed, forcing him to lay off three employees.

Amazon's Evans said the company handled more than 40 million contacts from sellers last year, and that 80% of their issues were resolved within 24 hours. He declined to comment on individual sellers' experiences.

Regulators are also asking sellers about the hawking of Amazon's now more than 100 private-label brands.

Over the past few years, Amazon has drawn on copious sales data from products on its site to help determine markets to target with its own homegrown products. The company's private-label goods include everything from batteries to vitamin supplements and diapers to nicotine gum. The company has recently been pitching those items next to the box on product pages where customers add items to their carts.

Last month, the House Judiciary Committee asked Amazon to provide extensive records related to how it prices and displays its products alongside those sold by rival sellers.

Miami-based seller Brandon Young sells a hanging toiletry bag that was doing well before Amazon introduced its own version last year. Amazon also added a new row of items high up on the page under the heading "Top rated from our brands." Young's bag dropped from the top two rows to below the first screen of the results, and sales were halved overnight to 70 a day. To salvage sales, he cut the price of the bag by $4 to $10.99. The AmazonBasics version sells for $12.22.

"There is definitely an unfair advantage that they have for their brands that they don't offer other sellers," Young said.

Like other retailers, the company studies overall sales to make decisions, Amazon's Evans said. Amazon does not give itself preferential or exclusive placement in the product search rankings, he added, calling the "top rated" row of items "merchandising" that appears alongside search results.

Regulators may be harder to convince. Amazon's clout is such that a fee increase of, say, 5% wouldn't lead to a mass migration to eBay or another rival service, said Juozas Kaziukenas, chief executive of e-commerce research firm Marketplace Pulse.

That is key, because judges tend to define a company as dominating a market if its customers would absorb a "non-cost justified price increase" rather than moving to a rival, said Herb Hovenkamp, an antitrust professor at the University of Pennsylvania Law School.

Kaziukenas believes Amazon's reach would lead sellers to pass on those costs or eat them.

"The whole industry is locked into Amazon dominance," Kaziukenas said.

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