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A new report says that Amazon charges small businesses fees that eat into their profits.
Alex Castro is the illustrator for The Verge.
Small businesses that want to sell their products online can use the massive reach of Amazon. A new report suggests that the cost of doing business can become a Faustian bargain for a third-party seller, as the fees that Amazon charges them can quickly eat into profits.
The Institute for Local Self- Reliance found that Amazon charged third-party sellers a total of $121 billion in fees this year. According to the report written by Mitchell, those fees for things like advertising, referrals, and shipping, usually mean that small businesses lose money to Amazon.
Mitchell said in an interview that Amazon obscures the profit it makes from these small businesses in its financial reports, because it shows that they generate less lucrative profits.
Amazon has a loyal base of shoppers who want to get their money's worth of free shipping because of its Amazon Prime subscription service. According to the report, the profits Amazon makes from seller fees subsidize the losses of its Prime division.
If you don't sell on Amazon, you're damned.
Mitchell said that if a company makes or retails consumer products, they are damned if they don't sell on Amazon. A small retailer could try to use its own website to reach customers, but Mitchell says that is often akin to hanging your shingle out on a dirt road because of the role that Prime has in making Amazon often the first and only place customers go when shopping on the internet. In his final annual letter to investors, Jeff Bezos said that Amazon Prime had grown to 200 million subscribers.
There are other e-commerce platforms where a small business could sell its products online, and charge customers different prices than Amazon customers. If the seller wants to continue selling on Amazon, it has to keep the same prices. If Amazon discovers that a seller is charging different prices for its products on other platforms, it could penalize the seller. Penalties can range from removing the seller's product from the buy box on a product listing page to the end of selling privileges.
The report concluded that the Fair Pricing Policy may mean that customers will end up paying more overall because third-party sellers have to inflate the prices they charge customers to be able to pay Amazon's fees and turn.
Brooke Oberwetter, an Amazon spokeswoman, said in a statement that the report was "intentionally misleading" and that it made a mistake by equating Amazon's selling fees with optional services that some sellers purchase. Oberwetter said the fees ranged from 8 to 17 percent of the selling price. When compared to other selling options such as marketplaces like Walmart, Target, eBay, and others, these selling fees are highly competitive.
Some Amazon third-party sellers buy its Fulfillment by Amazon logistics service, which she said offered fulfillment services 30 percent cheaper than other logistics providers, as well as faster shipping.
Oberwetter said that some sellers purchase advertising from Amazon or use other advertising providers. The sellers are not required to use our services if they only provide a small amount of value to their businesses.
Most of Amazon's fees are optional.
Bezos testified before Congress last year that the seller fees are not mandatory. When asked by Rep. Mary Gay Scanlon about what appeared to be sharp increases in the fees sellers pay to Amazon, Bezos said, "When you see these fees going up, what's really happening is that sellers are choosing to use more of our services that we make available."
The report states that the fees are necessary if sellers want their products to be visible in places like Amazon. Unlike other forms of advertising, where a business places ads, reaches customers, then sells to those customers directly, Amazon's policies limit most sellers from building these kinds of direct customer relationships. Amazon tested a feature earlier this year that would allow sellers to contact customers directly.
The report states that an effective policy solution would separate Amazon's divisions into separate companies. The new chair of the Federal Trade Commission sees the dangers of big tech and thinks a break up of Amazon is more likely than it has been in the past. Amazon petitioned to have Khan removed from proceedings that dealt with the company. Mitchell notes that there has been an increase in antitrust scrutiny by the administration of President Biden and from Congress, but that there is still not enough steam behind the renewed focus on antitrust issues.
I would have been surprised by how much progress has been made if I had asked a year ago. We have gotten a lot further than expected.
