Amazon tacks on a fee to sell select brands on its marketplace
September 2, 2016 10:00 AM
Amazon.com Inc. is requiring sellers to pay a fee and provide purchase invoices from select brand manufacturers before allowing sellers to list those brands’ products on its marketplace. The move adds a roadblock for sellers who would sell fakes and for sellers that acquire the goods they sell on Amazon on the secondary market, such as past-season merchandise liquidated by the original authorized seller or sellers that acquire goods another way and try to make a profit by reselling them online.
As of August 22, new Amazon marketplace sellers who list products from select brands must pay up to a $1,500 fee. In addition, sellers must provide three purchase invoices from the manufacturer or distributor and a letter from the manufacturer authorizing the retailer to sell its products. Amazon has not released statement or a list of brands this new rule pertains to, however, marketplace sellers on Amazon’s Community Seller Forum have said some of the brands this includes are Nike Inc., Lego, FunKo, Hasbro, Hewlett Packard and Samsung. This is a one-time, nonrefundable fee, and only applies to new sellers to the platform or existing sellers that are new to selling those brands’ products.
One seller posted the notice he received from Amazon this week after trying to add a product from toy manufacturer FunKo:
“We want customers to be able to shop with confidence on Amazon,” an Amazon spokesman says. “We consider several factors when determining qualifications and criteria to sell certain products. For certain products and categories, Amazon requires additional performance checks, other qualification requirements and fees.”
Amazon declined to elaborate further about why it’s instating these requirements—prerequisites that the marketplace has never had in place before—but some marketplace experts say this is one way to counteract sellers who list unauthorized or counterfeit products on Amazon.
“Amazon has strategically chosen these brands,” says James Thomson, partner with Buy Box Experts, a marketing firm that helps brands and manufacturers sell on marketplaces. “These are brands that matter in specific categories. Amazon chose brands that probably have a history of complaints of counterfeit products sold by sellers.”
This is a shift from how Amazon has historically approached counterfeit issues, Thomson says, who was the former head of Amazon Services, the division of Amazon that manages sellers who list products on the marketplace. Amazon’s process to handle counterfeit products is mostly “post-purchase,” he says. If brands see their products are sold on the marketplace by unauthorized sellers, they must file a complaint to Amazon and do a test-buy of the product and prove to Amazon that it’s counterfeit. The process can take a while, sometimes weeks, if the products are shipped from overseas. With the new authorization process and fee, Amazon is putting the onus on sellers to prove they are approved to sell these brand name products.
“They may not close the loophole, but they may place enough road blocks in to slow down counterfeiters,” Thomson says of the new process.
Some say this may not do much to stop sellers from listing counterfeit products on Amazon.
“If you’re a professional counterfeiter, you need a channel that you can sell your products through—quickly and easily,” says Adrien Nussenbaum, co-founder of Mirakl, a technology company that helps retailers build their own marketplace platforms. “Is paying $1,500 going to block me from offloading half a million dollars’ worth of products in two weeks? Probably not.”
The process is one way Amazon is strengthening relationships with consumer brands, Nussenbaum says, and automating a rejection of lower-quality sellers. “If sellers aren’t ready to pay $1,500, then they’re not ready to sell on Amazon,” he says.
Counterfeiters aren’t the only ones that may be hit by Amazon’s new policy. This affects retail arbitrage sellers, or sellers that buy products in store and sell them online for a profit. “This is a big problem for them,” Thomson says. That’s because they won’t have the paperwork to show that they sourced the product from the manufacturer or distributor, and any fee they have to pay Amazon to be allowed to sell specific brands will hamper their ability to make a profit, he says. “Retail arbitrage is a model based on small margins, so if they now have to ‘buy’ their way into being able to sell a brand, most available margin now disappears in these application fees.”
David Spitz, CEO of e-commerce services vendor ChannelAdvisor Corp., says Amazon is targeting apparel and brands with significant leverage, such as Lego, to increase pressure on lower-quality ‘arbitrage’ sellers and strengthen sellers who have wholesale relationships with brands. “Ultimately we think this may thin the ranks of competition from lower-quality sellers, which would be good for higher-volume, authorized sellers.”
335 retailers in the Internet Retailer Top 1000 Guide sold on Amazon in 2015. Of those companies, 159 are listed in the Top 500 Guide and bring in more than $29 million in annual revenue. The percentage of units sold by marketplace sellers on Amazon has been steadily rising. 49% of units sold worldwide on Amazon were by marketplace sellers in the second quarter ended June 30, up from 45% a year earlier. While Amazon does not disclose the total value transacted on its marketplaces, ChannelAdvisor pegs its 2015 gross merchandise value at $225.6 billion, which includes the sale of Amazon’s own inventory.. Not including Amazon’s direct sales, the gross merchandise value of Amazon’s marketplace sellers in 2015 was roughly half, or $112.8 billion, according to ChannelAdvisor data.
Marketplace sellers who received a notice from Amazon of the new brand requirements in the last week sounded off on Amazon’s web community forum, with some supporting Amazon’s move and others unhappy with the fees.
One unnamed seller says this may help suppress counterfeiting, but the price tag is a little high: “As someone who has been significantly harmed by the counterfeiters, I am glad Amazon has taken some sort of action. I do, however, think the amounts they are charging is usurious.”
Another person on the forum is confident in the new policy’s effectiveness, but proposes an amendment to the fee: “I don’t mind so much. I have longed for a tighter restriction on the newbie wannabe armchair millionaires. A $1,000 fee sure puts an end to them. But non-refundable? Ummm. Maybe refundable after approval would work better.”
Another seller says the fee may hamper profit margins on certain brands: “I would be willing (not happy, though) to pay a fee like this on some of the brands we carry because we sell a lot. But, as for this [brand] I got the email for, it is just a tiny bitty company that to pay even the lesser of $1,000 in fees it would not be worth it.” The seller goes on to say: “This new policy is going to help get rid of a lot of counterfeiters, retail arbitrage, etc., but it is also going to hurt those of us who have legitimate business relationships with companies that do [participate in the] brand registry but allow us to sell their products on Amazon.”