The case against Amazon

EU competition authorities are studying retail behemoth’s dual role as seller of its own wares and platform for rivals.

Amazon insists that it does not use data from one seller to compete directly with that seller

If you want to understand why antitrust investigators across Europe are turning their attention to Amazon, take a look at what happened to Peter Sorber.

When the Dutch internet entrepreneur was invited to Amazon’s Munich office, he didn’t think twice. Sorber was seeking to expand his online store for children’s clothes into Germany, Europe’s largest e-commerce market.

Like many traders, he saw working with Amazon as a huge opportunity. The relationship soured, however, when he found that the trousers and shirts he was selling suddenly became invisible on the site.

That was a big reversal from the happy early days of the relationship five years ago. “We were approached by Amazon because we had brands such as Tommy Hilfiger or IKKS, which [Amazon] could not buy itself but wanted to sell on its platform,” Sorber said.

Sorber was welcomed at Amazon’s Munich headquarters by a woman who was setting up the company’s children’s clothes range and who explained how she could help his business, Brandkids, grow. Amazon helped the company set up shop on its platform, included it in its newsletter and made sure that it entered all the necessary data about its sales. Brandkids fared well. With a four-and-a-half (out of five)-star user rating, the startup was on track to make €500,000 per year on the e-commerce website.

“If you are too dependent on Amazon it’s very tiresome to see it raise its margins and your costs year after year” — Entrepreneur Peter Sorber

“It went very well, until overnight our revenue dropped from €10,000 per week to zero because we could practically not be found,” Sorber said. That happened about 18 months after the trip to Munich. “We suddenly disappeared from the rankings without any mistakes from our side — that we couldn’t supply or that there were complaints from customers,” he added.

The woman who helped him launch had moved on to Amazon in Spain and her successor was hard to reach. “There was no one else who could speak to us,” he said. The company tried several things, but could never revive its initial success.

Hybrid warfare

European Commissioner for Competition Margrethe Vestager is guarded about the nature of her investigation, but has stressed that it focuses on data usage and the way that Amazon has a hybrid role as both a shop and a platform for other sellers. The central point to investigate would be whether Amazon abuses its dominance of online retail to collate useful data from competitors and then uses that same data to push sales of its own wares.

“If you, as Amazon, get the data from the smaller merchants that you host — which can be completely legitimate because you can improve your service — do you then also use these data to do your own calculations as to what is the new big thing? What is it that people want? What offers do they receive? What makes them buy things? That has made us start a preliminary investigation,” Vestager said when announcing her pre-probe.

This initial investigation appears to have touched a nerve. The Danish commissioner told POLITICO that she received copious amounts of data in response to the questionnaires sent out in September. “We got a lot of data and that is of course why it takes us some time to fully understand the patterns, to see if we should open also a formal investigation,” she said.

The French, German and Austrian competition authorities have already opened investigations that are focusing on unfair terms in the contracts between Amazon and the retailers.

“In Austria, as in Germany, almost every second euro in e-commerce is spent on Amazon,” Austrian retail federation Handelsverband wrote in a complaint about the company. Handelsverband said that it “assumed” Amazon has a dominant market position selling books, toys and electric appliances. Ninety-three percent of all Austrian online shoppers have at least once shopped at Amazon, giving the “U.S. corporation” access to a huge amount of consumer data, the trade body added.

India has taken the boldest approach. On December 26, it announced new restrictive rules on e-commerce in its Foreign Direct Investment policy. The company’s shares on Nasdaq dropped by 5.38 percent after the announcement, losing $45.22 billion in market capitalization, the Times of India wrote.

Amazon insists that it does not use data from one seller to compete directly with that seller. It also says that its own-brand products only constitute 1 percent of revenue.

Ground down

The co-owner of a shop selling packs of coffee online in the Netherlands said he had a similar experience to Sorber. When expanding to Germany, he started selling on Amazon “because that’s where German consumers start their search.”

“After 10 days of soaring sales, Amazon invited me and some colleagues to Munich to see if it could not buy the coffee directly from us,” said the coffee seller, who preferred not to be named given the sensitivity of the investigation.

Businesses that accept Amazon’s offer to follow their “vendor central” program sell their products first to Amazon, which in turn sells them on its platform. The upside is that Amazon can boost sales, for example by applying special advertising techniques. But the e-commerce giant also increases its grip over price-setting and logistics, websites advising businesses on the matter warned.

The coffee managers went to Munich, but refused the offer from Amazon. A few months later, Amazon made a deal to buy private label coffee directly with a coffee roaster. As with traditional retailers, Amazon has developed over 20 of its own brands, such as Amazon Basics, Spotted Zebra (kids clothes) and Solimo (household supplies, including coffee). The coffee manager saw Amazon’s brand consistently getting a higher ranking on the website’s internal search results as his own sales plummeted.

“You should not be afraid that Amazon will be your biggest B2B customer in the future” — Oliver Prothmann, German online trade association BVOH

Neither Sorber nor the coffee manager could prove any link between the decline of their business on the platform and Amazon’s rise in their product categories. “If I look now, I see brands and copies of brands that we used to sell which Amazon suddenly bought. Is that because they liked it themselves or because they saw they sold well with us? We were one of the first, so then it’s hard to say if they copied it or not. I only know that we were always behind them [in the ranking],” Sorber said.

“They get a reasonably good insight into which of these brands sell well, at which prices, in which sizes, patterns … you have to provide all that info. The question is why you should give as much data as a [business] that [consumers] cannot select on a filter,” he added.

An Amazon spokesman rejected the idea of a link, and played down the importance of home-brand products.

“We do not use an individual seller’s data to compete with that seller through our first-party offerings [when Amazon sells directly to customers],” he said, in response to the allegation.

“Like countless other retailers, we offer private brand products to provide customers with more choices, better products, and lower prices. Amazon’s private label products are approximately only 1 percent of our total sales. This is far less than other retailers, including household names like Aldi, Asda, Lidl, and Tesco, each of whom have private label products that represent 25 percent to 85 percent of their sales,” the spokesperson added.

Oliver Prothmann, president of German online trade association BVOH, said: “Amazon comes into your business and is not a fair partner. It dictates the terms.” When Vestager in September opened a preliminary investigation into the company, Prothmann advised his members to engage with the questionnaires they received from the Commission.

“It is up to the retailers to decide whether [selling to Amazon] is a good thing. You should not be afraid that Amazon will be your biggest B2B customer in the future, because that’s what will happen. Amazon discusses your purchase price with you and researches how you buy your product and if it can buy it itself,” Prothmann said.

Sorber said he is staying actively involved in the case.

“I follow up on the investigations, because it’s important” he said. The online fashion store he works for now, Oilily, decided to stop selling kids’ clothes via “vendor central” on Amazon.

“If you are too dependent on Amazon it’s very tiresome to see it raise its margins and your costs year after year,” he said. “That is also what Amazon does when it buys with you: contributions, compensation fees, returns, delivery obligations, exact delivery … in the end it becomes almost impossible for a small or medium-sized enterprise.”

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