Amazon sharecroppers

The Seattle Times on the hometown giant's uneasy relationship with its merchants

The Seattle Times has another good story on Amazon, this time reporting on the hometown giant’s lopsided relationship with its third-party retailers.

Amazon’s Marketplace is a digital consignment store that allows merchants to sell their stuff on in exchange for a 6 percent to 25 percent cut off the top. Sellers take the deal to get access to the 80 million people that shop Amazon every month, and some even pay Amazon to warehouse and distribute their goods, as the Financial Times noted earlier this year.

But as with ebooks, Amazon is developing something of a chokehold over online retail.

Last year Amazon had net retail sales of $25.3 billion in the U.S. and Canada. Total Internet retail sales in those two countries was roughly $215 billion. That gives Amazon 12 percent of online retail in the U.S. and Canada. By comparison, monolithic Walmart has 6 percent of total U.S. bricks-and-mortar sales.

And Amazon’s 12 percent number hardly tells the full story. Three years ago, an RBC analyst estimated that, including Amazon’s third-party sales, one in three dollars spent online on U.S. retail goes through

That scale gives Amazon enormous power in its relationship with partners, and The Seattle Times reports that the company uses it aggressively and with little consequence when it errs. Using Washington state records, the paper finds that Amazon suspends merchants’ sales for violating policies, holds their money, and often fails to tell its partners which policies they’re accused of violating.

The merchants who drive Amazon’s Marketplace tend to be the kind of small businesses that don’t have a lot of capital. So when they get thousands of dollars in payments held up for months, they can run into serious cashflow problems, as the Times notes. That frustration is compounded by Amazon’s poor customer relations with its merchants.

To add insult to injury, Amazon’s sharecropper merchants aren’t playing on a level field with the $110 billion company. Amazon knows all their customers, all their sales data, and doesn’t hesitate to compete against them (read: squash them):

“We have clients who do as much as 40 percent of their business through Amazon, and yet they hate it,” he said. “Their margins are lower because Amazon takes a cut, and Amazon knows all their market intelligence.”

In 2001, the now-defunct electronics chain Circuit City began selling through Amazon’s marketplace. But it severed ties in 2005 to concentrate on its own website.

“As soon as we could get out of the deal, we did. The marketplace is an R&D facility for Amazon, where they look to see what’s selling and then sell it directly,” said former Circuit City executive Fiona Dias.

One toy merchant who sells on Amazon said this in the FT’s excellent story a few months ago: “We have to protect ourselves against Amazon, which has perfect knowledge of everything.”

That the toy merchant nevertheless feels compelled to use Amazon’s site illustrates just how much clout the online retailer really has. Good for the Times for continuing to aggressively cover its giant neighbor down the block.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,