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Amazon’s Chinese-Seller Problem

Amazon says it employs thousands in its efforts to combat counterfeiting and fraud /Jeremy M. Lange. If you want to be reminded just how tin...

Amazon says it employs thousands in its efforts to combat counterfeiting and fraud /Jeremy M. Lange.
If you want to be reminded just how tiny you are, you could travel to a remote part of the world and behold the night sky, or stand atop a mountain and contemplate its immensity, or you could try to find the best garlic press on Amazon.

Granted, there are many more stars in the night sky than the 300 or so garlic presses visible on Amazon’s U.S. site. But wading through page after page of those listings, for items with tens of thousands of collective reviews, is, like many searches on Amazon, increasingly an exercise in frustration, despair and confusion.

Frustration because it’s hard to know, given Amazon’s never-ending battle with fake reviews, whether the highest-rated item is actually all that great. Despair because as psychologists have long known, giving people more choices can actually make them less happy with the one they ultimately pick.

And confusion because, wait a minute—didn’t I just see that same garlic press in another listing? Why does this one look almost identical except for the logo embossed on its side? And if it’s cheaper, does that mean it’s an inferior knockoff likely to break after a few nights of crushing cloves for homemade pasta sauce—or the same item funneled through a different middleman who charges less?

The irritation and existential dread we experience in this moment—do I really want to waste my life comparing listings for a kitchen tool on Amazon?—is the natural outcome of the incentives that Amazon has created for sellers on its marketplace. In the past few years, these sellers increasingly were based in China, close to where most of the world’s consumer goods are manufactured.

Lately, however, the proportion of sellers among the top 10,000 on Amazon has been swinging back in favor of U.S.-based companies. The reasons turn out to be a case study in just how strange Amazon’s marketplace has become, and its spillover effects for millions of businesses and consumers.

This matters because Amazon’s scale and reach mean that when the behemoth from Seattle snaps its algorithmic fingers, the rest of the retail world experiences it as an earthquake. Amazon is the world’s second-largest retailer by revenue, and has some 172 million Amazon Prime members, estimates securities research firm Consumer Intelligence Research Partners—equivalent to more than half the American population.

Building the multiverse of garlic presses

Jorge Luis Borges wrote a short story imagining a “Library of Babel” that contained every possible book of a certain length that could ever be written. That’s more or less what searches on Amazon for any common commodity feel like they’ve become—whether it’s iPhone charging cables (nearly 1,000 listings) or girls’ socks (about 300 items).

How did we get here? Launched in 2000, Amazon’s marketplace spent the first 15 or so years of its life being, primarily, a way for manufacturersmiddlemenbargain-bin scroungers and Amazon itself to compete to offer consumers brand-name items they knew and trusted. For Amazon, this increased selection without increasing its costs for inventory—indeed, it turned inventory into a whole new business by charging those outside vendors.

The competition among sellers that ensued was generally pretty good for consumers, helping push down prices.  It also created challenges for quality control on the platform, which only intensified after Amazon in the mid-2010s began aggressively courting manufacturers and sellers in China, to bring more goods onto its service at even lower prices. Between 2016 and the end of 2020, the proportion of the top 10,000 sellers on Amazon based in China went from one in five to nearly one in two, according to data from research firm Marketplace Pulse. (Sellers were ranked by seller feedback, a proxy for their revenue on Amazon.)

These sellers had an advantage with Amazon’s algorithms: They were selling generic goods. So instead of competing to offer the lowest price on a recognizable name-brand item, which is how a merchant becomes the default seller a customer purchases from when they hit the buy button, they could instead battle to rank in Amazon’s overall listings. 

Because their generic items were, paradoxically, treated by Amazon as their own brands, they could guarantee they’d always be the default seller for these “unique” items, even if in effect it was the same one someone else was selling. Amazon’s reviews and star ratings system, and tags on items like “Amazon’s Choice,” reassured U.S. consumers that even brands and generic items they’d never heard of could be of high—or at least sufficient—quality.

Thanks to China’s freewheeling approach to trade, counterfeiting and consumer protection standards, China-based sellers on Amazon have developed a reputation for issues with quality and customer service that Amazon seems constantly to be trying to stamp out. Of course, some U.S. sellers also have similar issues, and there are China-based brands on Amazon that have built reputations for good quality and service, like consumer-electronics company Anker. Through Amazon’s Counterfeit Crimes Unit, the company has significantly increased the number of counterfeiters it has sued or criminally referred this year, an Amazon spokeswoman says.

The problems Amazon took on once it opened up its marketplace to sellers in China have become more evident in recent years. My Wall Street Journal colleagues in 2019 uncovered thousands of banned, unsafe or mislabeled products in Amazon’s catalog, most of which came from China-based sellers. It also became apparent that Amazon sellers were gaming Amazon’s algorithms to get goods listed as high in its search results as possible, and even going so far as to bribe Amazon employees in China to help boost items’ rank.

Through all these evolutions of its marketplace, it’s become apparent that Amazon is locked in a kind of permanent arms race with sellers choosing to use banned and underhanded tactics, says Jason Boyce, chief executive of Avenue7Media, which consults for businesses that sell on Amazon.

The Amazon spokeswoman says the company spent more than $900 million last year to combat counterfeiting, fraud and other abuse—an effort she says involved 12,000 people. The company stopped more than 2.5 million fraudulent attempts to create new seller accounts, she added, down from over six million the prior year.

In the latest round of that arms race, in September 2021 Amazon announced it had banned 600 China-based brands, sold across 3,000 seller accounts, in response to their use of fake and paid reviews and other infractions. That was actually a subset of the total. Amazon bans sellers all the time, for infractions including poor-quality items and using disallowed “black hat” tactics to boost the rankings of items, says Juozas Kaziukėnas, founder of Marketplace Pulse. This could explain why the Shenzhen Cross-border E-commerce Association has said that the total number of accounts banned by Amazon in the spring and summer of 2021 exceeded 50,000, he adds.

The banning of these accounts could be one of the biggest contributors to the share of U.S. sellers on Amazon swinging back in favor of U.S. businesses, which began around the start of 2021.

Other factors include supply-chain issues such as Covid-19 related shutdowns and spiking prices for maritime shipping that have made it difficult for China-based sellers to get their goods to Amazon’s U.S. warehouses. And it can be hard for sellers with razor-thin margins to absorb the rising costs of doing business on Amazon. Advertising rates on Amazon went up 50% between June 2020 and June 2021, according to Marketplace Pulse.

Why so many brands on Amazon are just random...

To adapt, China-based sellers have been trying to create their own brands. Becoming a brand on Amazon earns merchants access to data and tools that aren’t accessible to mere sellers of generic goods. This trend has had some weird effects on the catalog of goods on Amazon, and the world as a whole.

The U.S. Patent and Trademark Office is currently swamped with applications for new trademarks, which it attributes in part to the rise in e-commerce during the pandemic. Given Amazon’s dominance in U.S. e-commerce, and since becoming a brand on Amazon requires a U.S. trademark, it’s likely that much of this surge is due directly to China-based Amazon sellers, says Mr. Kaziukėnas.

China-based sellers tend to favor nonsense strings of letters for their brands, because these are easier to get approved as distinct trademarks. “My favorites are the ones where there’s no vowels in the name,” says Mr. Boyce. (For example, Shenzhen Songyu Industrial Co. registered a U.S. trademark for QNTRY, which the company uses as the brand name for an Amazon-sanctioned brand of iPhone charger.)

A third effect is that Amazon’s algorithms, designed to show customers the lowest price on an individual item, can’t discern when the same product is simply rebranded and sold by a different company. So a search for “garlic press” on Amazon yields 27 that appear to be the exact same item on the first five pages of results alone, ranging in price from $1.50 to $10.

“This whole system has created a massive issue for Amazon because the consumer can’t pick the best product for any search anymore, because they’re all essentially the same,” says Mr. Kaziukėnas.

Amazon made reaching U.S. consumers easy, but branding, advertising on Amazon, and managing listings all require more money and staff than many China-based sellers on Amazon can handle on their own, says Rui Ma, a venture capitalist based in the U.S. who focuses on cross-border trade and invests in startups in China.

As a result, many smaller China-based sellers on Amazon are selling themselves to China-based “aggregators” of Amazon sellers, which acquire these small businesses, bundle them together, and hope to make money by boosting their quality and Amazon ranking. Some are willing to sell their businesses for on average just half what they would have gone for a few months ago, she adds.

No way but Amazon’s way

Considering all the factors affecting top China-based sellers on Amazon, it’s unclear how much their declining numbers represent a new commitment by Amazon to clean up its platform. Amazon’s efforts to ban unscrupulous sellers aren’t intended to target any particular country, says the company spokeswoman.

And this trend might reverse, says Mr. Boyce. It’s possible that, as Amazon and its sellers enter yet another round of feint and riposte, it’s only a matter of time until these newly minted brands figure out how to game Amazon’s algorithms in new ways, or simply build enough brand awareness to convince Western consumers to seek out their wares. This has worked for Anker, which built its business almost exclusively on Amazon, and which in 2021 sold more than $1 billion in goods on its marketplace.

The simple fact is that if these China-based companies want to reach Western consumers, they have to use Amazon, says Ms. Ma. More broadly, Amazon may have to fundamentally rethink how it brings value to customers through its ever-expanding marketplace. 

Too many options, especially when many of them feel like anono-brands seemingly trying to trick us, doesn’t seem like the sort of thing that, as Jeff Bezos famously decreed, puts the customer first. Some price competition is nice, but ultimately, we don’t need or want to have to choose from among 300 garlic presses.