Consumer Brands Think Khan’s Case “Misses The Point”

The FTC and 17 States introduced a suit against Amazon
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. The long-anticipated suit paints the retailer as exploiting its monopolistic power from consumers, brands, and other parties that interact with the company.

But many brands that sell on the marketplace or to the retailer as a vendor feel like the case is focused on issues that are peripheral to the real challenges of doing business with Amazon, and are concerned that changes following the suit will be minimal.

Here are some of the perspectives shared by those brands.

Amazon May Be Powerful, But It Has Also Created Access

While there is merit in the discussion, Amazon has also created access and provided a platform for any business of any size to be a seller, without the traditional retail gatekeeping, Jyoti Malik, Director of E-commerce at Samsung America, said. “On a cursory look, [the case] seems a little biased interpretation of some of Amazon’s policies. A ‘Facts need to fit the agenda’ situation.”

A key element of the case centers around positioning Amazon as a monopoly. Josh Justice, Director of E-commerce at SuperATV, says “While there’s some practices I’d like to see changed, such as sandboxing when Amazon scrapes the wrong SKU, to call it a monopoly seems like too strong a language.”

The Case Has Focused On The Wrong Things

“There is so much I think the government can and should look into with Amazon, but I think all that this case is propped up against is the wrong stuff,” said Darren Silverman, SVP of eCommerce at Petmate.

One aspect of Amazon’s business that the case pursues is Amazon’s fulfillment network, and how Amazon’s product ranking algorithm favors products that are Prime-eligible, which requires usage of Amazon’s fulfillment network.

But brands don’t see Amazon’s fulfillment capabilities as the bogeyman the FTC has cast it as.

Joe Stefani, the president of Desert Cactus, a company that sells licensed products on Amazon, says that the overt focus on Amazon’s fulfillment network is misguided. “When I’ve sat down with members of Congress in the past, I present the notion that the fulfillment network is what saves us money and time.”

A pertinent concern for brands is the restrictions that the retailer places on first-party Vendors. That is, brands who sell on a wholesale basis to Amazon. In my own dealings with Vendors, significant challenges have arisen through Amazon’s fee negotiations, cancelled Purchase Orders, and inability to influence product pricing leads to a race-to-the-bottom with other retailers.

Many of these brands are told by Amazon that they are not allowed to operate a third-party marketplace sales model, which in some cases would be more economical for the brand and improve pricing and product availability for consumers. This practice could be deemed as anti-competitive but was not mentioned in the suit.

Martin Heubel, a consultant to brands who sell to Amazon on a wholesale basis, says that it appears that the FTC has mainly taken insights from sellers and may not even be aware of all the things that are going on for Vendors. “Khan mainly focuses on pricing barriers, which may indirectly lead to a change of the future Buy Box behavior, similar to the ‘second Buy Box’ in the EU. But we shouldn’t expect a real change to the way Amazon operates from this lawsuit.”

Price Matching Is A Concern That Resonates

Andrew Feldman, Director of E-commerce at Hello Products, says that some of the FTC’s arguments feel overly broad and not dissimilar from other industry players. “But there is some substance here,” he adds. “I don’t see Amazon being forced to spin off units, but I could see them being forced to change some policies, like the ‘most favored nation’ clauses around discounting.”

‘Most favored nation’ is a requirement for a brand to sell its products or services on Amazon at the same price or lower than that of other retailers. Brands often cite this clause as being destructive to their profit margins when it results in a ‘race to the bottom’ across their retail relationships. In Amazon’s case, the company has been observed to make it harder for consumers to find those products and buy them, when a lower-priced option is found online and Amazon cannot secure a lower price from the Vendor. Removing the “buy box,” (the ‘add to cart’ button) on product pages is one way Amazon has enforced Most Favored Nation pricing.

Feldman is optimistic that the case will help in this regard. “Just the prospect of litigation has already caused Amazon to back off of some self-preferential treatment in search, as well as nixing the recently announced 2% surcharge for sellers who don’t use Amazon’s logistics.”

The 2% fee Feldman refers to a levy proposed in August this year, which was walked back by Amazon just 35 days after it was announced.

Josh Justice of SuperATV said that the buy box and price matching issue may be the one thing that will change coming out of this lawsuit. “Many of the things they described as monopolistic were just Amazon pursuing excellence,” he said. “At least in the first 100 pages, I felt most arguments were weak, some were inaccurate, and the key part about the buy box I think is the only thing they’ll be able to change.”

The Rising Cost Of Doing Business On Amazon

The case called out rising fees paid by marketplace sellers as an outcome of Amazon’s market dominance. The fees that sellers pay on average have increased from an average of 30% to 50% over the past several years, according to the case.

But to the extent that this hurts consumers is dubious, Rick Watson, a consultant to brands said. “If sellers can’t afford the 50% ‘Amazon tax’, they will just sell direct and find alternatives. Amazon will and has become a place where only high-margin items survive,” Watson said.

Watson adds that this pricing model rewards the cheapest suppliers and knockoffs. “If this is the best the world has to offer, and this is what consumers want, it kind of “is what it is.” If I want quality, I will just go elsewhere as a consumer. And if I want options and control over my business, I will go elsewhere as a seller.”

The Case Is Unlikely To Provoke Meaningful Change

Watson believes there are three likely outcomes from this lawsuit if the claims are proven.

The most likely outcome is that Amazon gets fined if the FTC and the States can prove a specific amount of consumer harm. In this case, ”Amazon pays the fee and moves on – stronger,” he said.

The second potential outcome is that Amazon’s retail, fulfillment, and marketplace arms are forced to break up. Watson said this is “Too complex and difficult – who decides how? and now you have a weaker US tech ecosystem.” The final potential outcome, which Watson regards as highly unlikely, is that Congress decides that specific consumer protections should be in place regarding price-matching and discounting, and makes wise regulations.