Amazon sellers say they were unfairly suspended before Prime Day, and now have two bad choices

Key Points
  • A researcher is expecting Amazon to generate $3.4 billion in Prime Day revenue, but some small sellers are shut out of the action.
  • Amazon has seen such growth in its third-party seller business that it can't appropriately address the challenges that sellers face.
  • Revenue from its third-party services business is approaching $40 billion a year.
Cheapskates Liquidators owners George Schappert (L), Diana Schappert (M) and Richard Bear (R)
Cheapskates Liquidators

On July 9, Amazon put out a press release saying that Prime Day, the giant upcoming shopping extravaganza, "has proven to be a huge growth opportunity for many small and medium-sized businesses."

That same day, an online seller named Diana Schappert got an email from an Amazon employee who goes by Paul. It came with a very different message.

"Jeff Bezos received your email and I am responding on his behalf," wrote Paul, who didn't include a last name but said that he's part of the Seller Performance team. "I have thoroughly reviewed your account and the information you have provided and determined that you may not sell on"

How customers feel about Amazon's Prime Day glitch
How customers feel about Amazon's Prime Day glitch

For Schappert, who is one of millions of third-party sellers on Amazon, the email is potentially a fatal blow in a costly saga that's lasted the better part of the year. It has left her family business — Cheapskates Liquidators — in tatters.

Since mid-March, Cheapskates has been suspended from Amazon for a few vague complaints related to the sale of inauthentic items, all of which Schappert and her husband, George, say can be easily explained. Amazon has refused to readmit them, despite multiple appeals. The July 9 email came after the couple escalated their complaints all the way to the CEO. CNBC has viewed extensive documentation, which seems to back up the Schapperts' tale.

During the 36 hours of Prime Day, stretching across Monday and Tuesday, Coresight Research expects Amazon to reel in $3.4 billion, as consumers flock to deals on electronics, clothes, furniture and snacks (though that estimate was made prior to a glitch at the start of Prime Day on Monday). Third-party sellers account for more than half of all items sold on the site, and many of them are small family businesses like Cheapskates. Amazon said last week that on Prime Day 2017, thousands of smaller businesses generated more than $50,000 in sales, allowing them to "grow their businesses, create new jobs, and invest in their communities."

But for some small sellers, working with Amazon has become a complicated mess of infringement claims, confusing suspensions, fees and one-way correspondence.

A number of Facebook groups for Amazon sellers are loaded with complaints from people who were suspended for reasons that aren't entirely clear and have struggled to get anyone at Amazon to help. Merchants have filled up Amazon seller forums looking for advice about getting reinstated when they think they've been unfairly suspended or have had their products blocked.

In a statement to CNBC, Amazon said the Schapperts were suspended for selling counterfeits, among other infractions:

"The seller in question was found violating multiple Amazon policies, including our anti-counterfeiting policy. They were given multiple opportunities to address the situation but showed a repeated pattern of behavior that was not in our customers’ best interest, so we took actions to protect our customers and stop their illegal activity."

But the Schapperts say Amazon never gave them this explanation, and the couple's recent correspondence with Amazon, which they shared with CNBC, offers little detail.

Now, they're faced with two bad choices. The first option is to keep their $200,000 of inventory in Amazon's fulfillment centers and continue to try and get reinstated while racking up fees from Amazon for storage, which amounted to $367.37 in June, when they couldn't even sell anything.

Or, the Schapperts can pay 50 cents an item — several thousand dollars in total — to have it all shipped back so they can try to sell it elsewhere. If they don't decide soon, Amazon could destroy their inventory, according to emails they've received from the company.

"We thought this was what we were going to be doing for the rest of our lives," said George Schappert, 41, in an interview. "It was a real wake-up call to be kicked off like this."

The costs of doing business

The problems stem from Amazon's efforts to address a counterfeit crisis, which has plagued the site since the company opened the doors a few years ago to manufacturers and sellers from all over the world. Infringement complaints are now a common occurrence, and can be triggered by as little as a single review from a buyer, or even false reports from competitors.

Amazon told CNBC:

"Amazon has large teams dedicated to helping sellers—many of them small businesses—be successful reaching and delighting customers. We expect all sellers to comply with the law and our policies, and we take steps to protect customers if they do not. We are committed to providing a great shopping experience and work closely with customers and sellers to resolve any concerns they may have."

The company also explained a little about its methods, which rely heavily on automation:

"When a business registers to sell products through Amazon’s Marketplace, Amazon’s systems scan information for signals that the business might be a bad actor, and Amazon blocks identified bad actors before they can offer any products for sale. Amazon’s systems also automatically and continuously scan numerous data points related to sellers, products, brands, and offers to detect activity that indicates products offered might be counterfeit."

Website issues for Amazon as Prime Day kicks off
Website issues for Amazon as Prime Day kicks off

In its zeal to control counterfeiting, Amazon has taken a heavy hand in removing sellers and forced them to respond with a detailed plan of action, or POA, accepting responsibility for what went wrong and promising to fix it. Dealing with these disruptions is just a cost of doing business on Amazon, even for legitimate sellers.

In the Schapperts' case, the ordeal has been much more dramatic.

The couple are longtime online sellers on eBay, but stepped up their Amazon business in 2015, after George became sick and was unable to continue his electrical work. Cheapskates built its online business by sourcing goods from local businesses, like a friend who makes yard signs, buying from distributors and snapping up clearance products at RadioShack and other retailers.

Like many Amazon sellers, Cheapskates has faced some infringement complaints in the past, according to documents the Schapperts shared with CNBC. Two of them included allegations they were selling counterfeits. One was from a rights owner in February 2017, claiming that Cheapskates was listing a counterfeit light bulb, which they deny. The other was a notification saying they were selling a counterfeit Bluetooth speaker; in fact, the Schapperts say, the product was authentic but they later learned that it wasn't authorized for sale online. Neither notification resulted in suspension, and they stopped selling both products.

They make you feel like you're being rewarded.
George Schappert

The Schapperts were also briefly suspended in July 2017 for "poor seller performance," partly because of a buyer complaint that a Teenage Mutant Ninja Turtle camera was inauthentic. They were reinstated within two days after telling Amazon they had the receipts to prove the authenticity of the items.

Then things improved. For a while, the business was so good that Amazon almost doubled Cheapskates' storage capacity, allowed the storefront into the global sellers program and offered loans to the Schapperts with rates that kept getting lower.

"They make you feel like you're being rewarded," said George Schappert.

The business peaked at $60,000 in December after a solid holiday season. Soon thereafter, the Schapperts leased a 6,000-square-foot warehouse that costs them about $2,300 a month as they prepared to grow their operation, which George Schappert said was on pace to at least double its revenue this year.

Then, on March 15, Amazon sent the Schapperts an email saying that some of their listings had been removed because of "buyer complaints about the items ordered from you." Amazon provided six product codes and said four of them had complaints for "used sold as new," two were "not as advertised" and one was "damaged/defective."

The next day, March 16, the Schapperts got another note from Amazon saying they could no longer sell on the site because of complaints about "the authenticity of items listed at the end of this email." The three codes were entirely different from the six in the prior day's email and provided no explanation about what was wrong with the products — two types of cigarette rolling paper and some children's bedding. The Schapperts said that after scanning all of the user reviews about those three products, the only complaint related to authenticity came from a single buyer of rolling papers.

Amazon did not explain to the Schapperts or to CNBC why the March 15 and March 16 emails differed in terms of the products listed, nor did they say why Cheapskates was suspended without warning.

Inventory could get destroyed

To try and get reinstated, Cheapskates explained to Amazon that it cancelled its relationships with distributors tied to inauthentic item claims and provided a full list of suppliers for all the products in the suspension.

It wasn't enough. On April 3, Amazon said that the information was insufficient and that the Schapperts "could no longer sell on" There was no further explanation, just the boilerplate language that, "for privacy reasons, we do not provide details about our investigation methods."

Now the Schapperts are potentially on the verge of having thousands of dollars worth of products destroyed. Twice this month, Amazon has told Cheapskates that it's "submitted a disposal order" for its inventory because the company missed the deadline for removing it.

Getty Images

In April, Cheapskates hired Chris McCabe, a former Amazon employee who specializes in working with third-party merchants, to help get them reinstated. McCabe said he's dealt with hundreds of sellers who have run into similar problems, but he's almost always able to get them back up quickly as long as there's no serious infraction, like sourcing counterfeits, using someone else's trademark or having really bad performance metrics.

But McCabe said that sometimes reinstatement efforts get pushed to the wrong group at Amazon. At that point, there's often no telling who inside the company is calling the shots or what can be done to make things right.

"Once they get placed in purgatory, it can be hard to reel them back in," McCabe said. "I don't think Amazon wants to be a marketplace where it's haphazard — who stays and who doesn't."

Amazon said in its statement that sellers must comply with the law and that it "works with customers and sellers to resolve any concerns they may have."

Racking up fees

To help small merchants deal with the complexity of the platform, Amazon is rolling out various professional support services. Amazon has recently been promoting a program called Marketplace Growth, which includes "12 months of personalized coaching, training and insight from an assigned Account Manager" and costs up to $5,000 a month.

Last month, Amazon touted that service and others at a conference in New Orleans called Boost, designed to teach "strategies, tactics, tools, and services that make the difference for successful FBA sellers."

From a business standpoint, it's working — the company generates almost $40 billion a year in revenue for third-party seller services, which includes commissions, fulfillment and shipping fees. Sales in the first quarter surged 44 percent to $9.3 billion.

Peter Kearns, a former Amazon Marketplace leader, spent four years at the company and now helps sellers from the outside. Kearns said that most sellers who get suspended aren't paying close enough attention to what's happening with their business, and with all the nuances and changes at Amazon.

But even those who are being diligent and proactive can get wrapped up in Amazon's aggressive and increasingly automated effort to remove problem merchants, he said.

"There are a lot of good sellers that get caught in the crossfire of Amazon's machine learning, which it's using to combat the bad apples," said Kearns, who is now a vice president at 180Commerce. In general, "Amazon doesn't just come out of the blue and knock you off and suspend you," he said. "You have to show a pattern of bad behavior."

Amazon has recently shaken up the marketplace organization, after years of exponential growth led to a surge in counterfeits and all sorts of manipulative seller tactics. Sebastian Gunningham, who was senior vice president of the division, left for WeWork in April, and the person directly below him, Peter Faricy, has since been stripped of most of his responsibilities.

With all the changes, sellers like the Schapperts remain stuck in the vortex, desperate for answers. George Schappert estimates the business is out $6,000 in fees and consulting expenses, not to mention the many tens of thousands of dollars in lost revenue.

"We're just trying to figure out what they want so we can provide that," he said. "But it almost seems like they don't want us there anymore."

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