Amazon Offers Sellers a Leg Up, With a Catch

Date : 07/18/2019 @ 1:50PM
Source : Dow Jones News
Stock : Amazon com (AMZN)
Quote : 1749.62  -55.98 (-3.10%) @ 1:00AM

Amazon Offers Sellers a Leg Up, With a Catch

Amazon com (NASDAQ:AMZN)
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By Jon Emont 

Amazon.com Inc. is offering independent merchants on its platform marketing support, product reviews and prominent display. The catch? Amazon gains the right to purchase a merchant's brand at any time for a fixed price, often $10,000.

The program--which allows brand rights to be bought for a fixed price on 60 days' notice, according to a contract seen by the Journal--is part of a push by Amazon to obtain a stable of exclusive brands for the platform. It is the first selling program that allows Amazon to obtain direct control over third-party brands that sell on its website, according to merchants familiar with Amazon programs.

Sellers are invited to the program. They can choose not to opt in, and only the brands they enter in the program are subject to purchase. Amazon hasn't yet acquired any brands, according to a person familiar with the matter.

The company is under scrutiny from regulators for alleged anticompetitive tactics. The European Union is investigating whether Amazon boosts its own sales at the expense of third-party merchants on the website, including by using merchants' nonpublic data to compete against them.

In Congressional hearings Tuesday focused on online platforms and market power, Nate Sutton, associate general counsel for competition at Amazon, disputed that Amazon uses its market power to squeeze independent merchants. A submitted statement listed several programs that benefit such sellers--such as Amazon Handmade, which supports the sale of artisan goods--but didn't mention the brand-acquisition program, called Amazon Accelerator.

An Amazon representative said Accelerator creates new opportunities for sellers, and offers Amazon customers a wider selection of high-quality products.

Sellers who join--pitching products from pet accessories to dish soap to electronic devices--have an easier time getting traction on Amazon's crowded website: Their products are displayed prominently, according to those who have joined the program or been approached to join, and fees for reviews are waived. (Amazon's Vine Reviews program allows sellers to purchase reviews from independent reviewers, to supplement those from customers.)

Some sellers say it's wrong for Amazon to give an edge to those willing to part with their brands.

"The additional exposure and marketing that Amazon has committed to put behind these brands is completely unfair to current sellers," said one Amazon seller familiar with Accelerator, who requested anonymity to avoid alienating the company. "It's a pseudo-partnership that's completely one-sided."

An Amazon representative said the company is more open than other retailers to independent sellers: "Amazon's private-label products account for approximately 1% of our total retail sales. This is far less than other retailers, many of whom have private-label products represent 25% or more of their sales."

One contract seen by the Journal, marked confidential, grants Amazon the irrevocable right "to acquire all of the right, title, and interest in and to each of the Exclusive Brands, including all goodwill associated with such Exclusive Brands."

The contract sets the price at $10,000, but says designs, patents and trade secrets will remain with the seller after the sale. Sellers in the program may sell the same product elsewhere under a different brand name, and keep rights to brands they haven't entered in the Accelerator program.

Accelerator was launched in the spring of 2018, and Amazon has invited sellers in the U.S., India and China to join.

Among sellers interviewed by the Journal, several said they declined to join, saying it makes no sense to develop a brand only to have to give it up at a price that doesn't rise regardless of the brand's success.

Two sellers who said they have joined say they saw Accelerator as a more likely path to a smooth launch and quick sales, even knowing that if the brand is a long-term success Amazon would likely buy it. Amazon requires some who join the program to sign a nondisclosure agreement.

One independent Amazon seller in China who joined Accelerator said Amazon approached his company to sell a particular electronic item on Accelerator. The seller was asked to list the best-selling competing items on Amazon, and told to set the suggested sales price 15% lower than the top seller.

Once his product was approved for the Accelerator program, he became the exclusive vendor for this trademarked product to Amazon. He said he thinks Amazon's goal is to cut out middlemen like him--but that he joined regardless because he felt he could land a lot of orders in the short term, as Amazon has an incentive to encourage the product's success.

According to the contract seen by the Journal, if Amazon buys a brand the original owner remains Amazon's exclusive supplier for two years after the acquisition. After that, Amazon can source products for the brand elsewhere.

"Do you want to have a successful product and have Amazon compete against you and kick you off completely or do you want to have a successful product and have Amazon kick you off completely and get 10 grand for it?" said Paul Rafelson, an attorney with Francissen Rafelson Schick LLP, which specializes in e-commerce cases. "They're trying to contractually legitimize what they're doing."

Write to Jon Emont at jonathan.emont@wsj.com

 

(END) Dow Jones Newswires

July 18, 2019 08:35 ET (12:35 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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