In 2014, Douglas Mrdeza decided to venture into the world of e-commerce, listing his first product, Suavecito, a specialty hair pomade, on Amazon. Little did he know that this decision would lead to a lawsuit filed by the Federal Trade Commission (FTC) against Amazon.
Mrdeza’s initial experiment with Suavecito proved to be a resounding success. The specialty hair pomade sold out rapidly.
This initial triumph prompted him to expand his product offerings, venture into the beauty and hair care niche, and transition from a part-time endeavor to a full-fledged business.
Within a few years, Top Shelf Brands, his e-commerce company, employed over 40 individuals, operated four warehouses, and had $10 million in revenue.
It was a thriving enterprise, and Mrdeza and his team were all in.
Undercutting Third-Party Sellers
However, the euphoria of success was short-lived. The capricious nature of the Amazon marketplace began to reveal itself.
Amazon, despite serving as a platform for third-party sellers, also directly competes with these sellers by offering its own products.
The FTC’s lawsuit alleges that Amazon employs various strategies to promote its own products, effectively edging out third-party competitors.
When a seller’s product gains popularity, Amazon often enters the market with a similar product, undercutting prices and enjoying the benefits of its vast shipping and delivery network.
The Challenges Faced by Third-Party Sellers
Sellers on Amazon often find themselves in a precarious position as they navigate the complexities of the e-commerce giant’s vast platform.
While Amazon has provided a lucrative marketplace for countless entrepreneurs and small businesses, it has also been a source of intense frustration, disappointment, and, in some cases, financial ruin for many.
Nicholas Parks and his shop called SnobFoods is another example of a third-party seller edged out by Amazon. He had been selling Valentina hot sauce for more than ten years when Amazon started selling it at a lower price.
The Impact of Amazon’s Dominance
Parks said, “It doesn’t even matter if I’ve sold it for 10 or 15 years. Once Amazon starts selling it, I’m just closed out of the market for that product.”
Amazon’s dominance in the online retail sector is undeniable, covering over 40% of online shopping and attracting a significant portion of U.S. adults through Amazon Prime subscriptions.
With a vast delivery network, Amazon has become one of the most valuable corporations globally, boasting a market value of $1.3 trillion.
Stacy Mitchell, co-director of the Institute for Local Self-Reliance, supports not only the FTC’s lawsuit against Amazon but also a larger-scale breakup of the e-commerce giant.
She argues that increased competition is essential for Amazon to strive for improvement and prevent a diminishing online experience for consumers.
Mitchell says, “The idea of a breakup isn’t to break Amazon as a convenient way to shop, but rather to save Amazon from itself,” because “we’re just going to see a diminishing of our experience online. … When you have this kind of monopoly power, you don’t have to work for it.”
As Douglas Mrdeza’s beauty product business on Amazon faced stiff competition, he decided to shift his focus to selling sporting goods and toys on the platform.
However, the financial margins in these markets weren’t favorable, leading to the eventual closure of Top Shelf Brands in 2022.
The Perils of Third-Party Sellers
The story of Douglas Mrdeza and Top Shelf Brands is just one of many examples of the perils faced by third-party sellers on Amazon.
These sellers, despite contributing significantly to Amazon’s bottom line, often find themselves at the mercy of a marketplace that is both their platform and competitor.
The fees for Amazon’s “optional services,” including high-up search placement, warehousing, and shipping, often eat into a significant portion of a seller’s earnings.
Furthermore, if a seller attempts to offer lower prices on other platforms, Amazon can respond by removing or burying their listings in search results.
A Costly Mistake
Another hurdle faced by sellers is the suspension of their listings on Amazon.
Lindsay Windham, co-founder of the high-end leather accessory brand Distil Union, shared her experiences of her most popular product being mistakenly pulled twice on the platform.
In both cases, Amazon recognized they made a mistake, but by then, Windham had already experienced serious losses. Windham said, “The default shouldn’t be to shut a product off. It should be to look into the issues.”
Ultimately, the FTC’s lawsuit against Amazon, joined by 17 state attorneys general, brings to the forefront the ongoing debate about the tech giant’s practices.
The lawsuit alleges that Amazon uses its monopoly power to stifle competition and harm consumers.
The case also draws parallels with historical lawsuits against railroad monopolies and echoes concerns about a dominant entity imposing terms and restraints on third parties who depend on the same platform.
Amazon, in response to the lawsuit, says it is “wrong on the facts and the law.”
A company spokesperson said that third-party sellers account for more than 60% of its U.S. sales and that sellers “purchase optional services from Amazon do so because they provide more value than they can get elsewhere.”
Featured Image Credit: Shutterstock / Rokas Tenys