Amazon Continues Preying on Third-Party Sellers - The American Prospect

Quick Read

Amazon announced to its third-party sellers last week that it was imposing a new “holiday peak fulfillment fee” equivalent to 35 cents per item sold.
That’s a significant, sustained price hike for shipping and logistics services for third-party sellers.
Amazon spent the prior years of the pandemic making it extremely attractive for third-party sellers to use its fulfillment services.
If third-party sellers wanted to source their products, they needed to go to Amazon.
But it was always the case that simply living off fees placed on third-party sellers was much more lucrative for Amazon than designing and marketing its own products.

Amazon Continues Preying on Third-Party Sellers - The American Prospect

× Expand Rogelio V. Solis/AP Photo Amazon spent much of its existence not taking profits, but instead building market share and biding its time for an opportunity. The pandemic’s surge in demand for goods spending, along with the natural desire to avoid crowds, allowed the company to flip the switch, leading to record fortunes and realizing many of the fears anti-monopolists warned about regarding the e-commerce giant. But now the pendulum is swinging back. High inflation has taken a bite out of retail, and stir-crazy consumers are ready to leave the house for their shopping. The past two quarters saw the first losses in net profit in seven years at Amazon, and revenue growth was the slowest in 20 years. Granted, a lot of that had to do with its stake in electric truck maker Rivian falling in value. It’s not like Amazon is a collapsing firm, but some level of the astronomical growth it saw during the pandemic was pulled forward, and now a recession is hitting. Amazon brought this partially upon itself through overbuilding, expecting that retail permanently changed in the pandemic and it would go on collecting new customers forever. But the company has a way to pay for that miscalculation, and it has to do with its market power. More from David Dayen A curious article entitled “Amazon Adds Revenue Streams as Holiday Approaches” appeared in The Wall Street Journal over the weekend, tracking Amazon’s game plan for managing inflation the rest of the year. Amazon announced to its third-party sellers last week that it was imposing a new “holiday peak fulfillment fee” equivalent to 35 cents per item sold. It’s hard to actually call this a “holiday” fee because it’s set to last for three months, from October 15 to January 14. That’s a significant, sustained price hike for shipping and logistics services for third-party sellers. Keep in mind that Amazon had already increased seller fees with a 5 percent “fuel and inflation surcharge” in April. Fuel prices have fallen consistently for two months, and yet that surcharge has not been lifted. Amazon spent the prior years of the pandemic making it extremely attractive for third-party sellers to use its fulfillment services. It launched its own vessels to get around the global shipping backlog. If third-party sellers wanted to source their products, they needed to go to Amazon. “I can’t be idealistic,” said one seller to Bloomberg. “If Kim Jong Un had a container, I might take it, too.” There were risks for sellers in taking up Amazon on fulfillment. Usually these are described in terms of the ability for Amazon to acquire seller data and use it to produce its own products, thereby undercutting the competition. There’s an entire bill in Congress designed to block Amazon from doing this kind of self-preferencing. But it was always the case that simply living off fees placed on third-party sellers was much more lucrative for Amazon than designing and marketing its own products. A Morgan Stanley analyst estimated in 2018 that Amazon earned a 20 percent margin on third-party seller fees, compared to just 5 percent for typical retail sales. Amazon has even considered ending its private-label business as a concession to regulators. But it wouldn’t be much of a concession, if the company is getting four times the typical margin from its third-party business. Amazon earned a 20 percent margin on third-party seller fees, compared to just 5 percent for typical retail sales. That number has only risen, with the additional layering on of fees in recent years. An Institute for Local Self-Reliance report last year showed that Amazon took 34 cents from every third-party dollar in sales in 2021, up from 30 cents in 2018 and 19 cents in 2014. That’s only increased since, first with the 5 percent fuel and inflation fee in April and now the three-month “holiday” fee. This is a classic case of what is known as recoupment. For years, Amazon was able through avoidance of sales taxes and institutional muscle to underprice its competitors. In the world of antitrust law, this can be seen as predatory pricing, a deliberate marking of prices under cost in order to gain market share. In and of itself, no consumer is going to be that angry about a retailer setting its prices too low. But the second half of predatory pricing, once the market share has been established and retrenched, and the company starts flexing its market power, is the recoupment phase. As Shaoul Sussman explained in a 2019 paper, the plausible way that Amazon could do this is through reducing direct sales and expanding third-party sales on its platform. If it could combine this with increasing charges to those third-party sellers on every transaction, increasing its share of each sale, the recoupment would be complete. “Big picture, it’s all recoupment from predatory pricing,” agreed Stacy Mitchell, co-director of the Institute for Local Self-Reliance. She estimates that the three-month “holiday” fee alone will be worth $300 million to Amazon. Key to this story is the fact that third-party sellers don’t really have another option if they want to be a viable e-commerce business. Amazon simply has too many customers for sellers to neglect it. So in exchange for the privilege of selling on Amazon, the company has set up a tollbooth—and the tolls keep rising. Third-party sellers were lured onto the platform with cheaper, subsidized logistics, and now they must watch helplessly as those costs balloon. Sellers could raise prices to cover the rising costs, but Amazon has ways to punish that, like by downranking more expensive products in search, or refusing sellers the “buy box” from which a disproportionate number of sales originate. “The price has to stay the same because they’re disciplined on Amazon,” Sussman told me a few years back. Sellers may have to resort to cutting quality to stay afloat—if not selling counterfeit or fraudulent products, or rigging the product reviews, both of which are rampant on the platform. Sussman, importantly, is now an attorney adviser to the Federal Trade Commission. The scheme he surmised three years ago appears to be taking shape. Amazon isn’t hiding it; major papers are reporting on it as a way to “add revenue streams,” or in other words, to recoup. Amazon even said to sellers in its announcement that it used to absorb some logistics costs, but that “seasonal expenses are reaching new heights.” Amazon is currently under investigation at the FTC, and it’s whining about it, claiming that its top executives (including CEO Andy Jassy and former CEO Jeff Bezos) are being harassed with burdensome individual subpoenas to provide evidence. The probe is reportedly about how Amazon lures customers into Prime signups and makes it hard to cancel them. Trapping customers is certainly important, but there’s a bigger story here. Amazon appears to be using its market power to cripple its partner businesses, which have no recourse but to comply. A current FTC adviser laid out the scheme years ago. The commission should take a look.
The Original Article can be found on The American Prospect

Amazon's New Prime Early Access Sale Kicks Off October 11-12 by Offering Early Holiday Deals, Exclusively for Prime Members - Yahoo Finance

Prime members can start checking off their holiday gift list with the largest savings ever of 80% off select Fire TV smart TVs; and up to 50% off select JBL, Sony, and Bose ear bud …

Read more here
Amazon's New Prime Early Access Sale Kicks Off October 11-12 by Offering Early Holiday Deals, Exclusively for Prime Members - Yahoo Finance

Top-selling Home & Kitchen products during Amazon sale - Economic Times

Up to 60% off on Home & Kitchen products Top Categories of Home & Kitchen appliances Under 499 deals on Home & Kitchen products Brands in focus in Amazon sale today Amazon …

Read more here
Top-selling Home & Kitchen products during Amazon sale - Economic Times

Amazon supports Ukrainian small businesses - Amazon EU

Local small businesses in Ukraine are facing economic uncertainty amid the war in their country. To support and help our Ukrainian selling partners and their businesses, Amazon has …

Read more here
Amazon supports Ukrainian small businesses - Amazon EU

Amazon Southeast Asia Seller Summit 2022 to empower small businesses to dream big - Macau Business

The first-ever two-day hybrid event on 26-27 October 2022 aims to help sellers grow their brand on a global scale with the theme ‘Small Businesses, Big Ambitions’ SINGAPORE – Medi …

Read more here
Amazon Southeast Asia Seller Summit 2022 to empower small businesses to dream big - Macau Business

Wired headphones are making a comeback, and Apple’s best-selling pair is on sale for just $17 on Amazon - Yahoo Sports

Our team is dedicated to finding and telling you more about the products and deals we love. If you love them too and decide to purchase through the links below, we may receive a co …

Read more here
Wired headphones are making a comeback, and Apple’s best-selling pair is on sale for just $17 on Amazon - Yahoo Sports