Articles that Purport to Expose the Issues Assume Best Case Scenario:

This article will have a lot of links. Following them you can see the spate of articles recently published on Amazon’s problems with “marketplace” inventory. Even if you don’t look at the articles, the number of links shows that this is a situation that is being followed by the press.

But none of these articles even begin to hint at the deeper underlying problems. “Tip of the iceberg” would be putting it mildly.

The observations in this article are based on candid conversations with long time sellers on the Amazon Marketplace platform. As is typical, none of the sellers would agree to be named, for fear of retribution by the giant online retailer.

Reading titles of articles like “Amazon May Have a Counterfeit Problem”, the sellers we spoke with could only laugh at the equivocation and doubt. This, apparently, is not a “maybe” thing for those with intimate knowledge of the situation.

“The real situation is that Amazon’s fee structure and shipping requirements only allow for counterfeit, illegal import or “gray market” products (such as returns that are still “new” but not factory sealed) to be sold at a meaningful profit.”

– anonymous marketplace seller

There are plenty of lawsuits by well known manufacturers who claim there is a big problem with fakes selling on the Amazon platform. Daimler AG, the company that produces Mercedes-Benz products, filed a lawsuit in Washington State, and Birkenstock, the European shoe maker, has complained loudly and publicly about the situation, and ultimately pulled their Brand from the site altogether.

The problems go much deeper than this. According to the sellers we spoke to the issue is literally built into the entire inventory of more than 500 million products listed on the site.

One reason why this is not fully reported, or even spoken of, is the fear of retribution.

A second reason is the way Amazon uses a legal strategy of “having it both ways”; customers feel like they are always buying from Amazon itself when buying on the site, or at least that they are protected by Amazon. At the same time when bigger problems do arise, suddenly, the marketplace is a pseudo-public area which can not be directly linked back to Amazon and for which they claim to have no liability.

But it is the third reason that shields the mega-site, more than anything else, from bad publicity: the fact that, in order to understand the issues thoroughly, a deep investigation into its history and business practices is required.

Apparently, according to our extremely experienced sources, it all goes back to the time, before 2008, when Amazon was still primarily an online bookstore (For years, in fact, the site’s tagline was “Earths biggest bookstore”).

Ponzi Reinvented for the Digital Age: with the blessing of the US Gov.

The “business model” at that time was simple yet brutal; buy books directly from publishers at the full wholesale price and sell them for that same amount with “free” shipping (for prime members).

And in doing this they accomplished many things, all near and dear to their founder’s heart:

-Annihilate all book sellers, online or off, since selling at zero margin could only be done by losing billions, which, in-turn, only an online Wall Street financed “dot-com darling” could afford.

-Addict the suppliers (publishers) to the steady flow of sales, with the percentage from Amazon relentlessly rising until it is the only significant buyer.

-Preemptively destroy any online seller by putting the barrier to entry so high that it would be suicidal to even try to compete (see the diapers.com saga)

-Brain-wash the public into thinking that it was “normal” to be able to buy products at wholesale prices (with free shipping) and that there was nothing “fishy” about the fact that only Amazon could afford to do it (by losing billions, on paper).

An Offer they Couldn’t Refuse: Sell or Die

From a Businessweek / Bloomberg story about how Bezos forced Diapers.com, owned by Quidisi, out of business (buying them out after the strong-arm mafia-like practices outlined below):

“Quidsi could now taste its own blood. At one point, Quidsi executives took what they knew about shipping rates, factored in Procter & Gamble’s (PG) wholesale prices, and calculated that Amazon was on track to lose $100 million over three months in the diaper category alone.

When Bezos’s lieutenants learned of WalMart’s counter-bid, they ratcheted up the pressure, telling the Quidsi founders that (Bezos) was such a furious competitor that he would drive diaper prices to zero if they sold to Bentonville.”

-report published in Businessweek and recounted in “The EVerything store”

All of this was a spectacular success, for Amazon, as can be attested to by the recently acquired “richest man-in-the-world” title. Amazon lost billions per quarter for decades and, and, yet, as the “last man standing” eventually turned that around into the creation of the world’s richest human. All stemming from virtual monopoly in online sales of ALL products in the US (over 50%, with the second largest online seller at 6.6%). Imagine even one other online retail company with more than 20% and it’s easy to see there is no “competition” for Amazon and no real alternative for buyers or sellers.

And what about sellers on the Amazon Marketplace? Did they benefit from the massive success of the platform (as they contributed more than 50% of revenue to the giant retailer)?

All the anecdotes of “some guy in Minnesota” who resells Walmart clearance items, aside, the only winners in that part of the story were and are …wait for it… counterfeiters, illegal importers and gray market sellers. Oh, and Chinese “no-brand” factories that sell on Amazon in the US.

Why?

It seems that, square in the bullseye of Amazon’s hit-list, in addition to anyone that sells anything who’s not on Amazon, is the very group that has kept the company afloat all these years: The millions of, mostly small, sellers on the marketplace all trying to eke out a living.

They have zero leverage and no where else to go to sell online (remember virtually all the customers are already locked into the Amazon platform due to the “bribery” of too-good-to-be-true prices and free shipping), therefore, they can be gouged with impossible fees.

The fee structure is, as you might expect, complicated, but fees are the highest of any online marketplace and never fall, only rise, which they do often, according to sellers. For items at lower price points deducted fees can be as much as 50%. The real costs are hidden in fees like “variable closing” and other made-up monikers to obfuscate the real reasoning behind the math. But in practical terms, selling a $8 item can cost up to $4 in added fees.

But, and this is the complicated bit, even that might work for a legitimate seller if not for the fact that, in many cases, the seller is competing against Amazon itself! And, as you have seen above, prices have no bottom limit as profit is not required for Amazon to “win”.

To wrap this mind-boggling concept up with a bow: if any company wants to realize even 1 cent of retail profit after fees, selling on the Amazon Marketplace, it must acquire the goods for roughly 70-90% below standard retail prices, and even that might not be sufficient.

Who can do that? Chinese no-brand factories shipping directly to the US with subsidized USPS shipping rates, counterfeiters, illegal importers and gray market sellers. Period.

A thorough investigation of the millions of sellers currently selling on Amazon would, without a doubt, say our sources, turn up not just a few bad apples, but a system that is virtually rotten to the core. Beyond even Elizabeth Warren’s wildest fears.

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