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Murky Business of Chinese Merchandise on Amazon’s US Site

Summary:
As Amazon “aggressively recruited Chinese manufacturers and merchants” to sell to US consumers, its China team “saw increasing patterns of fraud, counterfeits and unsafe products.” But consumers have no clue where the sellers are and where the products came from. Everybody who buys enough on Amazon has noticed this: Buyer beware! You get a mix of Amazon’s own merchandise and the third-party market place, which accounts for over half of Amazon’s physical gross merchandise sales. You’re surrounded by good merchandise, fakes, and dangerous products made overseas. There are legit sellers, legit manufacturers, and dubious sellers and manufacturers. You don’t know who or where the seller or manufacturer is because they don’t have to disclose it, including many sellers in China. It’s all

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As Amazon “aggressively recruited Chinese manufacturers and merchants” to sell to US consumers, its China team “saw increasing patterns of fraud, counterfeits and unsafe products.” But consumers have no clue where the sellers are and where the products came from.

Everybody who buys enough on Amazon has noticed this: Buyer beware!

You get a mix of Amazon’s own merchandise and the third-party market place, which accounts for over half of Amazon’s physical gross merchandise sales. You’re surrounded by good merchandise, fakes, and dangerous products made overseas. There are legit sellers, legit manufacturers, and dubious sellers and manufacturers. You don’t know who or where the seller or manufacturer is because they don’t have to disclose it, including many sellers in China. It’s all there, the good, the bad, and the ugly, and buyers have to sort it out on their own. Even many of the reviews are fake.

We’ve had good experiences too: We bought a set of cotton sheets via the Amazon platform from the manufacturer in India. Because it cut out all the middlemen, except the Amazon platform, the price was a fraction of the price of similar-quality sheets – also made in India – at a big-name US department store. And we got it a couple of days after ordering it. That’s one end of the spectrum.

The other end of the spectrum is more sordid.

The Wall Street Journal has been investigating the products on the Amazon platform listed by Chinese vendors. In today’s episode of the sordid saga, it explained the magnitude of the issue, as Amazon has for years “aggressively recruited Chinese manufacturers and merchants” to sell their products outside China:

A new product listing is uploaded to Amazon from China every 1/50th of a second, according to slides its officials showed a December conference in the industrial port city of Ningbo.

And there are issues with this push to recruit Chinese sellers, the WSJ pointed out, citing a prior investigative article:

The Journal earlier this year uncovered 10,870 items for sale between May and August that have been declared unsafe by federal agencies, are deceptively labeled, lacked federally-required warnings, or are banned by federal regulators. Amazon said it investigated the items, and some listings were taken down after the Journal’s reporting.

Of 1,934 sellers whose addresses could be determined, 54% were based in China, according to a Journal analysis of data from research firm Marketplace Pulse.

In the US, Amazon doesn’t require sellers to disclose their location, and unless sellers voluntarily disclose it, Americans have no idea where the sellers are. But Mexico does require the disclosure of the seller’s location. And by combing through this data on Amazon’s Mexican website, the WSJ and Marketplace Pulse were able to identify the same sellers on the US site as being in China.

New data via Marketplace Pulse, cited by the WSJ, found that “among the 10,000 most-reviewed accounts on Amazon’s U.S. site whose locations could be determined in October, about 38% were in China,” up from 25% three years ago.

Fakes and knock-offs galore.

The WSJ cited some examples of fake products, including a duvet by a seller in China, claiming “100% Fill With Goose Down.” The WSJ bought one and had it tested: It was filled with cheap duck feathers. And it sold for a lot less than the real-goose-down duvets made in Canada, but US consumers didn’t realize that this deal of a lifetime was a fake.

The WSJ obtained Amazon’s response to the article, which is the canned corporate-speak you’d expect:

“Bad actors make up a tiny fraction of activity in our store and, like honest sellers, can come from every corner of the world. Regardless of where they are based, we work hard to stop bad actors before they can impact the shopping or selling experience in our store.”

Amazon said it took enforcement action on the duvet seller and that its products were no longer for sale on the site. The seller’s listings appeared to be gone from Amazon’s U.S. site as of last week.

But the fake duvet didn’t disappear from Amazon’s US website until after the WSJ confronted Amazon with it. The aggrieved real-goose-down-duvet maker in Canada, who’d been selling its duvets on Amazon since 2014, and whose business has been hurt by the cheap fakes, hadn’t been so lucky as to get Amazon to act and remove the fakes from its site.

It’s hard for US companies to sue the sellers and makers of fakes listed on Amazon because often they cannot even determine where the seller is since Amazon doesn’t disclose this information. The seller can disclose it – but doesn’t have to disclose it.

Amazon has denied liability for the products sold on its platform, even if they violate US safety and other regulations. WSJ sites a legal case:

Amazon buyer Irvin R. Love Jr. of Georgia bought a hoverboard on Amazon in November 2015 that caught fire and burned down his home, according to a suit he filed February 2018 against Amazon, the seller and others, in Georgia federal court. In an amended complaint this year he alleged that Amazon was negligent for not removing the hoverboard from its website before Mr. Love’s purchase. Amazon argued in a legal filing that it doesn’t owe damages because it didn’t design, manufacture or sell the hoverboard.

Mr. Love also sued the seller, Panda Town, which his lawyer, Darren Penn, said appeared to be a Chinese company, based on sales information. Mr. Penn said that he can’t locate the seller and that Amazon declined to provide its location.

Growth at all cost – that’s the motto at Amazon, and its platform for third-party sellers is the ideal vehicle where it claims it can dodge all responsibilities.

But, perhaps seeing what might come at it in the future, Amazon is now including this among the risk factors in its annual 10-K filing with the SEC, under the headline, “We Could Be Liable for Fraudulent or Unlawful Activities of Sellers”:

The law relating to the liability of online service providers is currently unsettled. In addition, governmental agencies could require changes in the way this business is conducted.

Under our seller programs, we may be unable to prevent sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the products received are materially different from the sellers’ descriptions.

We also may be unable to prevent sellers in our stores or through other stores from selling unlawful, counterfeit, pirated, or stolen goods, selling goods in an unlawful or unethical manner, violating the proprietary rights of others, or otherwise violating our policies.

And it fretted in the filing that “we could face civil or criminal liability for unlawful activities by our sellers.”

The WSJ cites an example of how that works, via Zhao Weiming in Guangzhou, who claimed to sell $50 million a year in cosmetics and essential oils on Amazon. The products are made for him at factories in China under the name Lagunamoon. On the US Amazon page, the company gives no indication that the products are made in China, and there is no indication that the seller is in China. The WSJ:

Listings for some popular Lagunamoon essential oils claimed they were U.S. Food and Drug Administration approved, until the Journal raised the matter with Amazon and Mr. Zhao in early November.

An FDA spokesman said essential oils wouldn’t meet the agency’s definition of an approved product, although it was possible some component—a dye, say—might be approved.

Mr. Zhao said FDA requirements are complex and he didn’t want to use tens of thousands of words to explain.

Amazon said [after being confronted by the WSJ] it was investigating the case and would take proper action.

The WSJ, citing former Amazon employees in China, said: “Concerns at Amazon about Chinese listings arose several years ago in its China team, which noticed that as local sellers flocked to the platform, it saw increasing patterns of fraud, counterfeits and unsafe products.”

But the review won’t help sort it out as counterfeits and fake reviews “have all gone through the roof with the rise of Chinese sellers,” the WSJ said, citing Chris McCabe, an investigator for Amazon until 2012, now a consultant helping Amazon sellers counter illicit competition.

These fake reviews are designed to get the Amazon algo to boost the listing of the products to get them in front of customers’ eyes.

To get products from China and other countries into the hands of US consumers faster, Amazon offers sellers its logistics system, “Dragonboat,” for a fee. Goods are brought from China, India, and other countries to Amazon fulfillment centers in the US, where they sit on a shelf until a customer in the US orders the merchandise. The customer receives it a couple of days later in an Amazon box, not knowing it came from China.

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Murky Business of Chinese Merchandise on Amazon’s US Site

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Wolf Richter
Founder, Wolf Street Corp. In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China.

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