Is Amazon gouging its marketplace sellers?

Discussion
Photo: Getty Images/MBPROJEKT_Maciej_Bledowski
Dec 02, 2021

More than half the sales made on Amazon.com go through its marketplace sellers and the company wastes precious few opportunities to let the world know just how successful these third parties have been on its platform. A new report, however, claims that Amazon has continued to increase the fees it charges the independent sellers on its platform to the point where the corporate giant’s cut now accounts for more than a third of each sale.

The report from the non-profit Institute for Local Self-Reliance (ILSR) asserts that the Amazon system may give the company access to the broadest audience but that all too frequently it is not enough to support third-party sellers who ultimately fail.

ILSR’s report claims the revenues Amazon charges third-party sellers is growing at a faster rate than other revenue sources at the company, including its lucrative AWS cloud business. The report describes Amazon as “operating an unregulated, monopoly tollbooth” generating profits that the company “conceals” within its financial statements.

Amazon, according to ILSR, has gone from taking an average of 19 percent of each sale in 2014 to 34 percent today. The company has explained this in the past by saying that sellers have increasingly taken advantage of services such as Fulfillment by Amazon, which warehouses and fulfills orders for marketplace sellers.

The ILSR report does not compare the fees that Amazon charges to those offered for similar services from a wide range of companies such as Radial, Shopify and Walmart.

In many ways, Walmart has sought to put its own spin on Amazon-like services like a deal this summer with Adobe Commerce to make elements of its online and in-store fulfillment and pickup technology available to sellers on its marketplace.

Walmart has also launched its GoLocal service to provide last-mile deliveries for other businesses across the U.S. The white label service uses third-party drivers to handle orders. Walmart has promised competitive pricing for both national clients and local independent businesses. Home Depot was the first major retailer to announce it would make use of the service.

[RetailWire has reached out to Amazon and third-party sellers on its marketplace for comment. It will update this report if responses are forthcoming.]

DISCUSSION QUESTIONS: Does the Institute for Local Self-Reliance’s report paint an accurate picture of the dynamics between Amazon.com and third-party sellers on the site? Do you think the majority of Marketplace sellers get a fair exchange of fees and services from Amazon?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"If the problem is that they can’t make enough money selling through Amazon, then they need a new business plan. "

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10 Comments on "Is Amazon gouging its marketplace sellers?"


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Dion Kenney
BrainTrust
10 months 3 hours ago

Amazon has always been a tough negotiator with their suppliers and vendors. Like all competitive businesses, they will test the cost/benefit equation of their business model and optimize their profitability curve. Until there is a meaningful competitor to the service and marketplace they offer, they will be able to dictate the terms of engagement.

Neil Saunders
BrainTrust

The Institute for Local Self-Reliance paints a very partial picture, mainly because it doesn’t compare Amazon to other marketplaces so there is no real benchmark. It also looks at fees without assessing the benefits provided for those fees: Amazon is doing a lot more for third-parties than just allowing listings, including providing its superior logistics capability for fulfillment. At the end of the day, third-parties do not have to use Amazon especially as competition from alternatives like Shopify and Walmart are growing. However many do use Amazon because they get access to an enormous audience and a whole range of benefits that are advantageous to them.

Dr. Stephen Needel
BrainTrust

If the problem is that they can’t make enough money selling through Amazon, then they need a new business plan. You pay a price for utilizing Amazon’s audience and its fulfillment system. If you don’t like the percentage, go elsewhere.

Jeff Sward
BrainTrust

Sounds like a lot more information is needed before this can be described as fair or unfair. Do retailers really sign up for this service knowing they will lose money? Does Amazon knowingly chase businesses into the open arms of competitors? Or has Amazon done the homework and they are pushing the envelope of what the market will bear, knowing there aren’t many other choices available? Sounds like department store behavior in the old days.

Suresh Chaganti
BrainTrust

Amazon is a great platform for reach, but not very good for making money if that is the the only place where the seller is operating.

Between listing fees, monthly fees, FBA fees, advertising costs, and shipping costs – it is hard to make margins. Once Amazon locks in, it is hard to get out of the grind. The alternatives are not good enough. And Amazon knows this and adds additional fees at every step along the value chain.

Paula Rosenblum
BrainTrust

For me this has always been simple. Amazon is subsidizing what amounts to a failing retail business with its marketplace and AWS. I mean, this isn’t terribly complicated. Amazon is begging to be broken up. It’s certainly the “go-to” place for stuff you need fast, but there’s just too much going on that confuses the business model. We should expect to see all these profit numbers broken out:

  1. Retail sales through Amazon;
  2. Marketplace sales through Amazon;
  3. AWS;
  4. Electronics;
  5. Whatever the heck the logistics business works out to be.

I suspect the numbers are eye opening.

George Anderson
Staff
Danny Boockvar, president of Thrasio, the largest aggregator of marketplace sellers on Amazon, has sent us his take via email. “We haven’t seen a significant jump in the fees that we’re paying Amazon. In general, Amazon is rational and transparent about fee adjustments, and they give sellers plenty of notice so they can adapt. We can’t speak to what percentage of each sale goes to Amazon, but sellers have options for how they set up their accounts and manage fees. There is a 15% referral fee that we all pay. Beyond that, there are a bunch of optional services—for example, could be an additional 10% if you opt in for Amazon marketing services, another 7-15% if you choose their logistics and fulfillment. Amazon’s marketing and fulfillment services are terrific, so a lot of small businesses are paying those fees, and they’re doing so because the services positively impact their bottom lines. It’s in Amazon’s best interest to have a robust Marketplace with happy, successful sellers, and they manage that accordingly. We’ve been extremely happy to… Read more »
George Anderson
Staff

An Amazon spokesperson provided the following statement to RetailWire.

“This report is intentionally misleading because it conflates Amazon’s selling fees with the cost of optional services that some sellers purchase from Amazon such as logistics and advertising. Amazon’s selling fees range from 8-17% of the selling price for most products and have remained largely unchanged in the U.S. These selling fees are highly competitive when compared to other selling options such as marketplaces like Walmart, Target, eBay, Etsy, and others, or direct-to-consumer via companies like Shopify and BigCommerce.

Some sellers purchase logistics services from Amazon, or choose alternatives, like UPS, DHL, and Fedex. The sellers who use our logistics service, called Fulfilment by Amazon, enjoy fulfillment services 30% cheaper than other logistics providers, and with much faster shipping. Some sellers also choose to purchase advertising from Amazon or use other advertising providers like Google, Facebook, and Twitter. Sellers are not required to use our logistics or advertising services, and only use them if they provide incremental value to their businesses.”

Kenneth Leung
BrainTrust

I think it is up to the seller to decide whether Amazon market place is appropriate for their business model. If you build a business plan that relies on Amazon Marketplace as a sole distribution channel, you have to do your homework to see if you have a differentiated product and whether you get enough benefits from their built-in services to make it worth your while. It isn’t gouging on Amazon’s part if it fits your business strategy/budget.

Anil Patel
BrainTrust

Amazon has been under the radar for unethical behavior with its marketplace sellers for quite some time. While I certainly have been on the opposing side of this debate, this report seems to exaggerate the issue. Amazon offers many fulfillment capabilities and exposure to the brands. And this exposure comes with a cost. Other alternatives to Amazon are either not as good or are more expensive.

However, there’s another way to deal with this problem. I have always recommended that retailers do not place all their eggs in one basket. They can:

  • Treat Amazon as a digital outlet store and sell their unsold inventory from previous seasons.
  • Reserve all of the new products for the brand’s website and spend marketing dollars to advertise the brand instead of Amazon sponsored ads.

This way, retailers can have better control over the customer experience and maintain higher margins.

wpDiscuz
Braintrust
"If the problem is that they can’t make enough money selling through Amazon, then they need a new business plan. "

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