Amazon accounts for about a third of all US Internet retail sales, but it didn’t get there entirely on its own. It did so, in part, with the assistance of hundreds of thousands of smaller vendors who signed up to sell their goods on Amazon’s third-party merchant marketplace, which accounts for more than half the company’s retail sales. In theory, those agreements were beneficial for all involved: shoppers could easily one-stop-shop for products, merchants could rely on Amazon’s front and back-end infrastructure instead of building out their own, and Amazon could get a nice consistent cut flowing in.
The calculus of who benefits most from these arrangements, however, has changed over time. Amazon now offers a wide array of its own in-house brands, making it a direct competitor to many of the merchants who rely on its platform to reach consumers. That would be challenge enough, but the behemoth also captures sales data from those third-party vendors, then uses it to launch its own product lines and undercut the smaller firms, The Wall Street Journal reports.
The WSJ reviewed internal company documents showing Amazon executives requesting and accessing data from specific marketplace vendors, despite corporate policies against doing so. More than 20 former employees told the paper the practice of flouting those rules was commonplace. “We knew we shouldn’t,” one former employee said of accessing that data. “But at the same time, we are making Amazon branded products, and we want them to sell.”
The paper cites a car-trunk organizer as one such example. Amazon employees accessed documents relating to that vendor’s total sales, what the vendor paid Amazon for marketing and shipping, and the amount Amazon made on each sale of the organizer before the company then unveiled its own similar product.
Employees were able to get around the rules by bending the concept of “aggregation,” according to the WSJ. While Amazon says it will not access individual seller data, it does create reports of aggregate seller data. If the pool of participants is large enough, that wouldn’t be a problem: a report combining data from 200 vendors selling something like iPhone cases, for example, would be unlikely to reveal any proprietary data about any of them.
But the pool of vendors that can be aggregated, the WSJ explains, is any group of two or more entities. So if there’s only one vendor selling an item but Amazon itself sells returned or damaged versions through its Warehouse Deals program, that’s considered enough to aggregate.
Amazon in a written statement to the WSJ agreed that “like other retailers, we look at sales and store data to provide our customers with the best possible experience,” adding, “however, we strictly prohibit our employees from using nonpublic, seller-specific data to determine which private label products to launch.” The incidents the WSJ described to the company violate Amazon’s internal policies, and it has launched an internal investigation, the company added.
Internet marketing Deep waters
However Amazon determines which private-label brands to launch, it has been busy getting them live in recent years. The company now has more than 145 private-label brands as well as exclusive sales arrangements with another 640 brands, according to research firm TJI. Some, like Amazon Essentials or Amazon Basics, are obvious to shoppers. Others—such as kids’ clothing line Scout + Ro, women’s clothing brand Hayden Rose, or furniture line Stone & Beam—are anything but.
Altogether, those private labels account for about 1 percent of the company’s total sales, Amazon told Ars last September. Former employees told The Wall Street Journal, however, that they were operating under the directive that Amazon’s private-label sales should be up to 10 percent of the company’s retail sales by 2022.
Amazon’s occasionally contentious relationships with third-party vendors on its marketplace are already the subject of several regulatory probes in the United States and abroad. The European Union’s competition bureau opened an investigation in 2019 probing Amazon’s use of “competitively sensitive information about marketplace sellers, their products, and transactions on the marketplace” to boost its own retail business.
Congress, too, specifically asked Amazon for information about its use of marketplace vendor data as part of its massive ongoing antitrust probe into potentially unlawful anticompetitive behaviors by Amazon and other Big Tech firms. At a hearing last July, a witness for Amazon explicitly told Congress that Amazon “doesn’t use individual seller data directly to compete” with its marketplace vendors.
Antitrust subcommittee chair Rep. David Cicilline (D-R.I.) and House Judiciary Committee chair Rep. Jerrold Nadler (D-N.Y.) had sharp words for Amazon over the apparent contradiction revealed by the new report.
“This is yet another example of the sworn testimony of Amazon’s witness being directly contradicted by investigative reporting,” Cicilline said in a written statement. “At best, Amazon’s witness appears to have misrepresented key aspects of Amazon’s business practices while omitting important details in response to pointed questioning. At worst, the witness Amazon sent to speak on its behalf may have lied to Congress.”