Cracking Down on Amazon’s Illicit Sellers Helps — But Experts Say Other Problems Still Exist

Even as Amazon stands to own more than half of online commerce by the end of this year, the company still struggles with rampant issues related to counterfeits and illicit sellers.

Though the problems are largely shielded from consumers, brands and retailers have long been wary of the challenges that selling on Amazon can pose. The marketplace is an integral and indispensable part of many companies’ distribution channels, but the relationship with the e-commerce giant is often fraught with anxieties and misgivings.

Consumer confidence is Amazon’s currency, though, and now that sellers have started to take a stand against the retailer’s lack of support, the company is resolving to make changes rather than risk losing market share.

That means implementing anti-counterfeiting measures and cracking down on illicit selling in a way that it hasn’t before, said Scott Ohsman, a partner at Buy Box Experts, which helps companies refine their selling strategies on Amazon.

“They’re trying to be more comprehensive to make sure that customer trust, which is paramount, is there,” Ohsman explained. That’s the basis for any action the e-commerce giant takes, he said.

Amazon has implemented two programs meant to help combat the issues of illicit selling on the platform.

The first, called Brand Registry, debuted in 2016 but has since undergone revisions and is now becoming more widely used. The platform allows brands and manufacturers to register themselves as the official distributors of their goods.

“It’s a tool where they go in and authenticate their products,” Ohsman explained. “The brand has to prove to Amazon that it has full U.S. Patent and Trademark Office legitimization; that they have documentation stating that they are the brand owner or manufacturer of that particular product.”

The move allows both brands and Amazon to crack down on unauthorized sellers who can’t verify where or from whom they’ve purchased the products they’re attempting to sell.

“They have to send an invoice or prove in some other way that they’re an authorized seller,” Ohsman said.

Though it’s a step in the right direction, there are still thousands who haven’t registered their brands on Brand Registry, Ohsman said, and the company is making a big push for their participation.

But registering products is one piece of the counterfeiting and illicit selling puzzle. The other piece, which Amazon tested heavily on consumer electronics in 2018, is the concept of serialization.

The company has invented a proprietary scan-and-track system called Transparency that allows brands and manufacturers to assign a unique code or label to every item they produce.

In true Amazon fashion, the company is monetizing this service, and selling it to brands and manufacturers outside of the Amazon bubble.

“If you’re a manufacturer making a blue shoe, every blue shoe you make in the manufacturing process has a unique Transparency code and label,” Ohsman explained. “When that shoe is shipped out anywhere — whether it’s Dick’s Sporting Goods or Nordstrom — it can be scanned and tracked so that the brand can see exactly where that product is going.”

Additionally, consumers can verify the authenticity of purchases using the Amazon app. If they buy an item on the site or are shopping elsewhere, they can scan the product’s unique code to make sure it’s from the brand’s legitimate manufacturer.

Even with the advancements in seller programs and tracking technology, Amazon hasn’t yet made a dent in the issue of unauthorized third-party sellers on its site. The items these sellers are hawking may not be counterfeits, but they’re hurting brands’ bottom lines — and perceived brand value — all the same.

“Retail arbitrage and diverters are a huge problem,” said Ohsman, referring to practices where product is sold by third-party vendors without the consent of manufacturers or brands.

“Diversion is something that’s been around for 20-something years,” he continued. “Major brands deal with this constantly: people get ahold of your product in some way, and in some large volume, and they sell it for a profit or below market value. And they’ve always been intricate and savvy about how they’ve done it.”

Brands and manufacturers need to keep a tight hold on their supply, Ohsman said, and implement more tools and processes to track where product is going.

While serialization is one way to keep track of goods, Ohsman also believes “having everyone in an organization, from customer service to sales and e-com to marketing, on the same central database” is essential to having a concrete understanding of product flow.

“The leadership of these organizations need to implement tools and review data regularly,” he said. “You can find a lot of these leaks just by watching the data and paying attention.”

Ohsman pointed to a high-profile instance of a brand standing up to Amazon to illustrate the need for air-tight measures.

“I love the fact that the CEO of Birkenstock, in his article, told Amazon, ‘No, we’re going to control our own destiny, you’re not playing nice with us,’” he said. “But the mistake of Birkenstock and many brands is that they needed to control supply down to an extreme level. As in, the minute product shows up on Amazon, you suffocate [a seller’s] supply and you know exactly who they are, and they no longer get to sell your product.”

It’s a tall order, Ohsman admitted, knowing that most brands don’t have the manpower to police product to such a degree. “This is extraordinarily difficult to do. This is what online MAP policy software was created to do; it’s created a whole industry,” he said.

When asked about the biggest risk to brands whose products are being sold without authorization, Ohsman was decisive.

“It’s price integrity, which leads to brand integrity,” he said.

Brands build businesses on the perceived value of their products, and if a shopper can consistently buy a product for less on Amazon, its stature in the overall retail marketplace diminishes.

“When you have 50 to 60 sellers selling your brand on Amazon, and you only know who 20 to 30 of them are, that’s a loss of brand control. How does your brand look, feel? What about your feature benefits? These illicit sellers get to contribute to what your product looks like on Amazon, even if you don’t want them to,” Ohsman said.

Ohsman said big brands ultimately stand to lose the most, though the effects of unauthorized selling don’t discriminate.

“It takes its toll on many brands, but the larger the volume, they more they have to risk. And the harder it is to control distribution. If you have 10,000 stores you sell to, it’s hard to control supply,” he said.

Even through all of the headaches, Ohsman still believes there’s good business to be done on Amazon — if brands can gain the upper hand.

For brands who are currently embroiled in the issue, he encouraged getting trademarks and patents in order to subpoena Amazon for unauthorized seller information.

“Amazon is actually making some strides in utility patent programs that they’re beta testing, that are part of their efforts to try to control this,” he added.

And for those who are considering abandoning the platform altogether, he suggested that getting smarter about their Amazon strategy could be a more fortuitous alternative.

“Here’s the reality: Amazon is within the path to purchase for U.S. consumers,” he said. “You can debate that, but look at numbers. If you’re not on Amazon, you better have tremendous consumer demand and pull. That’s very rare.”

Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

Watch on FN

More From Our Brands

Access exclusive content