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The challenges for Amazon sellers

SCOTT DETROW, HOST:

If your hands are free, if you're not behind the wheel of a car right now, go ahead and Google the words hot sauce. Here, I'll do it myself.

(SOUNDBITE OF KEYBOARD TYPING)

DETROW: I'm looking at the results, and more than half of them that pop up on the first page I see are from Amazon. So I'll click on one of the Amazon links. I've got free one-day shipping. There's a Prime label, and it's kind of cheap. Done. Click. Hot sauce on the way to my house. So many products are sold to us like this these days, but that is exactly what worries Nicholas Parks, who runs SnobFoods in Birmingham, Ala.

NICHOLAS PARKS: Once Amazon starts selling it, I'm just closed out of the market.

DETROW: Parks started selling sauces through Amazon back in 2002, when he was a law school student with very little income.

PARKS: Amazon was a great marketplace for maybe the first 10 or 12 years. The fees were low. We shipped everything from actually what was, at the time, a spare bedroom.

DETROW: But things started changing a few years before the pandemic. The fees sellers paid to Amazon slowly doubled. Many sellers started raising prices just to make a profit.

PARKS: So what was a $10 bottle of hot sauce four or five years ago is, like, a 13 or $14 bottle of hot sauce now.

DETROW: And then Amazon starts selling that exact same hot sauce itself, but cheaper.

PARKS: The result is that Amazon ends up being the only seller on, like, millions of millions of items.

DETROW: We're going to talk about all of this with two NPR colleagues who cover it, and that's retail correspondent Alina Selyukh and tech correspondent Dara Kerr. Hey there.

ALINA SELYUKH, BYLINE: Hello, hello.

DARA KERR, BYLINE: Hey.

DETROW: All right, so I think that that introduction helped illustrate this murky part of Amazon, and that's the fact that you're not just dealing with Amazon when you're searching through it, right? You're dealing with all of these different people trying to sell you a slight variation of the exact same thing.

SELYUKH: Yeah, most of what we buy is sold by someone like Nicholas Parks. At first, it was Amazon selling everything itself. Remember, it was, like, the bookstore that's now an everything store. But quickly, they figured out that that's kind of impossible to be the one everything store. And they started to solicit small businesses to come and sell on the platform. And over the years, I've talked to dozens of these folks. Some are the real-deal artisans that were really excited to have this huge reach with lots of shoppers thanks to Amazon. But most are middlemen. There's lots of, like, 20-somethings, small-scale business owners, anyone kind of willing to hustle for stuff wholesale. It was a crazy opportunity they couldn't even imagine 20 years ago where you buy from a distributor, you sell it on Amazon and you watch the money coming in.

DETROW: All right. So the big theme of Amazon is it sells, like, literally millions of things, right? Not just hot sauce. Dara, can you walk us through an example of another seller in this situation?

KERR: Yeah, this happened to Douglas Mrdeza. He's an Amazon seller I spoke to who just saw his business explode. So back in 2014, he was running a barber shop in Michigan. And that summer, he ordered a bit too much of this hair pomade called Suavecito from a wholesaler. So he thought he could offload some of it on Amazon, and it sold out. So then he ordered more. And this time, he paid for Amazon's super-fast shipping service.

DOUGLAS MRDEZA: I did the calculation, bought what I would have sold in a month, sent it in. And it sold out in, like, a day.

KERR: Mrdeza was hooked. So he turned his life upside down. He made selling hair and beauty products on Amazon his full-time business. He hired more than 40 employees. He opened four warehouses. And within a couple of years, he was bringing in 10 million in sales.

DETROW: This sounds like an unbelievable success story to me. What could go wrong?

KERR: Yeah. Well, fast-forward to today, and his beauty company is now bankrupt. He had to lay off his employees, and his warehouses were shuttered. He says the reason he went from boom to bust is because Amazon hiked its fees and started selling many of the same products he had. That made it hard to compete and essentially just pulled the rug out from under him.

MRDEZA: You can be nimble, and we were definitely nimble, but there's only so much you can do when that happens so many times.

SELYUKH: And just to chime in, of course, it is Amazon's prerogative to change how its platform works. Amazon would argue it's doing everything it can to offer shoppers the best prices and build the fastest delivery.

KERR: Yeah, and the Amazon spokesman told me that sellers who choose to pay the fees to Amazon do so because it's the best value around.

SELYUKH: And in this lies this inherent tension between Amazon and its sellers. Amazon is both the owner of the platform and a rival on the same platform. Amazon does not let sellers directly connect with shoppers. It sits in between. It takes a cut off each sale. And then there's more. Amazon is also a big advertising business. A seller can pay to show up at the top of the search. So you might have the best beauty product, but if you don't pay, your listing can get buried. Also, Amazon owns warehouses and delivery trucks, which cost money to use. Sellers don't have to use them, but they kind of do because that's how you get to be part of Amazon Prime.

DETROW: Right. Because as we talk about it, you hear the argument of how Amazon is really, in many ways, like the railroads of more than a century ago that first started the conversation about monopoly, where they own every single critical part of it. You just mentioned one of the biggest parts of it - Amazon Prime, the service so many people pay extra money for to get their services faster.

SELYUKH: It's - I think the estimate is two-thirds of U.S. adults have Amazon Prime - pay for Amazon Prime.

DETROW: And I guess then you have to factor in the people who mooch off their friends and family for the - yeah.

SELYUKH: And children - how many children are there? Yes. So all of this is part of that landmark lawsuit from the Federal Trade Commission in 17 states. And the lawsuit alleges that the way Amazon treats sellers actually results in a worse experience for the shoppers, including higher prices, not only on Amazon, but actually across the internet.

DETROW: Walk me through how that argument works. Because even taking all of this into account, I see how I can get the thing I need in, like, 45 minutes sometimes and for a cheaper price than previously, when I would have to, like, you know, get in the car and go somewhere for it.

SELYUKH: So the lawsuit alleges that Amazon's policies result in higher prices. And one direct way is this. Amazon has rules about prices. They scour the web and check if your beauty product is listed somewhere else on the internet for cheaper. Maybe it's even your own website. And if it is, your listing on Amazon actually gets demoted. Maybe it's now on Page 4 of the search results. Maybe it doesn't have that yellow box that says buy now or add to cart. All of that means it could be kind of doomed. You might not get any shoppers.

DETROW: And then, Dara, then there's fees as well, right? What's going on there?

KERR: Yeah. So take Nicholas Parks. He sold Valentina brand hot sauce for more than a decade. He'd buy it from a distributor for, like, 65 or 70 cents a bottle and then put it on Amazon. But then the fees started. Amazon says its selling fees are 15% or less on most product categories, but that's just for the listing. It doesn't take into account all the other fees, like using Amazon's fulfillment program for shipping. And actually, Parks says Amazon's fulfillment was a game changer at first. It was so easy and convenient and back then, Amazon was even subsidizing it. So it was cheap. But about five years ago, he says things began to change.

PARKS: In the past, those fees might have been 2.50 to $3. Now those fees can be like five or $6 for one bottle of hot sauce. So the result is either I can't make money or I'm just forced to raise the price.

DETROW: OK. So just to underscore this, it seems to me like his fees are now 10 times the cost of the actual bottle of Valentina.

KERR: Yeah. So he is trying to sell it as close to break even as he can and still be attractive to shoppers.

SELYUKH: And remember how Amazon constantly checks what prices you charge on other sites. So in this situation, it can become kind of a cycle where Amazon raises fees, sellers raise prices to cover those fees. On another website, sellers don't have to pay those fees, so they could keep prices lower, but they don't because that will get them demoted on the Amazon search, which they don't want to experience. So this could mean Amazon's fees are raising prices across the internet.

DETROW: Got it.

KERR: Yeah. And another thing that happens a lot is Amazon checks for what sells best and then joins the party. This happened to Parks with his Valentina hot sauce. Essentially, Amazon is cutting out Parks as the middleman so Amazon can sell for half the price, even less.

DETROW: How can Amazon afford that, though? Because at a certain point, you're just losing money if you do something like that, right?

SELYUKH: Yeah, Amazon can do that partially because Amazon does not have to pay the fees to itself. It does not have to pay itself to use its own delivery network, for example.

KERR: Yeah. And Parks actually says that Amazon regularly sells stuff at below cost at a loss, which squeezes sellers out.

PARKS: Right now, I have, like, seven or eight pallets of Valentina in my warehouse. And over time, the same thing happens with other sellers. As everyone stops selling that product, it opens up that space for Amazon to increase the price. And then they start to recoup whatever that initial loss was.

DETROW: So I've got to ask again, though, even though it is clear that Amazon dominates the market and is where so many people search, if it's going this poorly for Parks, why doesn't he just leave the site?

KERR: Yeah. So I asked Parks the same question, and this is what he said.

PARKS: It is still the only significant third-party marketplace.

KERR: So Amazon accounts for about 40 to 50% of online sales in America.

SELYUKH: And part of it is also maybe you bought into the Amazon shipping system. You're using all these Amazon selling tools. Years later, at some point, you do the math and it's just not worth investing in some other website. And so this big question becomes, does Amazon stay big because it's simply better or because it's done everything to stop other platforms from getting a toehold?

KERR: Yeah. So the FTC lawsuit alleges it's because Amazon traps sellers and rigs the entire world of online retail in its favor. But Amazon argues the FTC has it backwards and doesn't understand online pricing. It says everything it does benefits shoppers. And if the government wins, we'll see higher prices, slower deliveries and fewer options. While a lot of sellers might agree with Amazon, Mrdeza, Parks and others we've heard from say they hope this is actually a moment when Amazon starts to change.

DETROW: That is tech correspondent Dara Kerr along with retail correspondent Alina Selyukh covering this ongoing story. Thank you so much for helping make sense of what is going on on Amazon.

SELYUKH: Thank you.

KERR: Thank you. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Alina Selyukh is a business correspondent at NPR, where she follows the path of the retail and tech industries, tracking how America's biggest companies are influencing the way we spend our time, money, and energy.
Dara Kerr
Dara Kerr is a tech reporter for NPR. She examines the choices tech companies make and the influence they wield over our lives and society.