Amazon News Roundup, Volume 17 – Is Amazon in Trouble?
It seems like every time I log onto my computer or check my cell phone I see some bad news about Amazon.
But is Amazon really in trouble? Or is this simply a case of availability bias?
For seller chatter this week, I decided to dig into Amazon’s recent problems to answer those very questions. By comparing their current issues to issues that occurred in the past, my plan is to come to a conclusion about how bad things really are for the retail giant.
So let’s get started!
Do other sellers think Amazon is in trouble?
One of the best ways to see if anyone else was feeling the same way I was about Amazon was to check in with Jungle Scout’s exclusive Facebook group, Amazon FBA Competitive Edge (ACE).
Want to get in on the chatter?
If you’re a Jungle Scout user, join our members-only Facebook group:
IS Amazon in trouble? It depends on which member of ACE you ask.
“[Amazon] probably won’t weather the antitrust allegations very well. Their business practices against FBA [Fulfillment By Amazon] and FBM [Fulfillment By Merchant] sellers violate several laws, under the guise of rules. And as of late, their practice to allow manufacturers to open their stores without having to compete with the FBA authentic items isn’t fair business practices. They also have been price-fixing a lot lately, not allowing supply and demand to dictate price. If they think you’re charging too much, they’ll turn off your listing until you correct it.
“So people won’t stop buying from Amazon but Amazon is so big and so involved in a great many facets of your everyday life you’re not aware of. that the government will likely step in just like [they] are trying to do with social media these days.” – Aaron T.
Of course, others have a different point-of-view.
“Amazon allows me to make a s—load of money in my spare time. I love it.” – JG Michaels
Why does it seem like Amazon is in trouble right now?
Here is a list of all of the different issues Amazon is currently facing.
1 – Amazon is facing higher taxation rates.
According to Business Insider:
“Amazon is about to be stung with a new tax in France, but rather than absorb the cost itself, it’s passing it on to third-party sellers in a move that could further raise tensions with firms that do business on its platform.”
This is unsurprising, of course. My old business professor used to parrot, “Businesses don’t pay taxes. They collect taxes.”
In other words, when a company’s taxes go up, their prices go up.
The extra cost is almost always passed onto the consumer.
2 – Amazon’s ‘Amazon Choice’ badge is facing a lot of scrutiny.
Certain products on Amazon are awarded an ‘Amazon’s Choice’ badge. It’s Amazon’s way of saying, “Hey! This is the one you want to buy.”
The problem with that is nine times out of 10 the product with the badge is Amazon’s own private label product.
And that’s likely why, as Motley Fool reported, that:
“…two Democratic U.S. senators, Robert Menendez of New Jersey and Richard Blumenthal of Connecticut, sent Amazon CEO Jeff Bezos a letter expressing ‘concerns about the Amazon’s Choice badge and whether it deceives consumers into purchasing products of inferior quality’ on Amazon.com.
“‘Customers,’ argue the senators, ‘reasonably rely on the ‘Amazon’s Choice’ badge to guide their final purchasing decisions.’ They assume the badge is exactly what it appears to be — ‘an endorsement’ from Amazon itself, which assures a buyer that a given product is a good choice. Acting on this assumption, the senators note that customers take Amazon’s advice so often that upon receiving the badge, a given product can expect to see as much as ‘a threefold increase in sales.'”
That is a significant bump in sales for products with the badge. And if the government thinks that Amazon is giving the badge to themselves over other sellers for arbitrary reasons, it could spell trouble for the company.
What was Amazon’s response to the concerns?
On August 16th, 2019, Amazon announced that they would be rolling out a ‘Top Brand’ badge in the near future.
A Marketplace Pulse article stated that:
“Amazon is testing a new ‘Top Brand’ badge for products from established brands. If and how this badge gets rolled out could have a substantial impact on how shoppers decide which products to buy as well as how established brands defend against price-aggressive private label products.”
3 – Amazon first- and third-party sellers are organizing against Amazon.
It appears that sellers are fed up with Amazon’s practices as well.
In another article from Business Insider, they note that Amazon sellers have been organizing to communicate their needs to the Department of Justice and Federal Trade Commission in the hopes of a government-led intervention.
They want the antitrust probe–which is focusing largely on Amazon’s practices of competing with its competitors by undercutting the costs of logistics and bundling myriad services–to know what sellers are up against.
4 – The working conditions of Amazon’s fulfillment centers are notoriously bad.
Last year, Amazon raised its minimum wage to $15 per hour, which is quite a hike from the federal minimum wage of $7.25.
However, Amazon’s employees and critics are saying that it’s still not enough.
Last month, during Amazon Prime Day, a group of workers from a fulfillment center in Minnesota openly protested their working conditions.
In a Time guest editorial about those same conditions, author Emily Guendelsberger wrote:
“A group of workers with their fists raised in solidarity hold a scrawled sign: ‘We are humans not robots!’ They and others at an Amazon warehouse in Minnesota protested in March and on July’s Amazon Prime Days. They were speaking against the day-to-day dehumanizing reality of their workplace.”
Going undercover in an Amazon Fulfillment Center.
Guendelsberger also explained that, to compare and contrast the two most popular, low-wage working environments, she accepted jobs at both an Amazon Fulfillment Center and McDonald’s.
This was her take on Amazon:
“I wasn’t prepared for how exhausting working at Amazon would be. It took my body two weeks to adjust to the agony of walking 15 miles a day and doing hundreds of squats. But as the physical stress got more manageable, the mental stress of being held to the productivity standards of a robot became an even bigger problem.
“Technology has enabled employers to enforce a work pace with no room for inefficiency, squeezing every ounce of downtime out of workers’ days. The scan gun I used to do my job was also my own personal digital manager. Every single thing I did was monitored and timed. After I completed a task, the scan gun not only immediately gave me a new one but also started counting down the seconds I had left to do it.”
5 – Some antitrust experts see Amazon as a monopoly.
Since the days of the railroad barons, America has had a distaste for monopolies. And now it looks like Amazon might be one of them.
In an interview with antitrust expert, Sally Hubbard, Marketplace Pulse asked her point-blank if Amazon is a monopoly. She replied:
“Yes, monopoly power is defined as the power to control prices or exclude competition. Amazon has the power to do both.”
– Sally Hubbard, Director of Enforcement Strategy at the Open Markets Institute
But, she also added that that alone does not mean Amazon is breaking any antitrust laws.
Considering all of that, is Amazon actually in trouble?
It seems like Amazon’s taking a big hit, with all of the bad press they’ve had lately. And nearly all of it came out in the last week alone.
In seven days, Amazon saw an increase in its taxes, had antitrust experts questioning their practices, received news that sellers are organizing against them, and experienced a hike in complaints about the working conditions in their fulfillment centers.
But is this just business as usual?
Amazon’s past controversies.
Taking a look at Amazon’s Wikipedia page, it’s clear they’re no stranger to controversy. Here are some of those controversial highlights:
One issue Amazon continues to combat is its problem with counterfeit goods.
On October 16th, 2016, Apple filed a trademark infringement case against Mobile Star LLC for selling counterfeit Apple products to Amazon.
In the suit, Apple provided evidence that Amazon was selling and advertising the counterfeit Apple products as genuine.
Opposition from both major political parties
Both the current US President, Donald Trump, and front-runner for the 2020 Democratic nomination, Bernie Sanders, have attacked Amazon publicly on numerous occasions.
With respect to Trump and Amazon, Wikipedia states that:
“In early 2018, President Trump repeatedly criticized Amazon’s use of the United States Postal Service and its prices for the delivery of packages, stating, ‘I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy.’ [Trump tweeted,] ‘Amazon should pay these costs (plus) and not have them bourne [sic] by the American Taxpayer.'”
As for Sanders, the page makes this statement:
“Throughout the summer of 2018, Vermont Senator Bernie Sanders criticized Amazon’s wages and working conditions in a series of YouTube videos and media appearances. He also pointed to the fact that Amazon had paid no federal income tax in the previous year.”
As previously noted, the working conditions of Amazon’s fulfillment centers are infamous.
These are just some of the issues raised by current and former employees, the media, and politicians:
- In 2011, a fulfillment center in Breinigsville, Pennsylvania reached temperatures of 100 °F (38 °C). As a result of the conditions, some employees needed treatment after they became dehydrated and/or collapsed.
- In 2013, reporters went undercover at a Fulfillment Center in Bad Hersfeld, Germany, and discovered that the FC’s security guards were openly dressing as neo-Nazis and harassing foreign and female workers.
- Before 2015, Amazon required its hourly workers to sign contracts with an 18-month non-compete clause. The vague wording of the clause made finding work extraordinarily difficult for ex-employees.
- In 2015, the New York Times published an expose detailing how Amazon “pushed out” or “evaluated unfairly” sick or injured employees, or those going through other personal crises.
- Until 2018, Amazon didn’t respond to criticism that Amazon’s hourly wages were not livable. And when they did increase wages, they turned around and took away hourly employees’ bonuses and stock awards.
Bottom line: Amazon isn’t really in trouble. Yet.
Amazon is one of the world’s largest companies and they’ve weathered a lot of storms. So, while it looks bad for the retailer at first glance, it’s unlikely that Amazon will get into any real trouble.
Furthermore, Amazon is quick to fix its issues.
When Bernie Sanders criticized Amazon’s low wages, the company responded by bumping their minimum wage to $15 per hour.
And as articles appeared exposing Amazon’s manipulated review system, Amazon immediately stopped the practice of incentivized reviews.
When issues appear, Amazon tends to fix them quickly.
However, there is one problem that Amazon may not be able to solve so easily.
Is Amazon in trouble with increased competition?
In a free market, the biggest combatant to poor business practices is increased competition.
When Amazon started in 1995, it was the first of its kind. Its chief competitors were traditional retail businesses like Walmart, Target, Toys R’ Us, and Barnes and Noble.
Amazon’s competitive advantage–using the internet as its showroom floor–helped it zip past its competitors.
Those who couldn’t evolve to meet the new internet standard fell by the wayside (bye-bye, Toys R’ Us). Some, like bookseller Barnes and Noble, stayed and struggled.
And big companies, like Target and Walmart, changed. But it cost them. Even today, they’re still behind Amazon.
But these companies aren’t Amazon’s real competitor anyway.
Amazon’s real competitor is its massive Chinese counterpart, Alibaba.
Look out, Amazon! Alibaba is coming.
Late last month, Alibaba revealed its ambitious plans to enter the US market. It is launching new capabilities for US businesses on Alibaba.com, including domestic payments, marketing tools, and a US-based support team.
Like Amazon, Alibaba started in the mid-90s. And it, too, had many of the same competitive advantages.
But, Alibaba has one major strength that Amazon lacks: China itself.
While Amazon has thrived everywhere else it has gone, it had difficulty gaining a foothold in China. Earlier this year, Amazon closed its Chinese e-commerce business, citing slow sales.
On the other hand, and starting as early as 2014, Alibaba has boasted incredible sales in China. In fact, Alibaba’s 2014 sales were higher than both Amazon and Ebay combined.
The main thing holding Alibaba back in the US, however, is the reluctance for many American buyers to trust foreign powers. This may change soon, though, when Alibaba begins to make moves into the US market.
Their Trojan Horse? E-commerce sellers.
Since the announcement of its US expansion, Alibaba began a US national tour to recruit small businesses to sell on its platform.
A few anchor retailers, like Office Depot and Robinson Fresh, have already opened their stores on Alibaba.com. But the company hasn’t disclosed the exact number of US sellers who have signed up for the new initiative so far, or the number of sellers they hope to recruit.
Why is this a big deal?
Alibaba doesn’t hope to just replicate Amazon’s methods. They plan on learning from, and capitalizing on, Amazon’s mistakes.
Plus, most Amazon shoppers don’t know the difference between FBA, FBM, and AMZ (Amazon/first-party sellers). Most buyers assume that all of the items on the platform are being sold by Amazon, and Amazon strongly encourages this narrative.
They even go as far as penalizing third-party sellers who try to contact customers who purchased their product outside of Amazon’s infrastructure.
In contrast, Alibaba has stated that sellers will have full control of their customers if they join their site. In an article by Yahoo! Finance, they said:
“Our relationship with our sellers is we’re an ally to them. And it’s really important to understand that if you’re a seller, it’s all about how you own the relationship with your customers — We don’t.”
– John Caplan, head of Alibaba’s B2B business in North America
Not only that, Alibaba’s fees are considerably less.
Alibaba’s Gateway program costs a seller an annual fee of $2,000 to join, plus another $1,000 in certifications. And that’s it.
Compared to Amazon’s bevy of fees–referral fees, FBA fees, storage fees, subscription fees, etc.–Alibaba’s lower costs could help sellers save tens-of-thousands of dollars every year.
Also, the $2,000 upfront discourages hijackers and other flash-in-the-pan sellers.
Is Amazon in trouble with Alibaba?
In China, Alibaba is a powerhouse. But in the US, Alibaba is just getting started. It could take a decade or more for Alibaba to reach the level of success that Amazon has attained.
So, currently, no. Amazon doesn’t have anything to worry about when it comes to Alibaba.
But do remember the advice of infamous PayPal founder and venture capitalist Peter Thiel, from his book Zero to One:
“You’ve probably heard about ‘first mover advantage’: if you’re the first entrance into a market, you can capture significant market share while competitors scramble to get started. But moving first is a tactic, not a goal. What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you.”
Want to get in on the chatter?
If you’re a Jungle Scout user, join our members-only Facebook group:
Amazon FBA seller news this week
Need to know for Amazon FBA Sellers
- Amazon is harnessing ‘strange’ growth of independent sellers with new tools – Seattle Times
- Bloomberg: Amazon spends $15 billion to help merchants in charm offensive – Bloomberg
- Amazon gets bitten—Third Circ. tackles internet giant’s ‘seller’ status – Law.com
Also of interest:
- You can sell ‘1984’ on Amazon with the text replaced with anything you want because of an obscure copyright rule, and it’s like a real-life Ministry of Truth – Business Insider
- Amazon is selling gas for 30 cents to promote Marvelous Mrs. Maisel, and police had to intervene – The Verge
- Big brands are using Amazon’s anticounterfeiting measures to crush small businesses – Vice
Anything we missed?
Let us know what’s important to you by filling out the following (anonymous) form: