Thought exercise because I legitimately struggle with this. Is this fundamentally different than Costco using sales data to choose which Kirkland products to launch/sell? If so, how? If not, then why do we not pursue Costco with the same gusto as Amazon? To me this behavior by Amazon seems worse, but I can't figure out why.
The difference is between retailer and marketplace. Both Amazon and Costco are retailers, and both could use that knowledge to decide what products to self-source for better retail margins. Either way, still a retailer, but maybe also a manufacturer / wholesaler.
But Amazon is also a marketplace. In that role it acts as a "rentable retail space". Using the data of the retailers in your marketplace to decide what to make/wholesale and then retail is another layer.
You could easily argue that it reduces to the same thing. But societally we've excepted that the retailer is a full layer in the system and gets full access to the data flowing through it. The marketplace itself is historically more of a fee-for-use type of thing, so its not an ingrained concept for us.
It's hard to make new laws to address specific problems with Amazon and at times it acts like both; sometimes it's mostly a marketplace and other times it does things like mixing inventory that make it more like a retailer (in the sense that they're presenting a unified front for multiple suppliers).
You're misreading the ruling. The ruling is for state law not federal and says the following, "The Appellate Court didn’t agree with Amazon’s stance. It noted that the product had been listed on Amazon, was stored in an Amazon warehouse, had payment facilitated by Amazon, and shipped it out in Amazon packaging, proving it to have a hand in getting it to Bolger and thus liable under California law." So, this stance will change depending on the product and what law is being alleged to have been broken.
This explanation makes the most sense to me, but there is something that you are leaving out. Not only is Amazon a marketplace, but it is THE marketplace. Amazon has an effective monopoly on small-seller logistics and marketplace services in the United States (and many other places), soup-to-nuts.
If you are anything other than a massive corporation, any manufacturer that chooses not to sell through Amazon and utilize all or most of its services (marketplace listing, payments, warehousing, delivery) will be at a massive cost disadvantage and will not be able to compete with other sellers that do choose to participate with Amazon.
And more significantly, perhaps, if you don't sell through Amazon's marketplace, you are often unable to compete with Amazon itself.
This just isn't really true. It depends on what type of product you're selling, but there are a huge number of independent ecommerce stores that do extremely well.
I sell dog treat mix (coopersdogtreats.com) - I do much better both in terms of margins and overall sales on my own website (with traffic coming primarily via paid FB ads) than on Amazon.
That's not even including other huge marketplaces like walmart.com, Chewy, Etsy, etc.
Amazon doesn't have a monopoly on small-seller logistics - I'm about to move all of my logistics over to a 3PL, and there are plenty that will cost-effectively work with startups (ShipBob, Shipmonk, etc. - just Google "ecommerce 3PL" and you'll see what I mean).
How much Amazon plays into your business obviously depends on the category, but the idea that it's impossible to compete in ecommerce unless you're on Amazon is an easily disproven myth.
What people kind of miss is that outside of FBA it's the actual logistics companies that are handling the logistics for all merchant fulfilled Amazon sales. The normal logistics companies are also handling a ton of the work involved with getting goods to FBA. There are lots of 3PL solutions that can deliver FBA style performance at a lower cost to the seller. There are other advantages to not using Amazon as a seller or just using Amazon as one additional channel among multiple ones.
I've seen at least one other comment saying this, and not that I don't believe you, but can you name several companies that do that and come within say 150% of Amazon? Last time I really dug into this was years ago and nothing was really close then, maybe it's better now?
My other question to comments :
> What are the Amazon level logistics and delivery service that is available to a smaller retailer? I see some nascent choices but they really aren’t that close.
I've priced out several and all are within 150%. Shipbob is the closest at 10-20% more expensive than FBA, but depending on your product it may actually be more cost effective. I need them to pick and pack several items, since I sell my stuff individually as well as in kits (boxes of multiple items, which are vastly more popular than people buying individual items), and they include most of the cost of building out those kits in their shipping fees.
I'm happy to read what you are saying, and stand corrected.
I wonder, though. Do you think your experience is typical?
Am I wrong to think that your product is more niche and premium than the most products that are sold via the Amazon marketplace? Do you think that you might get more repeat business than most products sold on Amazon?
It's been a while since I've looked into pricing for FB ads, but my sense is that a product with more narrow margins and less potential for repeat business could find it difficult to attract customers via advertising without increasing prices beyond what could be found on Amazon for competing products.
I think Amazon's too big and broad to describe any experience as typical, but there are certainly differences in the type of business.
You are 100% right that my products are niche and premium, and that definitely makes a difference. But on the other hand, if you're a startup selling a commodity product, you're in a bad position for a whole lot of reasons other than Amazon.
From an advertising standpoint, you're right - I have the advantage of selling a product that has a high repeat rate, and that's helpful. On the other hand, my AOV is fairly low and my margins are okay but not extraordinary.
I think that the points you're raising here are what matter - not Amazon. If you're in a business that is one of: high AOV, high margin, subscription/frequent repeat customers then you're okay. If you're in a low margin, commodity business and you aren't operating at a huge scale, you're not in a great spot.
Ultimately, I think the actual value added by Amazon for startups is trust - I know that if I order from them, your product will arrive on time, and if there's an issue it'll get fixed ASAP. All of the other stuff, like two-day shipping and customer-friendly return policies, is doable off of Amazon. Even trust is achievable in other ways, though - my company was featured in an Associated Press article that was broadly syndicated, and when I slapped "AS SEEN ON USA TODAY, FOX, KTLA AND MORE" on the top of every product page and the top of my FB ads, it made a huge difference immediately.
And actually now that I've typed that I'll add one more thing in Amazon's favor - ease of use. If you don't know a lot about ecommerce, it's pretty easy to get set up and ship them product. It's also easy to advertise, simply because their advertising is much, much simpler than Facebook. There's no copy and limited ability to use creative outside of your product images, so you don't have to constantly test stuff. While my sales on Amazon aren't high margin, they're also extremely low effort.
I'm curious about how you would compare Amazon vs your own site. Things like Amazon's buyer-friendly return policy comes to mind...which clearly come at a cost for sellers (and buyers, fairly directly).
I have a very small number of returns on Amazon, since my product can't be used and then returned.
Amazon isn't terrible, but it has two big problems for me. First, margins are lower because I'm not only paying them a cut of every sale, I'm also paying for Amazon advertising. Second, I don't have a relationship with the buyer, which is the real killer. I do really well with repeat sales via email, and those are where the real margin is since I'm not paying to acquire those users again. On my site, I can afford to break even (or even lose a little money) on the first sale, where I must make money on each sale on Amazon.
I will say the one big difference between my product and many on Amazon is that it's not something that you seek out - very few people are searching for "dog treat mix" on Amazon (or Google/Bing/etc.). Amazon does have some types of advertising that work well for targeting other luxury dog goods, but my volume is going to be limited there. Facebook advertising works better for me, because I can target people by demographics and explain the product in an ad.
To that point, it may be important to be on Amazon if you're in a commodity business. On the other hand, it sucks to be in a commodity business for so many other reasons that I hardly think it's reasonable to pin the blame on Amazon for the difficulties there.
The one thing I will say about Amazon vs. Shopify that surprised me is that Amazon's support tends to be quite competent (at least if you call them - you get nothing but canned responses via email), while Shopify's is just terrible. They can help with basic issues using the software, but when it comes to real problems, like bugs in reporting (or more recently in my case, a bug where they undercharged a customer), they just say they'll get back to you and never do unless you are incredibly aggressive about hounding them.
I'm still not understanding the distinction here. Costco and Amazon both sell company-brand products, alongside non-company products. Costco and Amazon collect and analyze sales data from the sale of both company and non-company products.
You have the wrong mental model. Amazon isn’t Costco. Amazon is a shopping mall that has access to its tenants’ sales information and also owns an anchor store in the same mall.
Costco can determine that Best Brand shoes sell in its stores and decide to source shoes themselves and stop carrying Best Brand.
Amazon can determine that the Footlocker in their mall is making a killing selling Best Brand shoes and either sell Best Brand shoes in their anchor store or source their own shoes, all at a price that Footlocker can’t match. They can also advertise those shoes throughout their mall and change the layout so customers have to walk past their cheaper shoes to get to the Footlocker.
This explanation doesn't explain the difference to me at all. Costco can see that vodka sells well, so they can make Kirkland brand vodka. They control the layout of the store, so they can change the layout so people see Kirkland brand first when they get to the liquor section. They know the pricing of other vodkas and which ones sell well, so they can source Kirkland vodka at an ideal price point.
None of what you've described about Amazon differentiates it from Costco at all.
It's simple, Costco actually buys the inventory, and resells it. There are more advanced kinds of agreements (like buy back X number of coats of you sell less than Y) but that's largely how they operate.
Amazon is much more like a digital mall in that they rent out their store features for sellers.
However, Amazon would like to be seen by the customer as Costco and this causes dissonance between how they treat sellers, and how they treat customers.
Okay, you've described the business models, but so what?
In both cases, they still use the sales data available to them to create and sell their own products at the expense of third party sellers. In Amazon's case, that means diverting customers away from third party listings to their own. In Costco's case, that means making fewer purchases from third party sellers because the amount of shelf space available decreases as Costco puts more of its own products out.
The type of sales relationship that they have with third party sellers doesn't change the fact that both are using sales data to create and sell their own products at the expense of those third parties.
S/he may argue that public officials manage to do it too, despite its illegality, hence it's Okay for Amazon to do so. For some, whatever Amazon does is okay, there will always be some other cases happening elsewhere that in some twisted ways are the same. I think most people are only ever consumers, and can't escape their subjectivity on this matter. They get theit toys delivered within a couple of days, the invoice says free delivery, they want things to remain that way so what ever Amazon is doing is okay (for them, for now)
You can't see the difference because you're conflating the terms seller and vendor. There are no third-party sellers at Costco.
The difference really comes down to three things: the layer on which the competition occurs, whose data is being used, and whether the competition is fair (which comes down to risk/reward).
At Costco, the competition occurs between manufacturers. Costco uses its own retail data as a retailer. The risk to the vendor to sell at Costco is marginal (even if they have to pay for shelf space) compared to being in the market at all. Costco can compete with a store brand, but if they want to sell the vendors products they have to go to the vendor. They can't undercut the vendor with an equivalent product unless they make an equivalent product for cheaper. The risk is spread out and Costco owns a healthy amount of it.
At Amazon, the competition occurs between retailers. Amazon uses its competitors data, which it gains by being a 'marketplace'. The other retailer carries all the risks associated with being a retailer. Amazon takes a piece of it, the size of which depends on what 'services' the retailer uses through Amazon's marketplace. If the retailer fails, Amazon loses nothing. If the retailer wins, Amazon can use the retailers' data and begin selling the same product. It can use its size and the retailers' own numbers to get a better deal with the vendor and undercut the other retailers price on the same exact product. (Store brands are also an option and an issue, but if you're focused on that, you're missing the forest for the trees.) The retailer takes the vast majority of the risk, but Amazon can, at its option, swoop in and take the majority of the reward.
In the Costco model, Costco pays up front for the vodka and incurs all the risk if the vodka doesn't sell. In the Amazon model, Amazon charges third-party sellers "rent" to be on the platform in the form of a cut of all transactions, but the third-party sellers still incur all risk for inventory that doesn't sell. And then Amazon turns around and uses the sales data from the third-party sellers to undercut them later on.
I am not sure about Costco, but Best Buy does not purchase all the items it sells. For some items it only remits a payment to the manufacturer after the item has sold. Should they not get to see the sales data?
Not always true. Usually, Costco/Target/Walmart/etc. pay for it before it sells, but it’s not always like that. “Vendor” products like Frito Lay, Bimbo, etc. are sometimes given the ability to just put product on the floor at no cost to the retailer. When it sells, the retailer will send money to the vendor.
Consignment sales represent less than 1% of retail sales at these stores, and generally only are required for new products that the retailer will not purchase in bulk before the distributor proves market demand.
Generally, for the sales you have described, the consignment sales are paired with marketing efforts by the distributor to demonstrate customer interest. If the test succeeds, the store will purchase future lots from the distributor. If the test does not, the product disappears from the shelves and the distributor stops selling it.
No, those are Costco’s suppliers which are completely invisible to the customer and completely different.
Costco purchases the items from the suppliers, generally. They then resell them to you for a markup.
With few exceptions, every single item in Costco is sold by the first party seller: Costco. So my point stands: third party sellers are generally not a part of the Costco experience.
Yes, but the terms of the relationship make Amazon's behavior anti-competitive. Costco isn't going to various brands and asking them to sell at Costco, they buy inventory and resell it at a profit. Amazon has convinced a large portion of the retail market to feudalize themselves on Amazon's platform, then they are using the data accrued to take over the markets of their current and former tenants.
Costco sources Kirkland products from people they already do business with. So if they see your Vodka is doing great, they call you and ask (well, as a giant customer of yours "ask") you to make a Kirkland version as well. On those bottles you'll make less, but you're still going to make a lot of money there. And getting cheaper people to buy your product without diluting your brand. And a lot of money off your branded product. Most things I've seen from manufacturers online is that being asked to supply Costco with their product and the Kirkland version is a win from both asks.
Unlikely? I literally just described an example of Costco doing this right now with vodka. That's not a hypothetical - Kirkland brand vodka is a real thing.
Your logic is backwards - when space is at a premium, making the most profit off each item in that space is critical. It makes more sense for Costco to do this than it does for Amazon, not less.
Store brand products are not new and not the issue. Let's pretend that Costco didn't currently sell vodka at all. If Costco wants to know if they should start selling vodka or bottling their own vodka and selling that they don't have access to the sales data from the liquor store next door to Costco. Amazon is letting other businesses take the risks and using sales data from those businesses to outcompete them.
That's the right way to look at it, missing just one crucial detail.
Costco pays for the items that appear on its shelves (excepting the <1% of goods that are on a consignment basis, usually new trial products). The distributor of the store brand and the name brand have already been paid for the products (and are usually the same company).
Amazon gets paid by the distributors (aka third party sellers) on Amazon.com for handling their sales (even in instances where it is not handling fulfillment), while also competing against them. That is where the anticompetitive concerns arise.
If Amazon just sold stuff through the Amazon.com seller, and didn't have third-party sellers, (or if it operated a separate website for third party sellers) that would be fine.
Don't most large brick and mortar retailers maintain refund for unsold goods agreements in addition to defects? Generally only exercised if they are complete failures.
Effectively the difference in practice is a matter of financing and grain of operation - older retail would gain more and give no extra to upfront sales of say toliet paper after a demand spike raised prices while Amazon would give them a per sale percentage cut.
At what point does own involvement in consignment sales models become not fine? If it works at 1% consignment. Is it 25%? 50%? 75%? 90%? Or more likely it doesn't exist because the whole concept is a fabrication that pays no attention to real law and operates in the court of public opinion to push their bullshit which wouldn't even need a defendant motion before winding up dismissed by a judge because they cannot point to any real laws?
I don't know why HN is so focused on consignment sales. They are a tiny portion of the retail market, because no store (even Walmart) has the leverage to force consignment terms on their suppliers except for the tiny portion consisting of new products that distributors are trying to get stores to start selling.
Also, Amazon does not give a per sale cut of the percentage, nor would they, since that's not how consignment works. Consignment goods are still sold at retail price; the only difference is that the supplier only gets paid for goods that sold. They don't get to share in the (additional) profits if the retailer (aka "Amazon.com")charges more due to spiking prices.
But Costco does sell Vodka and wouldn't have made that product if Vodka sold 10% of what it actually sells. Because Amazon sells literally everything, is it a crime to do what Costco does, just on a bigger scale?
The only end-goal that would actually solve the problem fairly is if companies couldn't sell first-party products (or products from a partner where they have a vested interest in) in their store. If you just take care of the one company, you end up with other companies doing the same thing in 20 years like how iOS still has a default music player when MS got burnt for that with having a default browser.
I feel like people in this thread are being deliberately obtuse. The issue isn't about selling vodka. It isn't about selling store brand alternatives to brand name products. The issue is where Amazon is getting their data from when decided what products to sell and what store brand products to make.
When Costco decides to make a store brand alternative they are using sales data for things they have sold in their store. Amazon is using data for things other people have sold. Amazon is not doing what Costco does.
This is not about making a home brand. Amazon can literally look at the sells data of e.g. some seller which sells Nike Air Jordans (as a stupid example) and go and source those themselves and offer them (the exact same brand) cheaper than the seller, because they have all the sales data. Now how would Cosco do this?
When Costco sells Kirkland brand vodka and Grey Goose, all bottles of Grey Goose are sold the same way. Costco purchases directly or from a distributor. Grey Goose may or may not pay for shelf space, IDK. Purchasing premium shelf space is a common practice for other retailers and grocers. When Grey Goose is sold on Amazon, either Amazon buys it and re-sells it or Grey Goose sells it through a marketplace account incurring Amazon's marketplace fees. So Amazon can always have two listings for one product, a marketplace listing and an Amazon listing. Their Amazon listing can always be cheaper.
Maybe Costco is different, but at a lot of stores the line is blurrier. You might be able to get your product on store shelves, but if you want good placement, you basically have to rent that shelf space.
> Costco and Amazon collect and analyze sales data from the sale of both company and non-company products.
It's similar, although personally I think the relationship between the companies is meaningfully different:
Costco purchases product from manufacturers, and may choose to source product from other manufacturers (including under its own brand name). It uses it's own sales data to make this decision.
Amazon acts as a marketplace for other businesses to list and sell their own products. These businesses are online retailers which use the Amazon platform, and pay Amazon fees for this service. Amazon is then using other retailers sales data in order to inform it's own business.
The difference is with Costco it is their own sales data, while in Amazon it is the sales data of other retailers. It would be an issue if Walmart had access to Costco's sales data and not visa-versa (this would provide Walmart with an unfair competitive advantage). Similarly other smaller online retailers do not get access to Amazon's sales data, but Amazon get's access to the other retailers sales data who use their platform, and will then use this to compete with them.
Despite this I don't see how the case is that Amazon is being anti competitive while Costco isn't - just because they purchase and resell inventory doesn't mean Costco (or Walmart or Sams Club etc) doesn't hold the same power over their product suppliers that Amazon does to do data science on their sales to determine what new products to make in-house.
Plus, walmart is now a marketplace as well. This overpriced GPU is 'Sold & shipped by Monoprice Inc'. It's only a matter of time before Walmart commits the same anticompetitive acts as Amazon using Marketplace data. https://www.walmart.com/ip/Zotac-NVIDIA-GeForce-RTX-3080-Gra...
Analyzing their own sales and analyzing other people's sales on their platform are two different things. Saying that Walmart may also try to do this in the future does not make it right or excusable.
Who takes the risk in each scenario is different. If Amazon was only using their own sales data then they'd need to start selling a more diverse range of products themselves to acquire that data. Some of those products would sell well and some would be flops. Amazon would have invested money into selling all of them so the cost for the flops negatively affects their bottom line.
In the current scenario someone else sells things on Amazon and is taking the risk that the item they're selling will not sell well. If the item is a hit, Amazon swoops in and starts selling it themselves or possibly makes a competitor and sells it themselves. Either way, Amazon reduces their own risk of selling poorly performing products while also cutting into the upside for the vendor who took that risk when they are successful.
Edit: I forgot to mention above that the people taking this risk are paying Amazon to do so.
> Just because they purchase and resell inventory doesn't mean Costco (or Walmart or Sams Club etc) doesn't hold the same power over their product suppliers that Amazon does
With the Costco example, Costco as a retailer holds power over their product suppliers. If they are making an own brand, what they are doing is buying it from another supplier and asking that manufacturer to put their own label on it. These relationships can be anti-competitive and present opportunities for market-abuse, but in a meaningfully different way to the Amazon example.
With the Amazon example, Amazon holds power over other retailers using their platform.
And with the Walmart example you have stated, I do think that suffers from the same problems.
To be competitive, Amazon would be able to say everyone has access to the same information to rent out the online marketplace's booths. This is the issue at hand--Amazon has all of the information and is breaking its own rules in using it to give them advantage in the marketplace. Greedy greedy capitalistic cheesey.
When Costco sells a product they’ve already bought it (a retailer) on the other hand when Amazon sells something they’re just acting as a middle party for the item in most cases.
That's often not the case. Retailers like Costco, Walmart, Best Buy etc have a wide variety of different selling arrangements. I've sold products through all three and often did so on terms that gave them full right of return for any unsold product as well as significantly delayed payment.
This combination basically nets out to be financially the same as pure consignment. They won't pay me for my product until well after it has sold-thru to an end user. Everything that's unsold comes back to me (and they bill me for shipping both ways!) In the meantime, all I have is basically an "IOU" promise to someday pay IF it eventually sells (and they always drag out the payment beyond the already-extended due date).
Also, if I want to be featured in their circular I have to "buy" that just like an ad in a magazine except the retailer will (usually) DFI (deduct from invoice) the "ad" cost, which means they just owe me less (if and when the product sells and they actually pay). The same is true for getting my product displayed on an end cap or with in-store signage.
The big retailers bring in new products to "test" all the time and do so at basically no financial risk to themselves (other than the opportunity cost of the shelf space) while capturing all the sales data.
I'm not sure how Costco works specifically, but that's not the case in all retail. At GameStop, game publishers only got paid when their games sold not when they were put on the shelves. If there are 100 disk cases put on the shelves for Call of Battlefield and none of them sold, eventually GameStop would return them and the publisher got nothing.
All of Amazon's "we're not actually a monopoly" and "we're not responsible for defective products" arguments are based on this. They claim they are very much NOT a Costco or Walmart.
Amazon sells products and facilitates others' sales.
If Amazon carried the entirety of their inventory themselves like Costco or like Walmart used to be (before the expansion of their own online marketplace), it would be a distinctly different situation.
Costco buys products and resells them. Costco's research numbers are paid for entirely by Costco.
Amazon rents space to merchants where those items are sold through the site for a fee. Amazon is never on the hook for a sale and is basically getting paid to do the market research to set up as a competitor.
Yes, Costco does do some referral sales but I can't think of anything which has gone on to be a Kirkland product.
I think the difference they are getting at is something akin to this.
In one situation you run a stall and buy products from people to sell at that stall. At some point you use what you've learned doing this to sell your own product.
In the other, you don't buy anything from anybody. Instead, you rent out a stall for other people to sell things from. You then watch the stall and use that information to open your own stall.
The first case seems pretty normal to most people, I think. The person you were buying from originally doesn't inherently get some kind of assurance that you will always buy from them in the future. There's no difference to the seller if you buy from somebody else, don't sell any of that product, or make your own. We just don't expect that buying goods from somebody inherently adds any other kind of obligation. It's two equal parties making an exchange, and nothing more.
The second case, however, I think is not so clear cut. All of the sudden you have a lasting relationship between two unequal parties. These are the sorts of situations where you tend to find more implicit or inherent obligations on the participants. It's no longer the guy you sold that thing to not buying from you again, it's your landlord competing with you.
I'm not trying to pick a side here, so much as I am trying to explain why people might not see the two situations as identical. And of course there are plenty of real-world complications too.
So how do you factor in the recent ruling in California?
> An appeals court in California has ruled that Amazon can be held liable for products sold through its marketplace by a third-party seller
That seems to obviate the distinction of 'marketplace facilitator' vs. 'retailer' for them. That makes them much more like Costco with a special relationship with vendors to set up vendor-specific sections in their store.
Personally, I've always detested the 3rd-party market in Amazon and wouldn't mind seeing it go away.
Amazon doesn't see it that way, their optimised their business as an ad platform + logistic solution. Higher margins there than bothering acting as sellers with lower and not even guaranteed margins.
Amazon doesn't see it that way, their optimised their business as an ad platform + logistic solution. Higher margins there than bothering acting as sellers with risky margins.
I'm not intimately familiar with either side, but I see it as:
- Costco buys x amount of product at y price from seller and then sells it in its store.
- Amazon provides a platform for sellers to sell with a cut going back to Amazon.
There is a fundamental difference between being a retailer and providing a retail platform.
All Costco would really have access to is how much they've bought and how that has performed for them. Meanwhile Amazon is providing a platform for companies with a policy that they will only use their data to help them, which is what is allegedly not happening.
> I'm not intimately familiar with either side, but I see it as: - Costco buys x amount of product at y price from seller and then sells it in its store. - Amazon provides a platform for sellers to sell with a cut going back to Amazon.
This isn't really how it works. Retailers very often have arrangements to defer payments until after the product is sold.
In fact, in France, retail margins are so thin that supermarket chains reportedly make most of their profit by selling the inventory, investing the money in short-term funds, then paying the suppliers one month later and keeping the interest.
I used to stuff shelves at a grocery chain ~20 years ago and one difference seldom mentioned is that grocery chains bought from the manufacturers. That meant that we as a grocery chain were responsible for the sale to consumer, we were not merely a marketplace for a bunch of different brands.
So, even if we had our own competing labels for some products, the manufacturers would never be left in the cold with unsold stock (if for example we chose to drop one brand or run a promotion for our own).
- Sell shelf location slots to the highest bidder.
- Include a consignment clause in their vendor agreements requiring vendors to take back spoiled, customer-damaged, and unsold inventory at X point or on-demand.
- Require merchandisers to keep inventory in-stock for as many products as they can get vendors to manage (e.g. the coke delivery person is in-store several days a week.)
All of this is especially true for shelf stable products and beverages.
The modern grocery store is effectively managed like a flea market and is allowed to do so because the chains have so much leverage.
So while we can take issue with Amazon’s practices, we have to remember that most of large-scale retail operates in ways that if written about to the level of Amazon, we’d also be griping about.
What you have described is false. The major brands do not "sell shelf location slots" to the highest bidder (aka slotting fees), or require consigment clauses, or require merchandisers to keep inventory in-stock, as a general practice.
Slotting fees and consignment clauses only apply to new products. Slotting fees are used as an alternative to consignment; they are basically a discount on the wholesale price paid by the store for new products that may not sell through. Alternatively, the store may sell the items on consignment, in which case it only pays the distributor for products actually sold through.
Merchandisers...are employees of the stores (they're responsible for internal marketing efforts)...Perhaps you meant distributor? Only a few store chains have an in-stock requirement (Walmart and Costco), and that is due solely to the volume at which they sell-through.
More importantly, and the crucial legal distinction: retail stores pay the distributors for the inventory on their shelves, except for the 1% offered on consignment (i.e., new products sold on a trial basis), while Amazon gets paid by the distributors. That legal distinction is at the heart of why what Amazon does is problematic.
Disclaimer: I'm not a legal expert, just an engineer with my own opinions.
I struggle with it as well because conceptually in my mind this is the same as a grocery store using customer buying data to inform itself. Grocery chains have been using private label brands to compete with name brands for years. Check your cereal aisle for the "fruit loops" in the back without a box that are ~50% cheaper than the name brand boxed real fruit loops.
I never saw this as wrong growing up. I saw this as the store offering a cheaper comparable and consumers were able to chose which they want. In fact, the grocery store also controls what is on the end cap and what is on top and bottom of each shelf.
I think the landscape is heavily skewed in favor of the dominant online retail merchant. This skew and dominance is what causes people to claim afoul behavior is going on.
Difference in quantity has a quality all of its own.
There are kinds of behavours that are acceptable for an individual or a single groceries store, but if a large company adopts it across the country and puts it in the policy, then they are beaking the law.
Grocery stores select which products they want to sell and have limited capacity.
Amazon provides a platform through which "everyone" can sell "anything" with no tightly constrained space/slots.
As far as I know Amazon is legally closer to a market place where everyone is up their own stand (but they are required to look mostly the same) and which happens to also require you to use their payment system.
I.e. Amazon is just a proxy while the grocery store legally buys and resells the products.
I am not from the US but I think Amazon has much more market dominance than Costco. If Amazon had 20% market share nobody would mind, but they don't have real competition that comes close.
Amazon has less than 20% market share in retail overall. Remember their competitors are not just the online sellers who are pushing this antitrust angle. It’s Walmart and Target and grocery chains and CVS and Walgreens and brick and mortar department stores and so on.
Suppose Costco allowed other vendors to be present and selling in their stores. Costco requires these vendors to use Costco's checkout systems. Costco then takes the data gleaned from those sales to determine which products to compete with and then begins aggressively pushing their competing product.
This is an interesting thought experiment. Maybe the objection is that Amazon is erroneously considered a neutral marketplace, and not a "store". But practically is there a difference between these arrangements, other than the incidence of who technically is the retailer and who is the wholesaler?
I think the real issue is how people shop online versus in stores. Online, they see a linear feed of individual products and buy whatever is near the top. In a store, they see a variety of displays, and it's almost hard not to comparison shop even a little bit.
It's much, much easier to be "anti-competitive" on a web store than a physical store. Imagine if Costco did what Amazon does, deliberately making Kirkland products easier to find in the store and look more reputable/trusted compared to other brands.
So I don't think the problem is that this particular move by Amazon is any more anti-competitive than anything a normal store with store brand would do. The problem is that Amazon already engages in other anti-competitive activity, so pretty much anything they do related to their own store brand is distasteful.
No in that case Costco would likely get into legal problems.
Actually there had been legal cases with unfair market practices in grocery stores between different competing products sold there. I think there is currently a ongoing case with Oreo.
Imagine if a Costco sales rep offered to swap something in your cart with the Kirkland clone, or if they suggested the Kirkland product as you reached to grab something else off the shelf.
Take a quick trip the Costco website and you'll see they use the same recommendation tactics. Looking at a bag of Peet's brand coffee, I see Kirkland Signature brand coffee sitting in the "Similar Product". Just saying...
Aren't traditional grocery stores doing the same thing but using price, sales, positioning, name, and label imitation? When I reach for Quaker Oatmeal Squares, and Wholesome Oatmeal Squares Cereal is right next to it, for cheaper, also in a blue box?
And they have gotten into lethal trouble because of it, I think there is a ongoing case against Oreo because they abused their market power to affect in shelf positioning in a way which likely counts as unfair/illegal abuse of marked power.
Most important grocery stores and similar are resellers, Amazon is a proxy.
Sure that pretend they sell you things but actually you just buy things through them, not from them. (Except their own products.)
It's a lot easier to comparison shop. Also you can trust that the Quaker on the shelf is real name-brand Quaker. So you can look at the store brand prices, packaging, etc. and make a reasonably informed and quick decision.
I wouldn't be surprised if Amazon lets the fraud and ratings scams go somewhat unchecked so as to make their own house brand look "safe" and desirable.
Are businesses in the business of increasing efficiencies (more revenue, more profit, lower costs) or are they in the business of doing what is in the best interest of consumers or both?
I don't think your example really holds weight. I goto Costco because they offer products I want at a price I like. If during shopping they were trying to give suggestions to better deals I'm not sure as a consumer I get to complain about it do I?
This is a good point. I don’t think Amazon’s practices are structurally different than those historically of Walmart or Costco.
Each captured sales data and built private label alternatives to key brands on a regular basis. Small differentiator in the case of Costco is that they have a practice (though not a policy) of offering the leading vendor the opportunity to produce the private label before doing it themselves. But that’s a small detail.
Besides the fact that headlines about this get traction, there is a differentiator with Amazon in that they actively market themselves as a marketplace for small businesses in the way we’ve come to view Shopify. Costco and Walmart were always very clearly retailers...they buy stuff and sell stuff at a margin.
So while I think a lot of the blowup about this is overdone, there is a legitimate argument about the difference between how Amazon markets itself and what it does. But, frankly, for anyone with any level of experience with retailers or, frankly, tech platforms, this kind of capture behavior should be expected.
> Is this fundamentally different than Costco using sales data to choose which Kirkland products to launch/sell?
It's 100% different. Costco doesn't make any of the Kirkland brand products. Their suppliers do. And Costco usually only carries one brand of, say, batteries. They go to Duracell and say "We want to buy X Duracell batteries and Y Kirkland batteries from you over the next Z years". If Duracell doesn't want it, their next call is the same thing to Energizer.
Basically, Costco says to their suppliers "We want to give you X high margin sales and Y much lower margin sales." And you know that going in. And are ecstatic because all those sales would otherwise go to your competitor.
Amazon says "here's a flea market", then uses their security cameras to see what items are selling at everyone's stalls. The next day, the stalls of the people who run the flea market (right next to the front door) also have the best selling items. Oh, and their tables are infinite and maybe they also fuck with the listings on the map to make it harder to find that those items are also at your booth.
I think its a matter of scale. Say Costco makes a Kirkland brand cereal, there are other stores that you can buy cereal at and there is competition. For a lot people, all online shopping comes from Amazon. Amazon uses this position to their advantage in many ways (high quality customer data, branding, etc.).
This actually disincentives people from making compelling products because of the risk that Amazon will just steal the product.
Costco is a retailer. Amazon claims to be a neutral 3rd party when providing marketplace services to 3rd party sellers. Especially when trying to disclaim product liability. They tried to have it both ways, and now they'll get neither, and deserve it completely.
I recall hearing on a radio show a while ago about this topic a lawyer noting that a difference in these cases is that a retailer "takes a risk" in order to get the data, that is that they open up their storefront to this supplier, allocate space for them, and pay the supplier. The only way they learn that the supplier's product could be a success is by selling the suppliers product.
In contrast Amazon takes on zero risk. It snoops on the data of transactions, and then launches competing products.
Costco launching/selling products with own sales data is one thing.
To make it clear,
Here you should consider Amazon.com different entity than Amazon Seller Account. Now would you sell on amazon.com if amazon.com leaks your data to "amazon seller account" owner to boost his sales of a similar product, which you sell.
Moral thing is, Amazon seller division who deals with product directly sold by Amazon, should never have access to the data of other sellers.Fullstop.
When they start by doing independent market research, selecting a product, building/sourcing it and marketing it, then analyzing data generated by their own sales of these products in their own stores (brick & mortar or online), they are the same.
The DIFFERENCE is that Amazon also hosts other sellers and uses THEIR data.
So, an entrepreneur comes along having designed, arranged fabrication, and imports a product, then pays fees to sell it on Amazon. Amazon now uses THE MERCHANT's own data against them to notice the successful product, decide that it will be profitable, then search out the same manufacturer, offer a better deal, start selling on their own market as Amazon Basics, then kick the original seller off the market. [1], [2] It happens repeatedly enough to call it systematic.
So, if you are only marginally successful, you can continue selling unmolested.
But, if you find good success, Amazon will use your data to chop the top success zone right off of your business, after charging you for services while you spend decades building it.
It is even better than Zuckerberg's plan - at least Farcebook doesn't charge you to hijack your data for their purposes - Amazon charges you AND hijacks your data.
Just because it evades existing laws does not make it right.
I will certainly not be selling anything on Amazon that either 1) I'm 100% certain cannot be reproduced elsewhere or 2) I only intend to be a small or temporary market.
The distinction comes down to the legal differences in how they operate their sales operations:
Costco is legally a "reseller" that purchases items from manufacturers/distributors (at wholesale prices) and "resells" them to customers. (Note: only a tiny fraction (<1%) of Costco's inventory is sold on a consignment basis, meaning that the manufacturer/distributor only gets paid for units actually sold on. This arrangement generally only applies to some new products being sold on a trial basis.)
Amazon is also a reseller of items sold through the Amazon.com seller...but not for items "sold" by third-party merchants. The distinction is that for Amazon.com seller sales, Amazon has legally purchased the inventory sold, even if the payment terms may more closely resemble consignment transactions than wholesale transactions.
This is a good question. It rests on an implicit assumption that we think Amazon's behavior is anti-consumer ("bad") and Costco's is not ("good").
But perhaps one way to resolve this dissonance is to consider that Costco's behavior is anti-competitive too. They are a beloved brand, but that doesn't mean our emotional attachment to Kirkland products is an accurate reality-based moral stance.
You need to consider whether there's a difference between physical mail and Email (esp. Gmail)? And whether Google's business model is monopolistic because its 'software' over the internet.
I think that most Costco customers also use Amazon. I.e. I get my basic bulk items from Costco and my specific items from Amazon. Perhaps this is why amazon is trying to get these customer with "Subscribe and save" which offers discounts for subscriptions on basic items.
Although, I have not seen any real data on this. Just my gut read.
I don't think they do. It's similar to a grocery store that sells other companies products. Costco is different in that they sell products wholesale/bulk.
I'm not sure if it's fundamentally different, but maybe you're just (like I am) more inclined to perceive Amazon as a "bad" company. Costco has a lot of goodwill with the public.
Amazon is pushing people towards Fulfilled by Amazon. It makes sense as a marketplace, providing a more consistent experience. However when they compete in that marketplace, it means they're charging you to get data to outcompete you (via FBA fees). It also means that if they do enter that market, they're double dipping. They're taking away your revenue stream for their own profit, while simultaneously increasing what they charge you because it's harder to get your inventory out of Amazon's warehouses via selling it. They can also almost always outcompete you, because they don't have to pay the marketplace fees (they get the service at cost). They can also use the money they make from marketplace fees to undercut you, selling their competing product at a loss (but net zero after you pay your fees) until you get off the marketplace. Amazon also has a perverse incentive to not sell your goods because they don't have to pay for them, so they're totally okay if they can ensure that no one buys your product.
Costco has to buy the goods they sell. If it's on a shelf, Costco wants it to sell. If they don't want something to sell, they stop buying it/carrying it. They can't make any money by buying a competitor's product and letting it sit in a warehouse.
The incentive structure for Amazon is bad for everyone else. Their ideal profit scenario is to have warehouses full of other companies' stuff that never sells, and to sell an Amazon branded alternative to each consumer with demand. Costco's ideal profit scenario is to never buy third party products and only sell Kirkland goods (assuming demand stays the same). Amazon needs to pick one; they're either a marketplace, where their ideal profit scenario is to sell literally anything they have without preference, or they're a retailer and their ideal profit scenario is like Costco.
"only seems worse because amazon is so big, and so monopolistic"
as:
"only seems worse because amazon is so big, and so dominant"
I don't think monopolistic is a fair adjective because it has an implied legal connotation. Is Amazon a monopoly or just the largest e-commerce retailer today?
Monopoly isn't the best term either, there's definitely other companies that are vertically integrated and are single-sources. What they don't do (or try to avoid?) is leveraging their position to unfairly complete with other companies.
Amazon launching new product lines and boosting them to the top of the search results is almost textbook leveraging. Having information showing they used their internal data to find which products to market is basically icing on the cake.
Google has already been dinged for this with their Google Apps boosterism on their search results. I can't imagine this goes any differently from that.
> According do US law, having 50% of the market can be enough.
Having much less than 50% of a descriptive market can be enough, if, e.g., you have pricing power, which demonstrates that irrespective of what other players may be described as being in the same market, they are not actually competing with you.
> Courts do not require a literal monopoly before applying rules for single firm conduct; that term is used as shorthand for a firm with significant and durable market power — that is, the long term ability to raise price or exclude competitors. That is how that term is used here: a "monopolist" is a firm with significant and durable market power.
