On February 1, Amazon released its Annual Report for 2018 to the SEC. The report gives a detailed look at Amazon’s business considerations for shareholders and investors.
For the first time in such a report, Amazon discussed the persistent counterfeit issues that plague the marketplace and hinted at their potential impact. The concerns were noted under the “Risk Factors” section of the report, which lists information that could adversely affect Amazon’s “business, financial condition, operating results, and cash flows.”
The problem with counterfeiting
Amazon’s business continues to grow–and with an increasing reliance on merchants. In 2018, 52 percent of paid units were sold by third-party sellers, totaling $42.75 billion, which is up from $31.8 billion in 2017.
With so many players in the game, it has become difficult for Amazon to control knock-offs, counterfeiting, and nefarious business practices. Though Amazon’s legal responsibility for such products is murky, these issues can significantly affect sellers and customers, alike. Because of Amazon’s customer service guarantee, they do reimburse buyers in certain situations where the correct product was not received or the website description was not accurate. With the growing 3P market, Amazon says, “The cost of this program will increase and could negatively affect our operating results. In addition, to the extent any of this occurs, it could harm our business or damage our reputation and we could face civil or criminal liability for unlawful activities by our sellers.”
According to the report, Amazon said: “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.”
Though Amazon publicly says they have a “zero-tolerance” policy for counterfeiting and pirated goods, it’s been difficult to control and monitor. This announcement in the shareholder report could signal Amazon’s desire to more proactively address the issue.
Some programs already exist to combat counterfeiting and protect brands’ identities. Learn more about brand protection, or contact eCommerce Nurse to learn about effective strategies and ideas to maximize and protect your seller account.
Visit Amazon’s Investor Relations portal to read the full shareholder report.