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Amazon’s Fourth-Quarter Challenges Continue


Oct. 4 2019, Updated 11:27 a.m. ET

Whether at home or abroad, regulatory bodies frequently pull the strings of the leaders and pioneers in the United States tech and e-commerce industry. Notably, Amazon, Google, and Facebook are expected to be invited to an inquiry by the US House of Representatives’ Small Business Committee. This committee’s goal is ensuring that the market is competitive for small business enterprises.

The current chair, Nydia Velázquez of New York’s 7th Congressional District, expressed concern that the big tech players could have complete dominance, pushing smaller businesses aside. Velázquez could review the current market practices and might hear from representatives from the small business segment.

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This inquiry could take place by the end of the month or during the first week of November. Notably, Amazon and Google could release their Q3 earnings around the same time. Meanwhile, the start of the fourth quarter could include other pressing concerns that might potentially impact stock prices and investors.

Amazon’s counterfeit problems

Amazon (AMZN) is facing issues on its e-commerce platform again. In his April 11 note to shareholders, Amazon CEO Jeff Bezos included a blunt assessment: “The percentages represent the share of physical gross merchandise sales sold on Amazon by independent third-party sellers – mostly small- and medium-sized businesses – as opposed to Amazon retail’s own first party sales.

“Third-party sales have grown from 3% of the total to 58%. To put it bluntly: Third-party sellers are kicking our first party butt. Badly.

After probes from European regulators, the Federal Trade Commission, a scoop from the Wall Street Journal, and complaints from delivery drivers, now the AAFA (American Apparel and Footwear Association) has challenged Amazon. The AAFA is a consortium of over 1,000 brands.

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The AAFA approached the Office of the United States Trade Representative (or USTR) and recommended that two Amazon websites should be placed on the USTR’s “Notorious Markets” list. The industry trade group asked the USTR to flag the Amazon India and Amazon France websites. The USTR’s Notorious Markets list contains websites and physical markets that contain copyright infringements.

The AAFA alleged that these Amazon websites facilitate the sale of counterfeit products, an open case of copyright infringement. In the last year, the industry group raised similar concerns for Amazon portals in Germany, the UK, and Canada. Until now, the USTR has not taken any action on the AAFA’s recommendations.

India to reform e-commerce regulations

India holds a lot of promise for Amazon. The Amazon Great Indian sale generated around $7.07 million in revenue within the first 36 hours. The only other competition for Amazon is Flipkart, funded by Walmart.

The Indian government may revise the regulations in the Indian e-commerce sector. The proposed revision could be a cause of concern for Amazon. The US Secretary of Commerce, Wilbur Ross, could discuss the new reforms in an upcoming meeting with the Indian government. India’s growing online e-commerce sector is estimated to expand up to $200 billion in the next eight years.

Before the sale, one of the trading bodies in India demanded a boycott of the Great Indian Amazon Sale. The Confederation of All India Traders (or CAIT) is a private body in the trading community.

CAIT noted in a letter to the country’s federal trade minister, “By offering deep discounts ranging from 10 percent to 80 percent on their e-commerce portals, these companies are clearly influencing the prices and create an uneven level playing field which is in direct contravention of the policy.”

Plus, CAIT noted that these deep discounts shift the market equilibrium, allowing large companies to exert their dominance over small businesses.

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Although Amazon and Google are global forces, they face regulatory pressure in critical matters like antitrust cases and attempts to create monopolistic market situations. Until now, the regulators have not taken a strong stance against these multinational companies. However, the latest interactions with regulators involve just claims for now. It remains to be seen whether these companies might face any action in the future.

Large tech companies regularly acquire smaller businesses, sometimes at a premium valuation. These regulators have expressed concern that this tactic might allow large companies to control the competition in the market. So, stay tuned as we keep you up to date on the Small Business Committee inquiry.

Correction: An earlier version of this article incorrectly suggested that Velázquez represented Puerto Rico rather than New York’s 7th Congressional District.


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