The high-risk, high-reward world of selling stuff on Amazon

The high-risk, high-reward world of selling stuff on Amazon
Andrew Mangum for CNN
When Nida Kazmi got laid off from her job as a product manager at Bloomberg two years ago, she came up with a fallback plan: Selling stuff on Amazon.

When Nida Kazmi got laid off from her job as a product manager at Bloomberg two years ago, she came up with a fallback plan: Selling stuff on Amazon.

She chose stackable baby formula dispensers because the category didn’t seem to have much competition, and found a supplier in China to manufacture them.

After hiring a coach to help her navigate how the world’s largest online marketplace works, she set up listings from her home office in Reston, Virginia, selling dispensers for $11.99 a pack. After a few months, the business was doing between $1,500 and $2,000 per month in sales, about half of which she kept as profit.

That’s when Kazmi received an email from Amazon’s seller support department saying her account had been suspended. Amazon didn’t explain why, saying the reason was “proprietary.”

It took two months of emailed appeals before Amazon reinstated her in November 2017. By that time, she had lost her place in the site’s all-important search rankings, and was stuck with 600 stackable baby formula dispensers in her garage. With her source of income gone, she would have to rely on savings while trying to relaunch her sales.

“After all that, I decided I can’t continue with this,” says Kazmi, 34, who decided to start her own social media consulting business instead. “You plug a lot of your money into buying the inventory up front, you have to. And they can just in a heartbeat turn the switch off.”

Amazon’s scale and open platform have drawn legions of vendors like Kazmi looking to turn cheap goods into a decent living. Amazon doesn’t disclose how many sellers operate on its platform beyond saying “millions,” but chief executive Jeff Bezos wrote in his most recent letter to shareholders that the company added 300,000 in 2017 alone. That side of the business — where sellers transact directly with consumers, rather than using Amazon as a middleman — accounts for more than half of the units sold on the site.

Amazon emphasizes the role that micro-enterprises like Kazmi’s play in making the website what it is.

“Small businesses and entrepreneurs selling on Amazon Marketplace are incredibly important to our customers,” Amazon says. “We work hard to help these businesses successfully reach and delight Amazon customers, and we continue to innovate and improve the experience for all sellers.”

But as many of these sellers quickly learn, Amazon always sets the rules. And in the company’s drive to keep customers happy, they can be collateral damage.

“It’s just not a place where I felt like ‘We’re business partners,'” Kazmi says. “I felt more like, ‘You’re God, and I’m nobody.'”

An indispensable new retail world

Amazon wasn’t the first online platform to enter the business of helping regular people become global merchants. That honor belongs to eBay, which launched in 1995 using auctions to keep buyers hooked on the draw of getting a good deal. Amazon tried auctions, but the business never took off.

Then, Amazon changed the game in two ways.

First, it dispensed with eBay’s auction model, allowing shoppers to instead quickly buy items for a fixed price. (Later, eBay followed with its own fixed-price option.) Then Amazon got into the shipping business, developing a vast warehousing and transportation infrastructure that allows sellers to fulfill orders without doing any of the work themselves — something eBay and other e-commerce sites had studiously avoided.

“These early businesses thought that investing in brick and mortar was a mistake,” says Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University in California. But Amazon pulled it off, and built the technology — such as robots that move products around and last-mile delivery mechanisms — to make it work seamlessly. “What they’re trying to do is make everything so automated that they don’t have to do a lot of hand-holding.”

Now, everything involved in a sale can occur within the Amazon ecosystem — for a fee. Sellers buy ads to market themselves across the site, part of what has become a multibillion dollar revenue stream for Amazon. They can also pay for access to Amazon’s distribution network, avoiding the hassle of packing and shipping, for upward of $2.41 per package. Each item sold carries a “referral fee” of between 6% and 45% of its value. The company even offers loans to help sellers purchase inventory.

For that reason, thousands of businesses have grown up around Amazon’s platform.

Matt Rollens launched his artisan glassware company, Dragon Glassware, primarily by selling through Amazon.

There’s no other way to reach so many potential customers, he says, and they all expect two-day delivery. “I honestly believe that we wouldn’t be around if it wasn’t for Amazon,” Rollens says.

Growth is a full-time job: The two-year-old company, which is based in Granite Bay, California, dedicated two people to maintaining Amazon listings and figuring out what keywords work best, since the sales algorithms are opaque and change frequently.

“We spend a lot of time trying to reverse engineer stuff,” Rollens says. “It’s a daily requirement to go through and look at everything.”

At Amazon’s mercy

Amazon’s execution, however, isn’t always flawless. There’s little that a seller can do about items sent to the wrong address, rivals who might lodge complaints to bring down their ranking, or buyers who return something after using it.

The complexity of Amazon’s platform — and the power that the company holds over a seller’s livelihood — has given rise to a robust community of Facebook groups and other online forums where sellers troubleshoot problems and share experiences. There’s also a cottage industry of consultants and software vendors who promise to boost sales and get sellers out of trouble, as well as insurance offerings in case one gets booted from the platform unpredictably.

Not all of that advice is on the up and up: In March, the Federal Trade Commission busted a get-rich-quick scheme that promised to teach people how to make $5,000 to $10,000 per month by selling items on Amazon, with no ability to actually do so.

Chris McCabe, who worked in the seller performance department at Amazon for six years before starting his own consulting business, says sellers usually end up eating the cost of customer complaints and even foul play by the competition.

“Part of the seller relationship with Amazon is granting them very liberal powers over your money and over your inventory,” McCabe says. “[Amazon] Prime is going to help you sell exponentially more than you might on Walmart or Jet or eBay, but you have to do it their way. You can’t struggle and fight with them.”

There are many ways to run afoul of Amazon’s rules, or to appear to. A seller can get suspended for having too many negative reviews, attempting to get better reviews by giving away products, or communicating with customers outside Amazon’s interface. Sellers can also get punished if someone accuses them of selling counterfeit goods or a copy of someone else’s.

Over time, those enforcement actions have become increasingly automated, and can happen with little to no warning, leaving sellers scrambling. Sellers who transact large volumes on the platform can get dedicated account managers who help them improve sales and manage issues as they arise, but few meet those threshold. Anyone can get that same assistance, though — for a fee.

Some sellers who supply inventory wholesale to Amazon are shocked to find that the listings for their products can suddenly go dead because Amazon’s algorithm determines it Can’t Realize a Profit — a phenomenon known by its acronym, CRAPping out.

“For 99% of brands, their relationship is purely based on an algorithm,” says Drew Kraemer, who founded an Amazon analytics consultancy that was recently acquired by the digital marketing firm SocialCode. “You could have a product driving millions of dollars in sales that CRAPs out overnight.”

In order to get reinstated after a suspension, sellers say they must submit detailed documentation to a support system that mostly operates over email and through online chats.

“There is literally no justice for sellers,” says Kazmi. “[Amazon doesn’t] owe you anything. But there’s no competition, there’s no place you can go.”

After getting nowhere for a few months, Kazmi hired another consultant, who advised her to email an Amazon vice president. The executive’s assistant got back to her the same day, and her account was swiftly restored.

Amazon says it is accessible by phone 24 hours a day for seller questions, and offers many self-service help pages online. “We interact with sellers thousands of times a day through a variety of channels and will continue to make sure we maintain that open dialogue,” a spokesperson from Amazon told CNN Business.

An 800-pound gorilla with a hand grenade

Some critics argue that the power of Amazon’s marketplace constitutes “monopsony,” meaning Amazon controls how producers can reach an essential audience of consumers. About 44% of online sales come through Amazon, according to the e-commerce data firm One Click Retail, and 52% of shoppers go directly to Amazon when looking for a particular product, rather than searching Google or visiting their local mall, a Raymond James survey found.

Amazon says it works hard to maintain its value proposition for vendors on its platform. “Buyers and sellers are both our customers,” an Amazon spokesperson said. “We have large teams dedicated to helping sellers — many of them small businesses — be successful at reaching and delighting Amazon shoppers.”

But since access to that universe is indispensable, for the most part, sellers understand that their host cracks down first and asks questions later to prevent any kind of seller abuse that could turn off buyers.

In Calgary, Canada, IT project manager Vladimir Vylegzhanin had built a tidy business selling ping pong paddles on Amazon. But then he switched bank accounts, which he thinks triggered a suspension because it may have appeared he was operating multiple accounts on the platform, a big no-no. Even after getting reinstated — which took months — he was later suspended again for the same reason, and finally he gave up.

Amazon declined to comment on the record about individual sellers.

“The only thing that Amazon is fighting for is their customers, because this is something that’s hard to get, but not sellers,” Vylegzhanin says. He doesn’t hold that against the company, but warns prospective sellers to diversify their sales channels in order to stay afloat if Amazon cuts them off.

“Like an 800-pound gorilla with a hand grenade, you can’t always understand what they will do next,” he says. “It’s good while it lasts, but it can always end. Amazon should be just a part of your business.”