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Amazon’s Heavy Recruitment of Chinese Sellers Puts Consumers at Risk

11 November 2019

From The Wall Street Journal:

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.”

. . . .

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.

. . . .

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 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.

. . . .

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.

. . . .

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.

. . . .

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 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.

. . . .

“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.

Link to the rest at The Wall Street Journal (Sorry if you encounter a paywall)

PG has written previously about the increasing number of stories describing skeezy behavior by Amazon. These differ from earlier Amazon-Derangement Syndrome press-release stories about Amazon generated by U.S. labor unions, publishers, booksellers, etc., in that the more recent stories have originated from far more reliable sources and reflect a deeper level of research into allegedly questionable Amazon activities.

PG suggests that stories like the OP are a perfect means of generating legislation that holds Amazon liable for damages arising in connection with actions arising from third-party sales through its online platforms. General rules governing product liability in the U.S. include a retailer which sells a defective product among those an injured party may sue. If PG recalls the rationale for such liability correctly, it is because the retailer participated in the sale, the retailer is in a better position to identify defective products than the consumer is and the purchaser should not be burdened with the task of pursuing a manufacturer or designer who may be difficult to identify and locate when the retailer is known.

While he’s happy to be corrected by the various well-informed attorneys who follow TPV, PG is not aware of any great legal hurdles that would have to be surmounted to impose liability on a seller like Amazon which mingles products sold and sometimes produced by itself and those for which the nominal “seller” is a third party, particularly an unidentified or misidentified third party, for whom Amazon is effectively providing a trusted American storefront and provides outsourced billing and payment services for the third party that Amazon contends is the “real” seller.

As for PG’s purchasing behavior, he studiously avoids buying any products on Amazon that hint of being sold by Chinese companies which do not have a well-established reputation for making and selling high-quality products. While this is undoubtedly unfair to lesser-known Chinese companies that have high standards for product design and quality, PG suspects he’s not the only one engaging in such discriminating purchase behavior. PG has also decided that if he purchases a product through Amazon that turns out to be sold by a Chinese company that has disguised its identity or the location where the product originates, he’s returning it immediately for a refund.

PG is acquainted with some price-sensitive shoppers who have started routinely checking online prices from Walmart before they purchase anything from Amazon. One of the stated reasons is that they’ll have no problem returning an unsatisfactory product to Walmart for a full refund.

The reputation of a brand is expensive and time-consuming to build, but it can be seriously, sometimes irretrievably, tarnished in a much shorter period of time.

PG recently read that Jeff Bezos wants to buy an NFL professional football team and that he spends much of his time away from the Seattle headquarters of Amazon. In and of themselves, those facts tarnish the Bezos/Amazon image in PG’s mind.

If these reports are true and if the past behavior of other business leaders/owners of large commercial organizations is any guide, it appears that Bezos may have subcontracted control of Amazon’s business philosophy and practices to subordinates who don’t share the same values that characterized the Amazon of 5-10-15 years ago.

PG suggests this isn’t a good idea if the long-term well-being of Amazon as an online retailer is still important to Bezos.

Amazon

11 Comments to “Amazon’s Heavy Recruitment of Chinese Sellers Puts Consumers at Risk”

  1. I have more or less stopped buying anything except books, e-books and movie rentals from Amazon.

    Sometimes I forget why I introduced this self-policed policy, then make the mistake of buying another white good product from Amazon.

    My most recent purchase from the Zon – an expensive well-reviewed laptop bag, started to split at the seams after a month. China-built, of course. No way to return it.

    I don’t buy branded goods at Amazon anymore, either, as some goods I have purchased are – I suspect – counterfeits, which also break or stop working in short order.

    I’m not rich enough to buy such cheap products.

  2. After being burned a couple times by companies I later deemed being from China, I’m intently selective on what I buy outside of books. I only purchase if it can be delivered by Prime which often removed a lot of Chinese products from consideration, but also if I can deem where the brick and mortar stare is located. I, too, have started shopping Walmart for options, having just purchased a laptop from them after they beat out Amazon and Best Buy. But I think twice now, and I imagine more people are just like me, not liking the sleaziness of Chinese products or the lack of policing being done by Amazon.

  3. Whenever I look for a product on Amazon, I always check to see if it’s made in China. That customer question-and-answer feature on items always reveals that someone else has asked that question, which tells me that a lot of people care about this. For most products, I take a pass when I know they’re made in China because I, also, am not rich enough to deal with Mr. Chabuduo’s output. Point two at the link has another link that explains all about that folk character, and the mentality he embodies.

    I’ve wished that Amazon’s search engine let you exclude made-in-China from searches. But I doubt they will add that feature because a lot of American companies outsource there: Apple and Martha Stewart to name two. I’ve been reading that a lot of companies are starting to shift production outside of China. That can’t happen fast enough for me.

  4. I always check the Amazon Prime and Free Shipping by Amazon so if there is a problem (haven’t had one yet but you’re always playing the odds) I will be dealing with Amazon and not the third party – I figure Amazon can deal with them. 😉

  5. This is downright scary. I buy a lot from Son but will be more selective in the future.

  6. When I was a kid, small transistor radios and other consumer products, ‘Made in Japan,’ were almost always junk after a short while, and we learned not to buy based on that.

    ‘Made in China’ now has the same reputation – except it isn’t universal, and many people only discover something is made there after they buy it and it proves unsuitable.

    I have a lovely Airwheel S8, bought via eBay, which is now my mobility device, and, so far, works beautifully. Not adequately, beautifully.

    The Chinese also need to sort out some of their industries, and be more concerned about their image.

    Meanwhile, we consumers pick through a landmined landscape of possibilities.

  7. My problem with buying from Amazon extends well beyond items that might be from China (which is hardly a disqualifier, since almost everything is made there now.) It is a more general distrust of what is being represented. Just today I was shopping for a windows laptop for a kid, and after narrowing down my options I opted to buy one from the Acer website – because no matter what it says on an Amazon buy page, I have no guarantee regarding the quality of what I might end up getting.

    One thing I’ve seen a lot of are ‘refurbished’ laptops which are really just used laptops that have been shined up and shipped out. A common complaint of these buyers is that the battery does not take a charge. A new battery in a used laptop costs money, something these ‘refurbishers’ don’t want to spend, probably for good reason. Item pages are supposed to indicate new, used or refurbished, but nothing prevents sellers from saying whatever they want and shipping whatever they have.

    If you can’t trust the buy page… well, that’s game over for many products.

    Maybe someday Amazon will end up as an online bookstore, just like they started out.

    • I would add that I got a screaming deal on the Acer website, while Amazon’s offerings were a bit over the most common price.

  8. Richard Hershberger

    I wonder if we aren’t at or near Peak Amazon, at least as a retailer of consumer products. The issue of liability is part of this, but the bigger issue is not defective products burning people’s houses down. It is people ordering stuff and getting cheap crap.

    This is why I don’t buy anything with moving parts from Walmart: it has a long history of selling cheap knock-offs, often by the actual manufacturer, who cheapens the product in response to Walmart putting the squeeze on it. I would rather pay more elsewhere and get the real thing.

    Amazon has moved into this territory. Buying from it has become a research project: not to find the item I want, but to figure out if what goes into my cart is that item. Better just to go to a more reputable supplier.

    • Richard Hershberger, In the old days (8 years ago), Bezos talked Amazon, Amazon, Amazon. Nowadays he talks divorce, new girlfriend, and buying a football team.

      IMO we passed peak Amazon. We are on the back side of the curve.

    • Amazon’s main businesses are: AWS, merchant services, B2B, Video, logistics, and robotics. Their next big business will be satellite internet services.
      If all continues as projected, at some point in the next decade they’ll buyBlue Origin and add space launch services.

      It helps to understand Amazon is no single company but rather a consortium and Bezos hasn’t been involved in tbe day to day running of their legacy business (online sales, merchant services, books, etc–ditto for the WP) for most of the decade. In fact, most businesses are day-to-day independent. Expecting Bezos to know, care, or intervene is to ignore the reality that he has bigger things to spend his time on.

      And with all the noise from ADSers and political types, he’s learned to tune out the criticism. It’s a boy that cried wolf scenario where tbe fake whining drowns out any real issues that might crop up. Lower level execs may or not care.

      That said, consumers by and large, don’t care.
      They too have learned to tune out Amazon gripes.
      Thank the whiners.

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