As Amazon grows, so do its brand protection challenges

Market share in time of Covid-19

Even prior to the Covid-19 outbreak and the ensuing world-wide lockdowns, Amazon had the (retail) world at its feet. Prior to the world stopping (March 2020), it was forecast that Amazon’s e-commerce market share in the United States would increase to nearly 40% by 2021 with, astonishingly, a more than 30% greater market share than its nearest competitor, Walmart[1]. Similarly, in the UK, Amazon had captured more than 30% of the ecommerce market by the end of 2019, with a greater than 20% advantage over its nearest competitor, eBay[2]. As the size of the E-commerce share of the overall retail market expands[3] Amazon’s overarching dominance within the retail sector can only be expected to increase. These were increases projected prior to factoring in the impact of the Covid-19 pandemic.

Unsurprisingly, the advent of the pandemic and the ensuing lockdown and restrictions have had a significant effect on high streets and brick and mortar retail. UK retail footfall has shown a precipitous decline even after a number of non-essential businesses were permitted to reopen in June 2020[4] and, with restrictions limiting the number of people allowed in enclosed areas and the general public still wary of commutes and crowds, it is difficult to see this trend changing in the short to medium term. The big winner in this seismic change to the retail market, has been, of course, Amazon. Huge jumps in revenue[5] and an almost 100% increase in its share price since mid-March 2020[6] are just two of the signs that the fallout from Covid-19 is set to increase the speed at which the e-commerce juggernaut corners the retail market.

Reputation and global e-commerce: Is it impossible to regulate such a market share?

However, this kind of success does not come without attendant difficulties. One of the biggest challenges Amazon has faced is reputational: As one of the world’s largest companies, it is subject to intense scrutiny of all business areas. One particular area which attracted significant criticism is “Amazon Marketplace”. Amazon Marketplace is a platform, hosted by Amazon, which allows third parties to market and sell their products online. It provides an opportunity for third parties to use Amazon’s enormous reach and its advanced online infrastructure to sell their products. At the same time, as well as charging vendors for the privilege of selling under the Amazon banner, the site helps the company to increase that reach and consolidate its position as the “go to” e-commerce platform.

While there are two distinct business models operating here, the integration between Amazon Marketplace and the Amazon digital store is seamless, such that most customers are unaware whether they are purchasing direct from Amazon or from a third-party vendor. Third party vendor sales are not insignificant:  Since 2017, more than 50% of the items sold on the Amazon platform have been sold by third-party vendors[7]. It is clear that competition drives prices down and, in the great online bazaar that is Amazon, a proliferation of third-party vendors selling the same stock means that customers are guaranteed competitive pricing. However, just as in a real bazaar, the authenticity of the products on offer may be questionable. The Marketplace platform has been plagued by concerns and complaints about whether many of the products on sale are, indeed, the genuine article.

Counterfeit Products and Amazon’s third-party sellers: Future regulation

A recent report from the United States Department of Homeland Security linked e-commerce and the anonymity that e-commerce platforms provide to the significant increases in the trade of counterfeit goods, as noted by both the OECD and the DHS itself[8]. The report cites a member of the International Anti-Counterfeiting Coalition which, throughout the course of a year of making investigative purchases on e-commerce platforms, found that nearly 80% of those purchases resulted in the receipt of a counterfeit item. The DHS acknowledged that online retailers were making efforts to prevent and deter this fraudulent action. However, it provided a clear warning to retailers that their current efforts were inadequate. The DHS signalled its intention to ensure that entities with financial interests in the importation of fraudulent and counterfeit goods, including e-commerce retailers such as Amazon, bear responsibility for the dissemination of these goods.

Dangers to Consumers and the responsibilities of e-commerce platforms

It is not just administrative and regulatory bodies that have criticised e-commerce platforms for their inability or unwillingness to tackle the fraudulent practices and counterfeiting that is perpetrated through their platforms. The Wall Street Journal has compared Amazon to a “flea market” in a scathing article about the nefarious practices of third-party vendors on Amazon Marketplace[9] and an investigative report in the New York Times (“NYT”) revealed a host of counterfeit products purchased through the Marketplace platform. The NYT article focused on the dangers to consumers, such as counterfeit child-safety products, and to businesses, some of which have been forced to make staff redundant due to their prices being undercut by vendors selling counterfeit goods on Amazon[10]. Other publications have reported the phenomenon of customers being defrauded by phantom vendors or having their account hacked and utilised for significant purchases[11]. Perhaps not unrelated to this issue of fraud and counterfeit products, a number of big name brands such as Ikea and Nike have recently removed their products from Amazon’s online store[12].

What is Amazon doing to protect its consumers and market place and is it enough?

Amazon, for its part, seems to have recognised the problem that it has on its hands. It has trumpeted the hundreds of millions that it has invested in personnel and technical solutions to protect brands and consumers against counterfeiting and fraud and the billions of suspect listings it has blocked from its Marketplace as a result[13]. More recently, it has commenced a pilot system whereby third-party sellers will be verified via video conferences[14]. However, even with the best will (and technology) in the world, the issues involving counterfeiting and fraud are unlikely to be definitively resolved anytime soon, especially as Amazon Marketplace continues to grow at its current rate (as does the business as a whole). Amazon does not seem to have the necessary scale of engagement with law enforcement or private prosecution initiative to be able to deter these ingenious (or prolific) fraudsters. Frustratingly for both company and consumer, those intent on counterfeiting or perpetrating frauds have a long history of evolving their methodologies to evade detection and punishment. As such these new systems and procedures that Amazon has put in place to detect and deter those who are using its platform for illegal purposes are likely to be just the beginning in an ongoing arms race between the e-commerce giant and what it calls “bad actors”. And in the meantime, buyer beware.

Nikos Keim