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3 Reasons Amazon Shouldn’t Be Your Only Sales Channel

By John DiGiacomo

John Di Giacomo: Hey, everyone. My name is John Di Giacomo. I’m an attorney with Revision Legal. We are an internet law firm, and we handle a lot of Amazon stuff. And today, I want to talk to you about three reasons you shouldn’t make Amazon your only sales channel.


John Di Giacomo: So let’s start with number one: the Amazon Services Business Solutions Agreement, which is a mouthful. That agreement says Amazon can terminate your account at any time. Under Washington law, which applies under that agreement, contracts are what we call terminable at will, which means that Amazon can terminate your account at any time and for any reason. It does not have to have a reason for terminating your seller account. And after you’ve been wrongfully suspended, Amazon does not have to reinstate your account. It doesn’t have to do anything at all. It can say, “We’re shutting your account down even though we wrongfully suspended you,” and you have no recourse other than arbitration, which we will talk about later. Now, that’s a pretty powerful position that Amazon is in.


John Di Giacomo: The other big issue is wrongful suspensions. They happen all the time. Amazon regularly suspends sellers for really no good reason. Once that happens, sellers have found that they have to create a plan of action to have their accounts reinstated. They create this list, even if the list means absolutely nothing. They submit it to Amazon. And they hope that someone at Amazon will say, “Okay, that looks good,” check a box, and send them on their way.


John Di Giacomo: Recently, we had a client whose seller account was suspended because they were purportedly selling counterfeit goods, and, of course, they were not. Amazon suspended their account and stuck them in limbo for several months. Then, while their seller account was suspended, Amazon destroyed their inventory. Why did they do this? Because the Amazon Services Business Solution Agreement gives Amazon the right to destroy any units of inventory that it wants to, provided you don’t pick it up from their warehouse. And if you don’t sell units within a certain timeframe, Amazon reserves the right to terminate those units if they are within an FBA warehouse. So in this case, Amazon suspended the account, which started the clock for not selling units, and because they took so long to review that account suspension, our client wasn’t able to sell units. And Amazon said, “Too bad. We’re destroying your units anyway.”


John Di Giacomo: There’s a lot of that going on. And it isn’t necessarily intentional, but in an organization as large as Amazon, you’re going to see that a lot. It’s a matter of dealing with the number of sellers that they do.


John Di Giacomo: The other reason is the arbitration clause. Amazon’s arbitration clause has been consistently upheld as enforceable, and reinstatement of an account is not a remedy in arbitration. If you are wrongfully suspended or your account is terminated, you have no recourse for reinstatement. Your recourse is to seek damages for the damage that was caused to you, but consequential damages are not available in that arbitration proceeding. So for example, if your account is suspended and you can’t sell, too bad. Those are consequential damages. You’re not entitled to that. But if your account is suspended and you have money left in it, you might be entitled to recover that money. Again, this is a very powerful relationship that Amazon has over its sellers.


John Di Giacomo: The second reason why you shouldn’t make Amazon your only sales channel is that Amazon regularly uses your data to sell against you. And this is news as of today and yesterday. Amazon is going through this antitrust inquiry in Congress. And Amazon, in response to that inquiry, has admitted that it uses aggregated data, not specifically identify data but aggregated data, across the platform to determine whether or not it should enter a specific market and sell its private-labeled Amazon goods. So it is looking at your sales numbers in an aggregated way to determine whether or not it should sell against you on its own platform.


John Di Giacomo: And as of today, it was revealed that Amazon has admitted that it uses a ad type that is only available to its private label brands. It’s a page takeover ad type. So this is an ad type that is not available to the normal seller. It is only available to Amazon’s private-label brands. So Amazon is not only collecting your data and using it against you, but it’s also advertising in a way that’s more effective than you can advertise on its platform. And again, that’s a very powerful position to be in.


John Di Giacomo: And the third reason why you shouldn’t make Amazon your only sales channel is that it’s a poor business asset. If the value of your company can be destroyed overnight because of the whims of an arbitrary decision by an Amazon customer service representative, then you have created a poor business asset. You have to diversify risk and sell through multi-channels. Someone who wants to buy your business, knowing that it’s only on Amazon, will have to factor that risk into the purchase price. And though your business may be millions of dollars in sales, that risk is going to reduce that sales price because there’s always going to be a looming risk that Amazon could shut down your account at anytime and for any reason.


John Di Giacomo: And that’s why I think there are really three reasons why you shouldn’t use Amazon as your only sales channel. Again, my name is John De Giacomo. I’m an attorney with Revision Legal, and I hope you have a great day.

If you seek representation in an Amazon legal issue, contact our Internet lawyers today at 231-714-0100.

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