Amazon Offers Sellers a Leg Up, With a Catch
July 18 2019 - 8:50AM
Dow Jones News
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)
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