Amazon the Monopoly Takes on Unruly Chinese Firms

Chinese sellers protesting in 2018 against Amazon’s suspension of their accounts. (Source: Sohu)

“Dear colleagues, good morning. On July 13, Amazon removed all our major brands overnight. Everything we have painstakingly worked for in the past seven years is gone, which I believe you are just as shocked and upset about as I am. This also means that the company has lost more than 95% of its revenue. Considering the stacked inventory worth tens of millions of yuan, and more than ten million yuan owed to our suppliers, the company will have to cut costs… We encourage every employee to begin looking for their next job as early as possible. We appreciate the contribution you have made to the company, and will be more than happy to welcome you back if we can survive this period.”

Weiweima, a Shenzhen-based e-commerce company sent the above layoff notice to its WeChat work group on July 15, two days after its major brands’ removal from Amazon. Before Amazon took them down, the company boasted a total annual revenue of $8.5 million. Now Weiweima is among the more than 300 Chinese merchants that were affected in the e-commerce giant’s recent crackdown.

Reactions to the crackdown varied among different parties. Most Chinese sellers were taken by surprise as several top players got knocked down. Speculations about possible government intervention circulated in the community. Foreign sellers generally expressed relief at Amaozn’s move to finally target their unruly Chinese competitors. While the victims argue that it is not entirely their fault, they nonetheless are looking for ways to comply with Amazon’s policy by adjusting their business model to a more sustainable one.

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Rachel, a former employee at one of Amazon’s top brands, Aukey, told Pandaily that Amazon penalizes sellers all the time, especially around sales seasons like Prime Day, but this ongoing crackdown is the most aggressive one she has ever experienced since entering the industry three years ago.

“Usually it is specific products that get removed, but this time Amazon is purging the brands altogether”. She explained that this leads to much more dire consequences for e-commerce companies, because it affects all accounts related to the brand and causes years of effort to be reduced to naught.

To date, Amazon has not commented on the exact reason for the large-scale suspension. But according to “A letter to all Amazon sellers” published by Amazon’s official WeChat account, the move is likely to be a punishment for consumer review manipulation. Amazon’s subsequent removal of 200 million reviews it deemed fake seems to confirm this suspicion.

Inside the Chinese cross-border community, some believe things are more complicated. In one WeChat group, a member speculated, “yesterday Seattle sent in another list of of shops [to be closed]… It has to be the U.S. government behind this.” “Right, Amazon isn’t that crazy… This is an Amazon-version Entity List,” another group member agreed.

Anqi Wu, investment analyst from Grand View Capital, shares similar suspicions. “Sure, Amazon is trying to promote fair competition by cleaning up the rule-breakers. But there must be some strategic consideration at higher levels that goes beyond Amazon’s own interest.”

Nonetheless, sources close to Amazon maintained that the crackdown had nothing to do with US-China relations, and that Amazon is only punishing those who crossed the red line.

Whether the move is specifically targeting Chinese merchants is an open question, but considering the fact that more than 70% of Amazon sellers are based in China, and the products they sell range across almost all categories, it is no surprise that Chinese sellers have been the hardest hit.

“Well done, Amazon.”

While Chinese sellers are being penalized by Amazon, their long-suffering competitors have applauded what they see as a belated iron fist.

On Amazon’s seller forum, a post about the crackdown attracted 161 replies and 1.1 thousand likes. Apart from a few “good job”s, many also expressed grudges against Amazon’s complicity with Chinese sellers.

One user named ASV_Vites wrote that there had been tens of thousands of sellers who provided evidence to Amazon about Chinese sellers’ black hat tactics, but the concerns were “largely or completely ignored to date.”

3rd_Venue replied, “LOVED every minute of the total experience until Amazon opened the door to China. From that moment our business has just been in a downward spiral and Seller Support went down worse. 5 years of pure turmoil for us.”

Reactions from local sellers – mainly US-based – echo the larger debate around China’s rise: “The Chinese stole our jobs!” “They don’t play by the rules.” “Made in China sucks!”

The “Made in China” label tends to scare off foreign consumers, while the “Chinese stole our jobs” thesis wins over local sellers. The trace of yellow peril on Amazon becomes only more discernable with comments like “BE GONE China and your cheap, trashy ethics which are even lower quality than your products”.

“We have no choice!”

Not that they don’t deserve such accusations — there have been more than enough articles about Chinese sellers deploying questionable tactics to manipulate Amazon. Ecomcrew, for example, reviewed the five most common “malicious selling strategies used by Chinese sellers”: fake reviews, counterfeit products, sabotaging competitors’ product listings, variation abuse and stealing internal Amazon data.

Each would violate any e-commerce platforms’ policy, even in China. But it would be too simplistic to blame everything on Chinese merchants’ inherent malice and Amazon’s blind complicity.

Generally speaking, there exist two types of “Chinese sellers” on Amazon: firms that focus on brand building with a well-established product R&D team, also known as the “quality model,” and firms that sell hundreds of different products with multiple accounts, much like operating wholesale stores on Amazon, or the so-called “casting-the-net-wide model.”

In reality, it is the latter that tends to violate Amazon policies, because this type of player does not tend to develop competitive products. These firms resell easily manufactured items with profits stemming firstly from a sourcing advantage, thanks to China’s long-standing status as a manufacturing powerhouse, and secondly, from a price advantage over their US and Europe-based counterparts after cutting the costs of middleman retailers.

The low entry barriers for operating a firm under the casting-the-net-wide model soon attracted tens of thousands of Chinese sellers into Amazon, many of whom came with a get-rich-quick optimism. Some indeed have made a fortune. For example, Shenzhen-based Youkeshu, one of the largest e-commerce players on Amazon, made its very first fortune by opening up multiple stores selling all kinds of goods. In 2016, Youkeshu had 140 online stores; by the end of 2020, the number had risen to 3873 across mainstream e-commerce platforms, with approximately 400,000 products on sale and spanning more than 3000 categories. To date, Amazon has closed about 340 stores owned by the company.

Wu from Grand View Capital explained to Pandaily that this strategy worked well back in 2013, when Chinese sellers just began to enter cross-border e-commerce and there was little competition. But as more and more firms swarmed into the market, Amazon became filled with resembling goods and Chinese sellers found themselves caught up in a fierce price war – and, of course, a competition for positive consumer reviews.

“Once a best seller emerges, you’ll have a thousand sellers selling it the next day…Your competitors faked ten reviews, if you don’t fake 20, you are out,” said Rachel, whose work at Aukey involved marketing and promotion on Amazon. For those who do not have a strong brand, the only path to success remaining is to generate positive reviews.

However, this logic is at odds with Amazon’s product-centered principle. The site’s algorithm ranks product listings according to their performance, which is calculated on sales volume and reviews. By doing so, Amazon encourages vendors to establish their own brands to improve competitiveness, but Chinese sellers, who came with the easiest but least sustainable strategy in the first place, follow precisely the opposite reasoning: sales relies on exposure, exposure relies on reviews, and hence most of the effort goes to optimizing reviews.

While many are convinced that Chinese sellers are receiving special treatment from Amazon, in the eyes of many Chinese merchants, Amazon is no friend at all. Rather, it is in part Amazon’s monopoly power that leaves them with no choice.

Amazon does offer “legal” channels for vendors to improve product visibility. One option is to place ads using their official advertising service. However, for goods that are basic and cheap, which applies to many Chinese sellers, this strategy hardly pays off. “Say we have a ten-dollar product, Amazon sponsored ads will cost nearly eight. So it squeezes your profit margin to none,” Rachel complained.

The Amazon-approved ways of acquiring reviews, the so-called Vine Program, is also not a feasible option to many Chinese sellers. “You have to first pay Amazon huge loads of money – something like 2600 bucks – before it connects you with an authorized reviewer,” said Rachel, continuing, “if the product is cheaper than 30 dollars, it isn’t worth it. Not to mention that you may get a negative review out of it.” Pandaily also learned that Amazon offers a cheaper service called Early Reviewer Program, which costs 60 dollars for five comments.

Rachel added that by rewarding sellers who choose Amazon’s official shipping and storage services with more web traffic and lower risk of being penalized, Amazon poses greater constraints on small and medium-sized sellers. “But this doesn’t mean Amazon controls everything”, she noted.

In other words, in order to improve product visibility and the number of visitors who actually click “purchase”, sellers must either pay Amazon to do it, or they do it in their own way. For Chinese sellers, faking reviews presents a natural choice, partly because it had been successful on China’s domestic e-commerce platforms such as Taobao, where the practice was met with little resistance. Rachel recalled that she had, in different WeChat groups, caught Chinese sellers discussing how to replant the click-farming tactics pervasive on Taobao directly to Amazon.

“It’s time to change.”

Anker, also a Chinese company that built its name on Amazon, remained intact in the crackdown. A source familiar with its core management team told Pandaily that since day one, Anker has strictly followed Amazon’s policy, whereas most other top brands, such as Mpow and Aukey, may have offended the rules at least during their start-up phase.

But these companies have begun their transition toward a more brand-oriented model too, by setting up their own websites and focusing on a few competitive products. Shenzhen-based Rondaful Technology, for example, has more than 1.2 million products in stock, but it is hoping to cut that number to 240,000 in a year’s time. “In the old era we made every and any product. Not any more,” an executive from the company said in an interview with Ebrun.

“As investors, we are more interested in sellers who focus on brand building and product development,” said Wu, suggesting that the casting-the-net-wide model that inherently offends Amazon policy has no future.