Amazon's plan to fight counterfeiters will cost legit sellers a ton

Amazon fighting counterfeiters
Amazon fighting counterfeiters is taking steps to protect big brands after a recent surge in counterfeiting, and many rule-abiding sellers are paying the price.

Online stores that want to sell brands like Nike, Adidas and Hasbro are being told they have to pay a one-time nonrefundable fee of up to $1,500 per brand, according to interviews with multiple sellers. That's after being asked to provide invoices from manufacturers or distributors that show the purchase of 30 items within the last 90 days.

The process, which started rolling out selectively last week, is called "brand gating," and it amounts to a big toll for sellers.

There will be plenty of detractors in the low-margin and highly competitive business of e-commerce. But it's a sign that Amazon, which dominates online commerce in the U.S., is taking counterfeit selling seriously. The site is making it significantly harder for unauthorized merchants to flourish.

"We want customers to be able to shop with confidence on Amazon," Erik Fairleigh, an Amazon spokesman, wrote in an e-mail. "For certain products and categories, Amazon requires additional performance checks, other qualification requirements, and fees."

So problematic is Amazon's counterfeit issue that Birkenstock took the dramatic step last month of telling third-party merchants that, as of Jan. 1, it will no longer sell on the site or allow its partners to do business in the marketplace.

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Sellers are concerned that Amazon is now overreacting.

At last week's Sellers' Conference for Online Entrepreneurs in Seattle, Amazon merchants said they're being hit with seller performance complaints and suspensions at unprecedented rates.

Lesley Hensell, a partner at seller help service Online Sales Step by Step, said Amazon is charging the good guys to defeat the bad guys.

"They need to fund going after these bad actors," Hensell said in her keynote.

No list of brands or products has been publicly released, but sellers said they've been notified about the $1,500 charge to sell Nike, Adidas and Asics shoes. In different categories, Amazon is charging $1,000 to sell products from Hasbro, Lego, Pokemon and others.

According to an e-mailed statement from a Nike spokesperson, the company "does not sell on and our policies do not allow our authorized wholesale accounts to sell on" Nike didn't say how long those policies have been in place.

Hensell said she expects gating to move into more brands and categories.

The broader concern for merchants is that Amazon is slowly eliminating the very popular practice of retail arbitrage. The many businesses that shop around for liquidation and clearance sales and turn around and sell items for higher prices on Amazon now have to consider what happens if the e-retailer only allows listings that come from authorized resellers.

At the conference, George Lawrence, founder of shopping search tool, referred to the group as "worried arbitragers." He said he doesn't expect the practice to be eliminated anytime soon.

But one seller, who spoke on the condition of anonymity, said the new rules cut him off from selling thousands of products without extensive proof that the items were purchased from a manufacturer or distributor. Then there's the cost. To sell Samsung products, for example, he'd be forced to pay $1,000.

For sellers generating less than $1 million a year on Amazon, the charges will be cost prohibitive, he said.

As with every policy change at Amazon, the stated purpose of gating is to clean up and improve the consumer experience. The proliferation of knock-offs has been noticed by buyers and threatens the site's integrity.

Heading into the fourth quarter and the holiday season, Amazon needs customers to trust that the clothes, jewelry and gifts they're buying are real.

"Amazon feels that they're somewhat under attack and their credibility is under attack," Jeff Cohen, director of business development at Seller Labs, a site to help Amazon sellers, told the audience. "The customer is the most important thing. Sorry, it's not us."

Jeff Cohen, director of business development at Seller Labs.
Ari Levy | CNBC

Seller frustration is palpable. According to a survey published in January from WebRetailer and Feedvisor, 61 percent of Amazon sellers fear being banned.

Jennifer Orr, who sells beauty products on Amazon, said her sales have tanked since she was suspended for 28 days in mid-2015. At its peak, she said her business was generating annual revenue of $1.3 million, sending 15 percent to Amazon.

Orr is down by well over half even after getting reinstated because her products don't have the same visibility, and there are other items she's too frightened to sell. Orr said she and other sellers are paying for the problem brought on by the counterfeiters.

"They created a monster," Orr said. "The rules aren't clear and they change them as they go along."