Do you really think that Amazon is a good Paymaster? Anyone who knows a thing or two about amazon will know about their exploitative tendencies.
Now let us see how they treat their own vendors.
Barak Govani made a big bet on Amazon.com Inc. earlier this year that he now regrets. He shuttered his New York Speed clothing store on Los Angeles’s storied Melrose Avenue, packed up $1.5 million in inventory and shipped it to Amazon warehouses around the country, putting his fate in the hands of a company that has routinely presented itself to the world as a friend of small business.
Today, the 41-year-old retail veteran is broke and couch surfs between his mother’s home and his sister’s place. Govani hopes to start anew by getting Amazon to pay him for inventory the company destroyed after suggesting his products could be fake—an accusation Govani strenuously denies. His lawyer in September sent a demand for $800,000—along with invoices to verify his merchandise came directly from fashion brands—and they’re waiting for Amazon’s response.
“All my life, I’d wake up at 5:30 a.m. and work 40, 50, 60 hours each week,” Govani said. “That inventory was everything I had. Amazon ruined my life, and I did nothing wrong.”
Amazon has become the world’s largest e-commerce company in large part thanks to the millions of third-party merchants who have chosen to set up shop on its sprawling marketplace. Small- and medium-size businesses are responsible for more than half of the goods the company sells to customers around the world—moving 3.4 billion products alone in the year ending May 31. The average small business has annual sales of $160,000 on Amazon, up about 60% from the previous year.
In blogs and press releases, Amazon highlights the success of these merchants as a win-win—for them and itself. Lost in the public-relations glare are merchants like Govani.
Stories like his have swirled for years in online merchant forums and conferences. Amazon can suspend sellers at any time for any reason, cutting off their livelihoods and freezing their money for weeks or months. The merchants must navigate a largely automated, guilty-until-proven-innocent process where Amazon serves as judge and jury. Their emails and calls can go unanswered, or Amazon’s replies are incomprehensible, making sellers suspect they’re at the mercy of algorithms with little human oversight.
Recourse is limited because when merchants set up shop on Amazon, they waive their right to a day in court by agreeing to binding arbitration to resolve any disputes. Amazon doesn’t negotiate terms with merchants. The boiler plate agreement is take-it-or-leave-it, a telling reminder of who has the upper hand in the relationship.
How Amazon treats third-party sellers is at the heart of a recent House Judiciary Committee report concluding that big technology companies often abuse their power over smaller partners. The committee’s recommendations include providing adequate recourse to sellers and eliminating forced arbitration clauses from contracts that deprives them from filing a lawsuit.
“Because of the severe financial repercussions associated with suspension or delisting, many Amazon third-party sellers live in fear of the company,” the report states. “This is because Amazon’s internal dispute resolution system is characterized by uncertainty, unresponsiveness and opaque decision-making processes.”
In an emailed statement, an Amazon spokeswoman said the company works hard to ensure products sold on its site are authentic and provides a fair dispute resolution process.
Govani has been selling clothes for more than 20 years, mostly brands like Hugo Boss, Calvin Klein and Lucky. About a decade ago, he began supplementing his store sales by putting merchandise on web marketplaces including Amazon and EBay Inc. Amazon emerged as the most effective partner, accounting for more than 90% of his online sales.
Initially, Govani stored, packed and shipped all the orders himself, paying the company a commission on each sale. Amazon representatives suggested he try Fulfillment by Amazon, a service that handles that for additional fees. Govani decided to send all of his inventory to Amazon, becoming one of 450,000 businesses to try the service in the year ending May 31.
Govani’s problems began soon afterward. In April, Amazon emailed him to say his account was being reviewed based on four customer complaints over “inauthentic” products.
“In order to ensure that customers can shop with confidence on Amazon, we take ‘inauthentic’ complaints seriously,” the message said. “The sale of counterfeit products on Amazon is strictly prohibited.”
One complainant from San Rafael, California, was unhappy with the fit of a $125 Lucky Moto jacket and said she was “wondering if this was a fake.” Govani refunded her money and explained that jackets made with different materials fit differently.
Another shopper was upset that his Calvin Klein underpants arrived in a damaged carton. “Box is pretty much broken, the item is a knock off,” the shopper said in a product review. It’s not clear why Amazon characterized the other two complaints—about apparel wrapped in tissue paper and shipped in envelopes—as “inauthentic.”
Govani appealed the suspension and submitted invoices from the brands to Amazon. His invoices were more than a year old because that’s when he had purchased the inventory, but Amazon wanted invoices from the previous 365 days. Govani was notified that his inventory would be destroyed if he didn’t reclaim it by mid-July. Merchants must pay Amazon additional fees for inventory removal.
SEATTLE — For tens of millions of Americans, it is so routine that they don’t think twice.
They want something — a whisk, diapers, that dog toy — and they turn to Amazon. They type the product’s name into Amazon’s website or app, scan the first few options and click buy. In a day or two, the purchase appears on their doorstep.
Amazon has transformed the small miracle of each delivery into an expectation of modern life. No car, no shopping list — no planning — required.
But to make it all work, Amazon runs a machine that squeezes ever more money out of the hundreds of thousands of companies, from tiny start-ups to giant brands, that put the everything into Amazon’s Everything Store.
In more than 60 interviews, current and former Amazon employees, sellers, suppliers and consultants detailed how Amazon dictates the rules for those businesses, sometimes changing those rules with little warning. Many spoke on the condition of anonymity, for fear of retaliation by Amazon.
Amazon punishes the businesses if their items are available for even a penny less elsewhere. It pushes them to use the company’s warehouses. And it compels them to buy ads on the site to make sure people see their products.
All of that leaves the suppliers more dependent on Amazon, by far the nation’s top online retailer, and scrambling to deal with its whims. For many, Amazon eats into their profits, making it harder to develop new products. Some worry if they can even survive.
“Every year it’s been a ratchet tighter,” said Bernie Thompson, a top seller of computer accessories who Amazon has highlighted in its marketing to other merchants. “Now you are one event away from not functioning.”
Tumi, the luxury bag maker, sold its products at wholesale prices to Amazon for years. But executives said Amazon sometimes misjudged consumer demand, keeping too few bags in stock, and regularly demanded more in marketing and other fees. Last year, Tumi decided to sell its bags to another company, which then listed the items on Amazon. The arrangement gave Tumi more control over inventory and better sales data.
A few months later, Amazon gave Tumi an ultimatum: Stop selling through the middleman, or do not sell to the retailer’s 150 million customers at all.
“Some guy we had never talked to gave us a call and was like, ‘We have changed the rules,’ ” said Charlie Cole, who runs Tumi’s online business. He pushed back, but wasn’t successful.
“It was like talking to a brick wall,” he said. “They want to be able to control everything.”
Companies struggling to navigate Amazon’s growing chaos fill Facebook groups, private message boards and industry conferences. One session at a leading retail meeting next year is called “The Big Question: Is Selling on Amazon Worth the Hassle?” More than 12,000 people signed a petition on Change.org asking Amazon to alter an arcane rule on counterfeit products that they said could “destroy” an entire business.
Many sellers and brands on Amazon are desperate to depend less on the tech giant. But when they look for sales elsewhere online, they come up short. Last year, Americans bought more books, T-shirts and other products on Amazon than eBay, Walmart and its next seven largest online competitors combined, according to eMarketer, a research company.
“The secret of Amazon is we’re happy to help you be very successful,” said David Glick, a former Amazon vice president who left the company last year. “You just have to kiss the ring.”
Amazon says that its operation is so massive, the rules are necessary to give customers a quality experience. The company said the health of sellers was a top priority, and that it had invested billions of dollars to support them. It said that about 200,000 sellers surpassed $100,000 in sales in 2018, roughly a 40 percent increase from the year before.
“If sellers weren’t succeeding,” said Jeff Wilke, the chief executive of Amazon’s consumer business, “they wouldn’t be here.”
Jack Evans, a spokesman for the company, said that Amazon only succeeded when sellers succeed, “and claims to the contrary are wrong.” Merchants can choose the products they sell, how they are priced and how they fulfill the orders, he said.
The policy change that affected Tumi, Mr. Evans said, was to make sure that Amazon had the best prices and availability for popular products. He said that Tumi’s prices were high when it sold through the middleman.
Amazon has faced harsh criticism in the past for displacing Main Street brick-and-mortar retailers. Now, the diverging fortunes of Amazon and many of the companies selling products on its own site are at the heart of the antitrust scrutiny Amazon faces in Washington and Europe. Investigators at the Federal Trade Commission and the House Judiciary Committee are examining whether Amazon abuses its position as the central online connection between people making products and those buying them.
Amazon collects 27 cents of each dollar customers spend buying things its merchants sell, a 42 percent jump from five years ago, according to Instinet, a financial research firm. That does not include what companies pay to place ads on Amazon, a business that Wall Street considers as valuable as Nike.
The pennies add up. Last year, the profit from retail was so high that it surprised even some senior leaders close to the business, according to two of the people involved.
Thanks to the retail success, the company’s profit exceeded its own Wall Street projections by more than $3 billion.
Investments vs. Contributors
Jeff Bezos in 1999, the year he opened Amazon’s store to outside sellers.
Jeff Bezos in 1999, the year he opened Amazon’s store to outside sellers.Credit...Chris Carroll/Corbis via Getty Images
Jeff Bezos, Amazon’s founder and chief executive, lumps the many parts of the company into two buckets, according to the two people close to the business. One bucket is investments, or bets on the future like Alexa, its virtual assistant. The other is contributors, or the profitable businesses that provide money for Amazon’s investments.
To him, the retail operation is a contributor that can be squeezed for cash.
Billions of dollars generated from selling products online go into investments like Alexa, which has 10,000 employees working on it, and the company’s expensive Hollywood productions. And still, Amazon’s consumer businesses, including Alexa and other pricey projects, produced $5 billion in operating profit last year.
The financial success stems from a big strategy shift that was underappreciated when Mr. Bezos made it two decades ago.
From the day the company started shipping orders in 1995, Amazon offered customers products the same way as traditional retailers like Target, buying them at wholesale and reselling them at a higher price. Four years later, Mr. Bezos and his team decided that Amazon would also let companies list items on the site for a cut of the sale, more like eBay and Alibaba. The change allowed Amazon to offer a wider variety of products.
“We want to try and build a place where people can come to find and discover anything that they might want to buy online,” Mr. Bezos said that year.
The decision eventually turned Amazon into the one-stop shop it’s known as today. Shoppers could find not only well-known brands like Tide detergent, but also obscure Christmas ornaments.
Initially, the move empowered sellers and gave them access to millions of customers. They could ship their products however they wanted. And they could set their own price.
Bit by bit, the sellers lost control.
Lured Into Shipping
An Amazon fulfillment center in Baltimore, part of the company’s multibillion-dollar investment in warehouses.
An Amazon fulfillment center in Baltimore, part of the company’s multibillion-dollar investment in warehouses.Credit...Gabriella Demczuk for The New York Times
When Amazon opened its doors to sellers, the fulfillment industry — for storing, packing and shipping online orders — was in its infancy. Many top sellers on Amazon ran their own warehouses.
Seeing a competitive advantage in offering faster delivery times, Amazon opened cavernous warehouses near major cities. Inside, workers navigated endless rows to pick products from bins and pack them into boxes.
The expansion left Amazon with extra space to fill, and the company turned to sellers. It pitched them on the idea of paying Amazon to store and ship their products, even those sold on other sites.
James Thomson, a Canadian with a doctorate in marketing, managed a team responsible for signing up sellers, leading them on tours of Amazon’s facilities near Reno, Nev., Phoenix and elsewhere. “Look how vast this is,” he recalled telling sellers. “Look at how we can easily absorb your 10,000 orders a month.”
“You do have a bigger warehouse than mine,” Mr. Thomson remembered them saying, “but I have good rates.”
Several years later, Amazon’s focus changed, and so did its pitch.
In early 2011, only a few million people were Prime members, paying $79 a year for unlimited two-day shipping. But Amazon knew those members spent far more on the site. Executives wanted more people to sign up for Prime, and they wanted to sell those customers even more
That year, Amazon began adding more perks to Prime. Most notable was unlimited video streaming of TV shows like “Mister Rogers’ Neighborhood” and movies like “The Girl With the Dragon Tattoo.”
As more people became members, products eligible for Prime shipping became more popular. Amazon reminded sellers that if they used the company’s warehouses, their items would be Prime eligible, too.
“That is what we were selling,” Mr. Thomson said.
James Thomson, who ran a team that signed up sellers to use Amazon’s warehouses.
James Thomson, who ran a team that signed up sellers to use Amazon’s warehouses.Credit...Grant Hindsley for The New York Times
It worked. The number of sellers using Amazon’s warehouses increased by 65 percent in 2013, according to a letter sent to investors. The company has since spent billions of dollars to continue building out its fulfillment network.
Mr. Bezos noted how intertwined sellers, warehouses and Prime had become in a note to investors in 2015. “At this point, I can’t really think about them separately,” he wrote.
Amazon has since flipped back and forth over whether outside sellers must use Amazon’s warehouses to sell Prime products. But for most types of goods, like pet supplies, cameras and baby gear, more than 85 percent of the top-selling items ship out of Amazon’s warehouses, according to Jungle Scout, which provides data to Amazon sellers.
Amazon has surpassed DHL to become the largest provider of fulfillment and other logistics services in the world, according to The Journal of Commerce, a trade publication.
Many sellers say that the company charges fair rates to fulfill Amazon orders. But they say Amazon is charging them higher prices for other services. For example, because the warehouses operate near capacity, the company charges several times more than competitors to store items before they ship out.
The costs can be several times higher for sellers who use Amazon to ship orders made on other websites. Amazon charges $13.80 for one-day shipping on a T-shirt bought on a site other than Amazon, versus $3.68 when bought on Amazon.
In addition, Amazon had let sellers pay $1 to ship an order in a plain brown box without the company’s smile logo. But in 2016, the company said it would use only Amazon boxes. Sellers were told they could take their product back from Amazon’s warehouses if they wanted. “Return or disposal fees will apply,” it wrote to sellers.
Amazon says that its logistics services are optional and a great value. Sellers who choose to use it “enjoy high-quality fulfillment services that customers want,” the company told Congress’s investigators this year.
The company says it offers lower costs on Amazon orders because it makes other money from them, including commissions and advertising, that it does not get for sales made on other websites.
Shoppers on other sites turn away when products are not available in two days or less, said Karl Siebrecht, co-founder of Flexe, a start-up that connects retailers with a network of fulfillment centers.
“It’s new browser,” he said. “Amazon.com. Click. Buy. Done.”
This summer, Brandon Fishman, the founder of VitaCup, a start-up that infuses coffee with vitamins and nutrients, saw a promising opportunity.
Zulily, an e-commerce site that offers low prices in exchange for slower shipping, wanted to list VitaCup’s products 30 percent off for a short time. It was a chance for Mr. Fishman, whose 35-employee company gets the majority of its sales through Amazon and its own site, to reach new customers.
But Amazon’s software noticed the lower price and removed the bright “Buy Now” and “Add to Cart” buttons from its site. When those buttons are gone, shoppers get a bland text link that says, “Available from these sellers” and they must make more clicks to purchase an item. Those extra clicks are often the difference between success and failure for a seller.
Mr. Fishman’s Amazon sales tumbled, and he emailed Zulily to quickly take down the listing.
“I have told them about my rage many times,” Mr. Fishman said of Amazon. “It has not changed them.”
Amazon has pushed to keep prices low since the day it opened. That has become trickier as more sales came from outside sellers. According to antitrust law, each seller of goods should determine what to charge on its own. To avoid problems, an in-house lawyer is typically present when internal Amazon teams discuss pricing, according to two former employees.
In 2017, Amazon began reducing prices to match competitors; if the new price was lower than the one requested by the sellers, Amazon paid the difference. The company also alerted companies if their products were cheaper elsewhere.
Still concerned about news reports that prices on Amazon weren’t always the lowest, the company tried another approach, the one that hit VitaCup: removing the Buy Now and Add to Cart buttons when its software detected lower prices. When those buttons disappear, sales tumble as much as 75 percent, sellers say.
Executives at Amazon intended this as a tool to lower prices. The company has told Congress that the buttons amount to an endorsement, saying it only displays them on “offers that it is confident will present a great experience for its customers.”
But many brands raise their prices elsewhere to avoid losing the buttons. Or they decide to list their product only on Amazon. That is what happened to a health care supply company that worked with Jason Boyce, who advises online sellers.
“My client cut off Walmart — Walmart! — because it was hurting their Amazon business,” Mr. Boyce said. “If that’s not monopoly power, I don’t know what is.”
Amazon said in statement that sellers “have full control of their own prices both on and off Amazon,” and that the company helps them maximize sales by advising them how to earn the Buy Now and Add to Cart buttons.
Ads by Necessity
The Zulily experience frustrated Mr. Fishman. But he boiled over after another move by Amazon.
One morning in June, Mr. Fishman opened his Amazon app and typed “VitaCup” into the search bar at the top of the screen. On the results page was an ad for Amazon’s own line of coffee.
He had been paying Amazon almost $200,000 a month for ads. Mr. Fishman posted a screenshot on LinkedIn and raged.
“I have a major problem with this!!!” he wrote.
For years, the question of whether Amazon should push ads on its site generated fierce debate among senior managers and executives inside the company, according to eight current and former Amazon employees. In memos and fiery meetings, they disagreed on what was best for a company that preached obsession with serving customers.
One camp believed that ads would erode customer trust, because shoppers expected Amazon to show them popular products with strong reviews and a good price.
The other camp saw ads as a cash machine Amazon could tap to drive down prices and fund new innovations for customers. The financial potential was obvious. When people shop online, they more often turn to Amazon than Google to start their search, according to multiple studies. And every brand wants to get in front of them.
Workers eventually got word that Mr. Bezos had settled the debate, according to two senior employees. Mr. Bezos said that Amazon had two options: Sell ads, and use the cash for investments. Or shun ads, and get beaten by competitors.
Ads soon appeared at critical locations, in particular on the page that pops up after a customer types a product into Amazon’s search bar. Some ads were rectangular blocks across the top of the page, and the top several products listed in the search results were ads disguised as a regular listing, aside from the word “Sponsored” in light gray. Combined, they have at times filled almost the entire first screen.
Mr. Wilke said the internal hesitation to ads was overcome by the results.
“It turned out they worked,” he said. “And by worked, I mean the ads help customers find what they’re looking for. And the reason we know that is cause they buy more stuff.”
But it added another cost for companies. Ranking high is essential to driving sales on the site. Competitors raced to place ads to ensure a prominent spot.
Out of antitrust concerns, company lawyers prohibit employees and advertising companies it works with from bragging that Amazon is where most people search for products online, according to two people who were warned about this.
Quartile, among the largest of a new breed of companies that help brands navigate Amazon advertising, tested the importance of the ads last year. It stopped running ads for 750 popular products. Immediately, sales shrank by 24 percent.
The effect then cascaded. That’s because the fewer recent sales a product has, including sales driven by ads, the lower it ranks on the site. At the end of 10 weeks, sales of the products without ads had tumbled 55 percent.
“It’s increasingly pay-to-play,” said Melissa Burdick, a 10-year Amazon veteran who now advises major consumer brands.
Amazon said its ads were optional and the majority of sellers built their businesses without them.
John Denny, who ran e-commerce for the drink company Bai, said brands used to believe that if they had a great product, it would show up in the search results, and sales would follow.
“Those days are over,” Mr. Denny said. “There are no lightning strikes on Amazon any more.”
Bernie Thompson, founder of Plugable Technologies.
Bernie Thompson, founder of Plugable Technologies.Credit...Grant Hindsley for The New York Times
A decade ago, Mr. Thompson, a former Microsoft software developer, recognized a big market for computer accessories like computer docking stations and cables. He started Plugable and betted big that depending on Amazon would turn his idea into a business.
It worked. In 2016, Mr. Bezos highlighted Mr. Thompson when talking about the success of sellers in his annual letter to investors. Amazon posted a video about Plugable on its website to attract new sellers.
“He has a history of good performance metrics, and an absence of things like safety and authenticity complaints,” Chris McCabe, a former Amazon fraud investigator, said in an interview.
But in the last couple of years, as rules shifted and his profit shrank, Mr. Thompson began warning people that working with Amazon had become increasingly difficult.
He took his concerns to Amazon this summer, giving a 20-slide presentation to a senior executive at the company’s Seattle headquarters. On slide No. 6, Mr. Thompson laid out his nightmare: Amazon cutting off sales of his best seller, a laptop docking station that is frequently one of the 100 most popular electronics products on the site.
His plea to the executive was simple. “No surprises,” he said.
He got surprised.
One Sunday in July, he got an email saying that Amazon had removed the docking stations. Amazon said it was because of complaints that Plugable’s products had not matched the condition described on the site.
In July, Amazon removed Plugable Technologies’ best-selling item, a laptop dock, from its marketplace. Amazon said it was because of complaints that Plugable’s products had not matched the condition described on the site.
In July, Amazon removed Plugable Technologies’ best-selling item, a laptop dock, from its marketplace. Amazon said it was because of complaints that Plugable’s products had not matched the condition described on the site.Credit...Grant Hindsley for The New York Times
Mr. Thompson scrambled, contacting two high-level managers he knew and his account manager, who Amazon charges him $5,000 a month to have. None of them could fix it.
He and other staff members dug through customer feedback and returns. They found only outstanding reviews, said Gary Zeller, one of Mr. Thompson’s deputies.
“There was nothing borderline about it,” Mr. Zeller said.
After four days and at least $100,000 in lost sales, the listing went back up. Mr. Thompson said he still did not understand what ignited the problem.
All these Big Tech companies whether Amazon or Google or Microsoft or Facebook, they are all High level Predators. If given a chance they will even suck the blood out of you and then proceed to give you a blood transfusion .... i.e for a price.