‘Entrepreneurial’ Re-sellers Turn Amazon.com into Retailing’s Wild West

Amazon.com (NASDAQ:AMZN) makes more money re-selling products for others than it does selling products directly. And while that helps fuel the $871 billion market cap in AMZN stock, this has also created a Wild West atmosphere among entrepreneurial re-sellers, leaving Amazon damned for both policing and, at the same time, not policing those who sell on its site.

'Entrepreneurial' Re-sellers Turn Amazon.com into Retailing's Wild West

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The regulators (and investors) seem as confused as the company.

Federal Trade Commissioner Rohit Chopra recently tweeted his agreement with the conclusions of a Wall Street Journal investigation claiming the site’s lack of policing means dangerous products are reaching consumers.

At the same time, the FTC said a deal Amazon made with Apple (NASDAQ:AAPL) to protect that brand from abuse is an antitrust violation.

It’s all part of an ongoing attack on big tech by federal regulators that is putting a lid on the valuations of the five Cloud czars — Amazon, Apple, Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) — and possibly the whole market.

The Newer Retail

Re-sellers in Amazon’s marketplace represented $160 billion of sales last year, 58% of its total revenue, and double the rate of a decade ago. It’s also been a gateway for Amazon to enter new regions while enabling a small retailer to take advantage of the marketplace footprint beyond the shops’ traditional local market.

But those re-sellers aren’t all traditional wholesalers. Some are digital nomads who engage in retail arbitrage, seeking out close-outs at stores like Target (NYSE:TGT) or Walmart (NYSE:WMT) for re-sale. Others are engaged in wholesale arbitrage, using Amazon’s sales tracking tools to find what merchandise they can buy in bulk for re-sale.

Amazon has been shifting resources to re-sellers because it makes more profit with them than selling direct. Re-sellers can now sell products by subscription, gain access to early reviews, and use a host of reporting tools that help them set prices.

But this causes big problems for brands. Arbitrageurs can sell for less than list price. They may not be authorized to sell the brand. Brokers who could police stores can’t police these individual re-sellers. Sometimes Amazon’s own Brand Registry can’t do it.

That’s why Amazon finally reached its agreement with Apple. It’s similar to a deal it signed with Nike (NYSE:NKE) in 2017.

Cops and Robbers

The Amazon Marketplace isn’t always the cheapest way to sell online.

In addition to protecting brands like Apple, Amazon also protects its own brands and reputation. When Amazon sees re-sellers offering products for less at Walmart, it penalizes those merchants. This is the kind of “merchant control” the FTC wants to end. The re-sellers believe that if their costs to sell elsewhere are lower they should be able to pass those savings on.

Amazon is also accused of using its Amazon’s Choice label to police pricing and generate ad revenue.

But since it’s not taking ownership of third-party merchandise, Amazon can’t police the quality or safety of re-seller products. This has led to court cases where victims sought to get into Amazon’s deep pockets on issues that were the fault of small third parties.

Bottom Line on AMZN Stock

Amazon’s Marketplace has upset all the relationships that used to define retailing, much to the joy of AMZN stock investors.

What was once a simple ecosystem of brands, wholesalers, sales agents, and retailers is now a mishmash where closeout merchandise can be sold at close to retail price, and where channel relationships are meaningless.

Government efforts to police Amazon on behalf of small re-sellers open the Marketplace up to abuse by other small re-sellers. Amazon’s efforts to protect brands, including Amazon’s own brands, are also subjecting the company to government scrutiny.

It all adds up to more cost for Amazon, not just for brand and re-seller policing but for protecting itself in courts and before regulators. Meanwhile, the effect on Amazon stock is unclear.

They’re damned when they do and damned when they don’t. The global marketplace may never be the same.

Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, MSFT and AAPL.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.

Article printed from InvestorPlace Media, https://investorplace.com/2019/08/entrepreneurial-re-sellers-turn-amazon-com-into-retailings-wild-west/.

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