“It’s Like A Death Knell” – Merchants Share Amazon Horror Stories With FTC As Anti-Trust Probe Begins

The FTC has apparently wasted no time in launching the agency’s anti-trust probe into Amazon. According to a Bloomberg report, several merchants have already participated in several meetings and phone calls with the agency to discuss the amount of leverage Amazon has over their business, as well as the impact that the e-commerce giant’s sometimes-arbitrary rule changes can have on their bottom lines.

According to BBG, which based its story on conversations with a handful of third-party merchants who use Amazon’s platform, the interviews have involved several FTC attorneys and at least one economist.

The retailers all said they were asked basic questions like what percentage of revenue their businesses derive from Amazon compared with other online marketplaces like Walmart and EBay. This suggests that the FTC is skeptical of Amazon’s claim that third-party sellers have real alternatives.

Though the probe is likely still in its early days, the information BBG gleaned from the merchants it interviewed suggests that the FTC is in the process of learning how Amazon works, while keeping an eye out for practices that break the law. The investigators are also apparently trying to identify markets dominated by the company.

One former FTC official who spoke with BBG for the story said that it sounds like the agency’s staff are taking the investigation very seriously.

“Early in an investigation, that’s a sign of staff doing a serious job,” said Michael Kades, who spent 20 years at the FTC. “They’re spending lots of time with witnesses and trying to really understand what they’re saying.”

The investigation of Amazon is part of a broader probe into tech giants like Amazon, Google and Facebook, and the influence they have on the economy. The FTC has also reportedly been tasked with investigating Facebook, while the DoJ has been tasked with investigating Google.

Nearly all the states attorneys general this week unveiled separate anti-trust investigations into Google and Facebook.

One critical early task for the FTC is defining Amazon’s competitive universe. The company has argued that it should be considered a retailer who competes against online and off-line rivals. In this universe, Amazon’s market share is only 4% of the US retail market.

However, if the definition of Amazon’s competitive universe is narrowed to just online retailers, its share rises to 40%, giving Amazon significant leverage.

Many of the third-party retailers who spoke with BBG said they get more than 90% of their sales revenue from Amazon, making them vulnerable to the company’s demands and unexplained policy changes. Retailers described the immense hassle that Amazon’s fee hikes and arbitrary policy changes often create for the third-party retailers who sell roughly half of the goods appearing on the e-commerce giant’s platform.

One retailer, Jaivin Karnani, told the FTC how being suspended from Amazon’s platform could easily put a small third-party retailer out of business. During a suspension, Amazon can hold on to a retailers’ money for up to three months.

Desperation prompted merchant Karnani to contact the agency to report his difficulties selling video games and electronics on the site. Karnani told investigators he lost 10% of his sales after Apple and Amazon reached an agreement last year to limit who could sell Apple products on the site. The change followed years of concern about counterfeit iPhone accessories. He also described account suspensions in recent months during which Amazon hung on to his inventory and money.

“I told them if Amazon suspends you, it’s like a death knell,” said Karnani, who has been selling on the site for two years. “I told them when Amazon shuts you off, they sit on your money for 90 days and there’s nothing you can do. They were surprised about that.”

Merchants can appeal suspensions. But even if they prevail, it’s a guilty-until-proven-innocent process that can cut off their sales for weeks without warning, potentially putting them out of business. Amazon in August instituted a new 30-day-notice policy regarding suspensions to appease regulators in Germany, who maintained the process was unfair because it wasn’t transparent. In an emailed statement, an Amazon spokesperson said: “We have an appeals process where sellers can explain how they will prevent the violation from happening in the future or let us know if they believe they were compliant.”

Another merchant told the FTC how he spent thousands of dollars on advertising and helped triple sales of a unnamed health and beauty product. But when Amazon noticed how well the product was selling, the company started placing its own wholesale orders, undercutting the third-party merchant and effectively saddling him with thousands of dollars in unsold inventory.

One third-party seller told BBG he answered questions from a team of FTC lawyers about a Medium article he published detailing how 98% of his sales are generated on Amazon’s platform.

Molson Hart, who sells toys on Amazon through his company Viahart, said he spoke with the FTC for 90 minutes about an article he posted on Medium detailing how 98% of his sales come from Amazon and that other platforms like EBay and Walmart account for less than 2% of revenue. He declined to discuss specifics of his conversation with FTC investigators but said the conversation focused on his Medium article. It argued that Amazon, which faces little competition online, has been raising fees and selling advertising—forcing merchants to raise prices.

Another Amazon merchant, who spoke on condition of anonymity, said he spent about 90 minutes on the phone with an FTC investigator in July and has since provided the agency with documents and data.

He described helping triple sales of a health and beauty brand by spending hundreds of thousands of dollars to advertise on the site. Amazon noticed, placed its own wholesale orders with the brand and sold the product directly, cutting him out and sticking him with hundreds of thousands of dollars in unsold inventory. Another time, he told investigators, Amazon discovered one of his products being sold for less at Walmart.com and then made the item less visible to shoppers until the Walmart price went back up.

The investigation might still be in its early days, but it appears the FTC has homed in on Amazon’s biggest vulnerability: The third-party sellers who have no alternatives, and who are subject to the company’s whims.