Jon Emont
Nov. 11, 2019 11:17 am ET
It looked like Amazon.com
Inc.’s yearslong quest to build a shopping business in China was a bust in
July when it folded a big part of its local business.
In fact, Amazon’s China business is bigger than ever. That is
because it has aggressively recruited Chinese manufacturers and merchants to
sell to consumers outside the country. And these sellers, in turn, represent a
high proportion of problem listings found on the site, according to a Wall
Street Journal investigation.
The Journal earlier this year uncovered 10,870 items for
sale between May and August that have been
declared unsafe by federal agencies, are deceptively labeled, lacked
federally-required warnings, or are banned by federal regulators.
Amazon said it investigated the items, and some listings were taken down after
the Journal’s reporting.
Of 1,934 sellers whose addresses could be determined, 54% were
based in China, according to a Journal analysis of data from research firm
Marketplace Pulse.
Amazon’s China recruiting is one reason why its platform
increasingly resembles an unruly online flea market. A new product listing is
uploaded to Amazon from China every 1/50th of a second, according to slides its
officials showed a December conference in the industrial port city of Ningbo.
Chinese factories are squeezing profit margins for middlemen who
sell on Amazon’s third-party platform. Some U.S. sellers fear the next step
will be to cut them out entirely.
Tony Sagar began noticing the China effect around 2015. His
company, Down Under Bedding in Mississauga, Ontario, had sold goose-down duvets
on Amazon since 2014—these days, for $699 for a queen-size version. Then
Chinese competitors hit, listing goose-down duvets for sometimes a sixth his
price. He bought one and had it tested: Inside was inexpensive duck down.
The Journal in October bought a duvet from the same Amazon
seller claiming “100% Fill With Goose Down” and had it tested. The result
matched Mr. Sagar’s: duck feathers.
“They’re claiming they’re selling a $500-$700 duvet based on
false specifications, so people say, ‘$120, it’s a good deal!’ ” Mr. Sagar said.
“Amazon is making a direct push for these factories in China.”
In response to this article, an Amazon spokesman said, “Bad
actors make up a tiny fraction of activity in our store and, like honest
sellers, can come from every corner of the world. Regardless of where they are
based, we work hard to stop bad actors before they can impact the shopping or
selling experience in our store.”
Amazon said it took enforcement action on the duvet seller and
that its products were no longer for sale on the site. The seller’s listings
appeared to be gone from Amazon’s U.S. site as of last week.
Mr. Sagar’s discovery came as Amazon was expanding a
campaign it started around 2013 urging Chinese businesses to sell directly to
consumers abroad. An Amazon sales director, Alicia Liu, at a 2017 conference
told Chinese business people she was leading a team in China, drawing on her
previous experience cutting out middlemen in Walmart Inc. ’s
supply chain.
“We help factories directly open accounts on Amazon and sell to
U.S. consumers directly,” a video shows her telling them. “This is our value.”
A wave of Chinese merchants have joined Amazon’s
millions of third-party sellers worldwide, who collectively
represent more than half of Amazon’s physical gross merchandise sales.
Among the 10,000 most-reviewed accounts on Amazon’s U.S. site
whose locations could be determined in October, about 38% were in China,
Marketplace Pulse calculates, compared with 25% three years ago.
The Amazon spokesman said 38% “is a significant exaggeration of
the real percentage of the top ten thousand’’ and that the methodology is
flawed, citing what it said were problems with the way in which the analysis
used seller review counts to estimate the percentage. Marketplace Pulse
said it stood by its analysis.
Site control
How Amazon exercises
control of its site has come under scrutiny from some in Congress,
where some lawmakers are calling for more regulation of the company. That is part of
a growing backlash in Washington over how tech companies run their platforms.
Amazon’s third-party marketplace, which connects merchants and
buyers around the world, is crucial to the company’s growth. At the same time,
even though it has become a source of fake or dangerous goods, Amazon has
denied it is liable for what’s sold there, saying in court cases that it
neither makes nor sells the products in question.
In its annual Securities and Exchange Commission filing this year, Amazon
disclosed for the first time that counterfeits and fraudulent products are a
risk factor. It said Amazon may be “unable to prevent sellers in our
stores or through other stores from selling unlawful, counterfeit, pirated, or
stolen goods,” among other issues.
Amazon said it recruits sellers in many countries and that these
merchants are central to its goal of offering customers good selection at good
prices. Amazon said it requires products to comply with applicable laws and
regulations. It said that in 2018 it blocked more than three billion suspect
listings for various forms of abuse.
Consumers and businesses with safety and intellectual-property
grievances have found it hard to hold Chinese sellers accountable—in part
because Amazon doesn’t require its sellers to provide their locations to the
public on its U.S. site.
The Journal identified sellers as being in China from
their pages on Amazon’s site in Mexico, where regulations require sellers
to list their locations on Amazon—a method Marketplace Pulse also uses.
New sellers from China are hurting merchants that have built
Amazon businesses offering products they import from Chinese factories, said
Amazon seller Bernie Thompson. His Plugable Technologies in Redmond, Wash.,
lists electronics products made in China. Since about five years ago, Chinese
manufacturers selling on Amazon have priced him out of some product categories,
he said—some of them his own suppliers and others who game Amazon’s rating
system, he said.
“Amazon is trying to disintermediate everyone they can, and get
products as directly as possible to consumers,” he said. “In a way, they’re a
perfect partner for China Incorporated to engage with to take them around the
world.”
The Amazon spokesman said: “Independent retailers in the U.S.
are enjoying record sales in our store.” Amazon said more than 75% of the
10,000 top sellers by gross sales in its U.S. store were America-based as of
2018 and that the company spends more recruiting U.S. sellers than sellers from
any other location.
Global recruiting
In China over the past six years, Amazon has made its site more
accessible to Chinese speakers, created special programs that address Chinese
sellers’ logistical needs and sent a stream of employees to recruit suppliers.
At the 2017 conference, Ms. Liu, who said she had spent over a
decade purchasing for Walmart, told Chinese sellers that when she joined the
industry in 2004, around 90% of her suppliers were trading companies and that
by 2017, around 80% were the factories themselves. Ms. Liu said the same logic
applied to Amazon, the video shows.
“Let’s cut out the middleman,” said Geoffrey Stewart, an Amazon
employee in Shenzhen, at an April trade event in Hong Kong in a video the
Journal viewed. “We think that will enhance margins for our manufacturing
partners and it will delight customers.”
Amazon said Ms. Liu’s and Mr. Stewart’s comments didn’t mean
Amazon was less committed to helping sellers everywhere. Ms. Liu, who no longer
works at Amazon, didn’t respond to LinkedIn messages, and the Journal couldn’t
determine where she now works. Amazon said Mr. Stewart wasn’t available for
comment. Walmart declined to comment on Ms. Liu’s assertions.
Amazon seller Zhao Weiming said the site “is the most
cost-effective way to sell into the United States.” The Guangzhou businessman
experimented several years ago listing gadgets on Amazon before settling on
cosmetics and essential oils, he said, establishing factories
to produce them under the name Lagunamoon. He said his company earns $50
million a year on Amazon.
Listings for some popular Lagunamoon essential oils claimed they
were U.S. Food and Drug Administration approved, until the Journal raised the
matter with Amazon and Mr. Zhao in early November. An FDA spokesman said
essential oils wouldn’t meet the agency’s definition of an approved product, although
it was possible some component—a dye, say—might be approved.
Mr. Zhao said FDA requirements are complex and he didn’t want to
use tens of thousands of words to explain.
Amazon said it was investigating the case and would take proper
action. It said sellers are prohibited from listing products that improperly
claim to be FDA cleared or FDA approved, or improperly include the FDA logo. At
least one Lagunamoon essential-oil listing that cited FDA approval had that
claim removed after inquiries from the Journal.
Concerns at Amazon about Chinese listings arose several years
ago in its China team, which noticed that as local sellers flocked to the
platform, it saw increasing patterns of fraud, counterfeits and unsafe
products, said former Amazon employees in China.
Washington state’s attorney general’s office said Amazon agreed
to pay $700,000 as part of a legally binding agreement after an investigation
revealed dozens of products marketed toward children had excessive lead and
cadmium. The products were made in China, the office said, some sold by
China-based third parties. Amazon didn’t admit wrongdoing.
“Customer safety is Amazon’s top priority,” said the Amazon
spokesman. “We work closely with our selling partners to verify that the school
supplies and children’s jewelry in our store are safe.”
Bogus brushes
Cheap Chinese counterfeits drove Kevin Williams, a Utah seller
of water-powered cleaning brushes on Amazon, to lay off six employees this
year—most of his U.S. staff, he said. He and his co-founder developed their
patented Brush Hero product, made in the U.S. and U.K., in 2015 after finding
it difficult to clean their vehicles, selling them on Amazon for $34.99.
Poorly made copies began appearing in 2018 on Amazon, eventually
listing for as low as $9.99, some claiming to be the Brush Hero brand, he said.
Buyers, unaware they were fake, trashed Mr. Williams’s products on his Amazon
page, he said. When he complained to Amazon, he said, it told him to order the
alleged counterfeits and test them. Amazon removed brushes he proved
counterfeit, he said, but it could take weeks for them to arrive for testing,
and new counterfeits kept popping up.
He dropped prices to $19.99, which “pulled out the rug from us
from a cash-flow perspective” he said. A retailer declined to give him a large
contract. “He said, ‘What the heck, your Amazon reviews are terrible,’ ” said
Mr. Williams, who calls his company “walking dead.”
Amazon said that it acted on infringement cases where Brush Hero
provided adequate information and that it has introduced programs for sellers
to fight counterfeits, including one called Project Zero that uses automation
to scan Amazon stores and remove suspected counterfeits.
Counterfeits and inauthentic reviews “have all gone through the
roof with the rise of Chinese sellers,” said Chris McCabe, an investigator for
Amazon until 2012, now a consultant helping Amazon sellers counter illicit
competition.
Inauthentic reviews for listings from China can trick Amazon’s
algorithm into boosting products, people outside Amazon familiar
with the activities said. A search for “travel pillows” in August presented
products with names such as MLVOC offered by sellers whose names matched those
of Amazon accounts registered in southern China.
The Journal ordered MLVOC-brand pillows from sellers named Corki
and Kingstyle Supplies, and got gift cards offering a free pillow if the buyer
emailed an address—the same address for both sellers. A “Gift card team”
responded, asking the buyer to give a five-star review for which it promised an
Amazon gift card. Of one MLVOC pillow’s roughly 2,000 reviews, about 86% have
five stars.
Amazon policy forbids making inducements for positive
reviews. Amazon said it investigated and took action, eventually
reinstating Kingstyle and Corki. Amazon said in some cases it will
reinstate seller accounts after violations if the sellers provide
corrective action plans, though the accounts would be blocked after further
infractions.
In response to a query sent to the email address given by Corki
and Kingstyle, a respondent wrote: “I can’t share the company information.” The
sellers didn’t respond to requests for comment sent through Amazon’s platform.
Travel-pillow seller Teri Mittelstadt, co-founder of HiGear
Design Inc. in California, said counterfeits and review manipulation from China
have hurt sales. Her patented Travelrest pillows, which attach to airline seats
to prevent slipping, were among the top-selling travel pillows on Amazon for
seven years starting in 2008, she said, but now rank in the 20s or lower.
“The person who gets hurt the most is the consumer who buys the
product. They think they are buying a product with all these great reviews,”
she said.
Amazon said Travelrest’s sales on Amazon have steadily grown
year-to-year since 2015. Ms. Mittelstadt said her sales growth has slowed
significantly over the past two years and that this year her sales are down on
Amazon’s U.S. site.
Strategy shift
Starting in the mid-2000s, Amazon’s attempt to build an online
retail business in China was thwarted by local competitors like Alibaba. Early
this decade, it began experimenting with the new strategy, and employees
“realized that global selling is much bigger” than selling in China, a former
Amazon manager said.
At a Shenzhen trade fair in early 2013, no one had heard of
Amazon, said Steven Chen, who says Amazon dispatched him to recruit Chinese
sellers. He left Amazon in 2015 and operates an e-commerce consulting business.
Amazon employees distributed Chinese-language tutorials on
opening Amazon accounts to prospective new sellers, people familiar with the
company’s strategy said. Interns in Beijing phoned vendors on Chinese
e-commerce sites to invite them to join Amazon.
Chinese sellers’ products often took weeks to ship across the
Pacific and arrive at buyers’ addresses. So Amazon offered a logistics system,
“Dragonboat,” which for a fee brought goods made in China and elsewhere to
Amazon fulfillment centers in the U.S.
American buyers could receive purchases within 48 hours in
Amazon boxes, said a former high-level Amazon China employee and a Chinese
seller who used the service.
By 2015, Amazon’s website was functional for sellers in
Mandarin. Its team responsible for signing up and assisting Chinese sellers
expanded to 120 people in 2016, said the former high-level employee. Other
employees built relationships with businesses such as Chinese
logistics-services providers and translator services, asking them to encourage
clients to establish Amazon accounts.
It is often hard to tell that an Amazon seller is based in
China, as is the case with the Amazon page of Lagunamoon, the essential-oil and
cosmetics provider. It shows no indication the products are Chinese and gives
no store address. Lagunamoon’s Mr. Zhao said that is because the U.S. doesn’t
require it.
Amazon seller Molson Hart in Texas is suing 73 sellers, many
located in China, in Texas federal court, for trademark infringement on
products like his Brain Flakes interlocking plastic disk set. He has been
selling the Chinese-made toys on Amazon since 2014, and counterfeits started
appearing in 2015, he said.
After he filed suit, he couldn’t hunt down the Chinese
companies. “I know who did it,” he said, “but I can’t serve them.”
Amazon said it has worked closely with brands to support
criminal referrals against counterfeiters in China and anticipates working with
brands to jointly pursue litigation in the U.S. and China.
Amazon buyer Irvin R. Love Jr. of Georgia bought a hoverboard on
Amazon in November 2015 that caught fire and burned down his home, according to
a suit he filed February 2018 against Amazon, the seller and others, in Georgia
federal court. In an amended complaint this year he alleged that Amazon was
negligent for not removing the hoverboard from its website before Mr. Love’s
purchase. Amazon argued in a legal filing that it doesn’t owe damages because
it didn’t design, manufacture or sell the hoverboard.
Mr. Love also sued the seller, Panda Town, which his lawyer,
Darren Penn, said appeared to be a Chinese company, based on sales information.
Mr. Penn said that he can’t locate the seller and that Amazon declined to
provide its location.
Cross-border e-commerce has made it harder to police unsafe
products entering the U.S., he said. “When you had the traditional importer and
customs and brokers—and all those procedures are followed—you provide a couple
of layers of protection that you don’t when you’re talking about an internet
market.” The case is in discovery, and Mr. Penn declined to make Mr. Love
available for comment.
Amazon said it has provided information about the seller to the
plaintiff, consistent with its policy on such matters. Panda Town doesn’t
appear to list on Amazon anymore, and the Journal couldn’t locate a company by
that name.
‘Not normal’
Product safety on Amazon and other online marketplaces isn’t
assured, because Amazon doesn’t require all third-party sellers to test products
to prove they are compliant with regulations, said Sebastien Breteau, chief
executive of QIMA, an inspection, certification and audit company that is
an Amazon vetted service provider.
“It’s not normal that a factory with 200 people manufacturing baby
monitors in Dongguan can ship products directly to consumers in Minnesota or in
Europe through a marketplace,” he said. “The day the regulator makes them
responsible, then we’ll have proper compliance programs.”
Amazon said sellers create their own product listings and are
required to comply with all relevant laws and regulations when listing items
for sale in Amazon stores.
Mr. Thompson, the electronics seller, said Chinese factories
have steadily pushed him out of lower-end goods such as USB cables, pricing at
less than he can. The Chinese sellers often boost their product rankings by
arranging large purchases of their own products and leaving positive reviews
for themselves, he said—a tactic he said he learned about while attending an
independent Amazon-seller event featuring a China-based sales consultant in
Hong Kong several years ago.
He now counts on selling higher-end products like $199 docking
stations for displays and charging electronic devices, he said, but “there
really isn’t much upper end left for us.”
Amazon said competition is a part of business and some
more-mature product categories can be particularly competitive. The spokesman
said its goal is to quickly remove abusive reviews and that over the past month
“over 99% of the reviews read by customers were authentic.”
Chinese sellers were seen as too valuable to give up,
despite warning signs, a former Seattle-based Amazon employee said. “There were
crazy things, hundreds of listings created every hour,” the person said, adding
that when U.S. vendors complained, staff told them, “We don’t control
third-party selection. It’s not us, it’s an open-end platform.”
Goose-down test
Mr. Sagar, the goose-down-duvet seller, said an employee posing
as a customer last year contacted Rosecose, the Chinese seller of the down
duvet on Amazon, offering proof its product was deceptively listed. A Rosecose
representative apologized and said its suppliers could be to blame, offering to
refund the lab-test costs, according to messages the Journal viewed.
The employee last year also sent an email to Amazon with the
test results showing the duck down, he said. Rosecose kept listing duvets, Mr.
Sagar said.
The Journal bought a duvet on Amazon from Rosecose in October
and sent its own test results to Amazon late in the month. Early this month,
Rosecose was still selling duvets on Amazon as “100% Fill With Goose Down,”
including a king-size option listing for $129.99.
The Wall Street Journal verified Rosecose was based in China by
visiting its page on Amazon’s Mexican site, which listed its location. Rosecose
didn’t respond to inquiries sent through Amazon and no one picked up calls to a
phone number associated with the brand.
Amazon said it took down Rosecose listings Nov. 4. They appeared
to be gone from the U.S. site early last week, but some still appeared on
Amazon’s Canada site until after the Journal pointed them out to the company.
—Shane Shifflett, Stella Yifan Xie and Lekai Liu contributed to
this article.
No comments:
Post a Comment