Business World

Wednesday 26 June 2019

Amazon pressed on plans for small suppliers in latest political push against tech giants

Nydia Velazquez, chairwoman of the House Committee on Small Business, wrote to Amazon CEO Jeff Bezos asking about the nature of his company’s relationship with small suppliers. Photo: Bloomberg
Nydia Velazquez, chairwoman of the House Committee on Small Business, wrote to Amazon CEO Jeff Bezos asking about the nature of his company’s relationship with small suppliers. Photo: Bloomberg

Spencer Soper

An influential New York Democrat has written to Amazon asking about a report that the company plans to cease wholesale orders from thousands of smaller suppliers.

US Representative Nydia Velazquez, chairwoman of the House Committee on Small Business, wrote to Amazon CEO Jeff Bezos asking about the nature of his company's relationship with small suppliers, whether changes are planned and how much advance notice and support Amazon is giving to businesses that would be affected.

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Her letter is the latest example of the US government's growing interest in potentially curbing the power of big tech companies

"At a time when many larger companies have overlooked the potential of small firms, I applaud Amazon for inviting small businesses to be wholesale suppliers," Ms Velazquez said in her letter, which asks Bezos to respond to her questions by June 21.

"I believe that any erosion of your commitment to small firms would be a serious mistake."

Bloomberg last week reported that Amazon was planning to stop placing bulk orders with thousands of smaller suppliers, a move that would reduce the giant's costs and boost profits.

Amazon disputed the report, saying no "large scale" reduction in vendors was planned and that it regularly reviews its supplier relationships on an individual basis. Ms Velazquez cited the story in her letter, seeking clarity from Amazon. Amazon spooked suppliers in March when it ceased routine orders from many suppliers without explanation, only to resume weeks later. "As chairwoman of the House Small Business Committee, I find these reports deeply troubling as this change could jeopardise small wholesale businesses from continuing to do business with Amazon and affect millions in sales and hundreds of thousands of jobs," she wrote.

Amazon didn't immediately respond to requests for comment about the letter.

One of Amazon's key public relations strategies - selling itself as a friend of small businesses - could unravel if politicians decide that it wields too much power in negotiating terms with partners. The company publishes reports highlighting small business growth and job creation enabled by Amazon and visits politicians for private meetings with small business owners in tow.

An Amazon report sent to elected officials in May said it helped small companies create 1.6 million jobs in 2018, up from 900,000 the year before. About half of the goods sold on Amazon come from independent merchants.

But there is long-standing tension between Amazon and its vendors and suppliers, largely hidden because the company requires partners to sign non-disclosure agreements and binding arbitration clauses. Merchants often complain that they have to accept Amazon's terms since they have little power in negotiations and that the company can make abrupt changes without warning, disrupting their operations.

Amazon captures about 50 cents of every dollar spent online in the US. EBay, its closest competitor, gets just six cents. That dominance gives Amazon tremendous leverage over partners looking to sell products online.

Amazon secures inventory two ways. The company buys products directly from wholesale vendors, reselling them like a traditional retail store, and it lets independent merchants post their own products on the site in a marketplace model similar to EBay or a consignment shop.

Amazon could push the marketplace share of revenue even higher if it forced wholesale vendors to sell their products there.

Amazon holds less inventory itself by shifting more sales to its marketplace - reducing the risk that it gets stuck with unsold merchandise. Moreover, the company collects a commission on each sale and charges merchants fees to store, pack and deliver their goods.

In an emailed response to the Bloomberg report last week, an Amazon spokeswoman said: "We review our selling partner relationships on an individual basis as part of our normal course of business, and any speculation of a large scale reduction of vendors is incorrect."

Bloomberg

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