Amazon scooped up data from its own sellers

Amazon.com employees have used data about independent sellers on the company’s platform to develop competing products.

An Amazon warehouse, part of mobile robotic fulfilment systems also known as 'Amazon robotics', in Bretigny-sur-Orge, some 30kms south of Paris. Picture: AFP

Amazon.com employees have used data about independent sellers on the company’s platform to develop competing products, a practice at odds with the company’s stated policies.

The online retailing giant has long asserted, including to Congress, that when it makes and sells its own products, it doesn’t use information it collects from the site’s individual third-party sellers — data those sellers view as proprietary.

Yet interviews with more than 20 former employees of Amazon’s private-label business and documents reviewed by The Wall Street Journal reveal that employees did just that.

Such information can help Amazon decide how to price an item, which features to copy or whether to enter a product segment based on its earning potential, according to people familiar with the practice, including a current employee and some former employees who participated in it.

In one instance, Amazon employees accessed documents and data about a best-selling car-trunk organiser sold by a third-party vendor. The information included total sales, how much the vendor paid Amazon for marketing and shipping, and how much Amazon made on each sale. Amazon’s private-label arm later introduced its own car-trunk organisers.

“Like other retailers, we look at sales and store data to provide our customers with the best possible experience,” Amazon said in a written statement. “However, we strictly prohibit our employees from using nonpublic, seller-specific data to determine which private label products to launch.”

Amazon said employees using such data to inform private-label decisions in the way the Journal described would violate its policies, and that the company has launched an internal investigation.

Nate Sutton, an Amazon associate general counsel, told Congress in July: “We don’t use individual seller data directly to compete” with businesses on the company’s platform.

It is a common business strategy for grocery chains, drugstores and other retailers to make and sell their own products to compete with brand names.

Such private-label items typically offer retailers higher profit margins than either well-known brands or wholesale items. While all retailers with their own brands use data to some extent to inform their product decisions, they have far less at their disposal than Amazon, according to executives of private-label businesses, given Amazon’s enormous third-party marketplace.

The coronavirus pandemic has enabled Amazon to position itself as a national resource capable of delivering needed goods to Americans sheltering in place, garnering it goodwill in Washington. The company continues, however, to face regulatory inquiries into its practices that predate the crisis.

Last year, the European Union’s top antitrust enforcer said that it was investigating whether Amazon is abusing its dual role as a seller of its own products and a marketplace operator and whether the company is gaining a competitive advantage from data it gathers on third-party sellers.

An aerial view of the 1.2 million-square-foot BWI2 Amazon Fulfillment Centre employing about 2500 workers in the Chesapeake Commerce Center in Baltimore. Picture: AFP

The Justice Department, Federal Trade Commission and Congress also are investigating large technology companies, including Amazon, on antitrust matters. Amazon is facing scrutiny over whether it unfairly uses its size and platform against competitors and other sellers on its site.

Amazon disputes that it abuses its power and size, noting that it accounts for a small proportion of overall U.S. retail sales, and that the use of private-label brands is common in retail.

Amazon has said it has restrictions in place to keep its private-label executives from accessing data on specific sellers in its Marketplace, where millions of businesses from around the globe offer their goods. In interviews, former employees and a current one said those rules weren’t uniformly enforced. Employees found ways around them, according to some former employees, who said using such data was a common practice that was discussed openly in meetings they attended.

“We knew we shouldn’t,” said one former employee who accessed the data and described a pattern of using it to launch and benefit Amazon products. “But at the same time, we are making Amazon branded products, and we want them to sell.”

Pulling data on competitors, even individual sellers, was “standard operating procedure” when making products such as electronics, suitcases, sporting goods or other lines, said the person who shared the Fortem documentation. Such reports were pulled before Amazon’s private label decided to enter a product line, the person said.

“Customers’ shopping behaviour in our store is just one of many inputs to Amazon’s private-label strategy,” said Amazon. Other factors include fashion and shopping trends and suggestions from manufacturers, it said.

Amazon employees also accessed sales data from Austin-based Upper Echelon Products, according to the data reviewed by the Journal. Its office-chair seat cushion is a popular seller on Amazon. An Amazon private-label employee pulled a year’s worth of Upper Echelon data when researching development of an Amazon-branded seat cushion, according to the person who shared the data.

An Amazon employee pulled the data early last year. Last September, AmazonBasics launched its own version.

After the Journal disclosed the contents of the sales report to Travis Killian, CEO of seven-person Upper Echelon, he said: “It’s not a comfortable feeling knowing that they have people internally specifically looking at us to compete with us.” Amazon said there were more than two dozen sellers of the Upper Echelon seat cushion during the period, but declined to specify how many units those sellers sold. Mr. Killian said if that were the case, he isn’t sure how the private-label data on his seller account provided to the Journal matched his internal sales data so perfectly.

In traditional retail, a company such as Target Corp. or Kroger Co. places a weekly purchase order with the brands on its shelves. It subsequently owns the inventory, setting the price and discounts.

Because of the limitations of shelf space, traditional retailers stock far fewer products than Amazon’s hundreds millions of items. Typically, they create private-label products to compete in generic categories such as paper towels, rather than copycat versions of items created by smaller entrepreneurs, private-label executives said. Amazon said the vast majority of its private-label sales are staples such at batteries and baby wipes.

The majority of Amazon’s sales — 58 per cent — come through third-party sellers, primarily small and medium-size firms that list their items for sale on Amazon’s Marketplace platform. (Amazon also buys items directly from manufacturers and sells them directly in “first-party” sales.) Amazon started making its own products in 2007 with its Kindle e-reader, and it has steadily added new categories and other private-label brand names. Some of its private-label products, such as batteries, have been home runs. Investment firm SunTrust Robinson Humphrey estimates Amazon is on track to post $31 billion in private-label sales by 2022, or nearly double retailer Nordstrom Inc.’s 2019 revenues.

Full report here.

The Wall Street Journal