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The My Wife Quit Her Job Podcast With Steve Chou
568: Amazon’s Dirty Tactics Are Costing You 61% More On Every Purchase
00:13:34
In this episode, I break down exactly what’s going on with Amazon right now and show you real-world examples of how Amazon is causing price inflation on everyday items. - What You'll Learn Amazon’s Last Income Report
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- [00:00]
Steve Chou
Welcome back to the podcast, the show where I cover all of the latest strategies and current events related to e commerce and online business. Today I'm going to talk about how both Amazon buyers and sellers are getting squeezed, which is resulting in much higher prices and worse service across the board. I break down exactly what's going on and what you can do about it, but before we begin, I wanted to let you know that tickets are now on sale for Seller Summit 2025 over@sellersummit.com the Seller Summit is the conference that I hold every year that specifically targets e commerce entrepreneurs selling physical products online. Unlike other events that focus on inspirational stories and high level advice, mine is a curriculum based conference where you will leave with practical and actionable strategies specifically for an e commerce business. Every speaker I invite is deep in the trenches of their e commerce business entrepreneurs who are importing large quantities of physical goods and not some high level guys who are overseeing their companies at 50,000ft. I personally hate large events, so the Seller's Summit is always small and intimate. Every year we cut off ticket sales at around 200 people, so tickets sell out fast and we've sold out every single year for the past eight years. If you are an e commerce entrepreneur making more than $250,000 or $1 million per year, we also offer an exclusive mastermind experience with other top sellers. The Seller Summit is going to be held in Fort Lauderdale, Florida from May 6th to May 8th. Right now this is the cheapest the tickets will ever be, so head on over to sellers summit.com and grab your ticket. Now onto the show. Welcome to the My Wife Quitter Job Podcast. In this episode I'm going to break down exactly what's going on with Amazon right now and show you real world examples of how Amazon is causing price inflation on everyday items. I'll also give you my take as a seven figure e commerce seller on the long term implications of these practices. By the end, you'll be armed with the knowledge to navigate these murky waters and still make a profit.
- [02:04]
Co-host or Guest Expert
Now first off, let's start off with some numbers from Amazon's last income report. In Q2 of this year, Amazon's net sales increased to $148 billion globally and that's up 10% from $134 billion in the prior year. Meanwhile, its operating income increased to $14.7 billion, up from $7.7 billion. So basically, Amazon's profits doubled year over year. But if you were to ask any veteran Amazon FBA seller if their profits doubled from the last year, the answer would likely be hell no. So where are all of Amazon's profits coming from? Well, if you look closely at the numbers, you'll notice that Amazon's online store revenue only increased by 4.6% from $53 billion to $55 billion, which indicates that Amazon's E Commerce sales are stagnant. They're not really growing anymore. So how the heck are they so profitable? And where is the money coming from? Well, the answer is from you, the consumer. Even though E commerce sales only went up by 4.6%, the fees that Amazon charges for services like fulfilled by Amazon increased by 12%. These are the fees that Amazon makes sellers pay when they use Amazon's warehouses and shipping for their products. And this year alone, Amazon introduced several new fees, making it even more expensive for sellers to use fba. Now to give you an idea of the new fees, Amazon is now charging an inbound placement fee just for receiving your goods into their warehouses. Amazon also introduced a low inventory fee where sellers are penalized for keeping too little inventory in stock. And this is in addition to a penalty fee if you have too much inventory in stock. So basically, sellers have to play a balancing game to ensure that their inventory levels stay within the sweet spot or else they have to pay more money. There's also a new Amazon returns fee to handle returns as well. So overall, Amazon sellers are paying over 30% more in fees since 2021. And on average, Amazon FBA FE take a 61% cut of sellers revenues today. But it doesn't stop there. If you look closely at Amazon's income report, you'll also notice that other segments like Amazon advertising revenue increase by 19.5%. Amazon advertising is where sellers pay money to gain more visibility in the Amazon search results. And without advertising, your products basically don't get shown. All these fee increases are brand new and for the first half of the year, most sellers absorbed the cost as it took time for the impact to really hit. However, if you've noticed sharp price increases recently, it's because sellers have finally realized that they need to raise prices to avoid losing money. So basically, Amazon is forcing FBA sellers to pay more to use their platform and in the end it's Amazon that benefits. But guess who's actually covering the costs? You are as the consumer. By the way, if you're interested in learning how to sell online without relying on Amazon, then sign up for my free 6 day E commerce mini course below. It's 100% free and I guarantee that you'll learn a ton. Now let's shift gears and talk about the recent Amazon prime membership changes. As a buyer. Currently, Amazon prime costs $14.99 a month or $180 per year. And for that price, you get benefits like free two day shipping on millions of items across the US And a generous return policy that promises hassle free returns and full refunds on most items you purchase. Well, all that has changed this year as well. First off, if you live outside of a city or a large metropolitan area, you're likely not getting the promised two day free shipping. And this applies to far more locations than you might expect. Amazon's delivery speed has greatly degraded over the years and I myself consistently get late packages, especially over the holidays. Recently, Amazon also changed their return policy. In the good old days, Amazon used to refund you your money right away. But now your refund may take up to 30 days to be refunded. And this delay has frustrated many loyal customers. But it's the second change that's really pissing off Amazon shoppers. If Amazon makes a mistake, like missing items in your package or sending the wrong or defective product, in the good old days, all you had to do was click a button in the app and Amazon will refund you right away. But now Amazon makes you send in a document reporting that something was missing and then they perform an investigation. Then depending on what they decide, you may either get a full refund, a partial refund, or no refund at all. So basically, Amazon's return policy just got a lot worse and Amazon can arbitrarily decide that they were not at fault and make you eat the cost of your order. So overall, Amazon prime is declining in quality and they're thinking about raising the price again. So let me ask you, how the hell can Amazon get away with squeezing sellers and offering poor quality service and still make a ton of money? Last year in September, the FTC accused Amazon of illegally maintaining monopoly power by engaging in exclusionary practices that stifle competition, inflate prices and harm both consumers and third party sellers. Now, Amazon has tried for months to get this case tossed out in court. But as of Last week on October 7, a federal judge said the FTC can proceed with its landmark antitrust lawsuit against Amazon. This order, issued last week by Judge John Chun, is a major defeat for Amazon. And thanks to this ruling, more information has leaked about the case. Turns out that Amazon is purposely using exploitative practices that that degrade the user experience, raise prices across the Internet and crush the competition. All ultimately Geared towards making Amazon the only game in town. No surprise there. But one thing that I haven't really mentioned so far is that there are a ton of Chinese sellers on Amazon. In fact, the top 50% of Amazon sellers are in China. And there's been a 25% year over year increase in Chinese sellers making over a million bucks per year. And there's been a 20% increase in the quantity of Chinese goods. And these sellers are cutthroat because they're overseas. They can get away with a lot of practices that are against Amazon's terms of service, like incentivizing reviews and the outright copying of other people's products. And if they get caught for cheating, five more sellers pop up. There's even a term that describes these sellers called Alphabet soup, because they trademark random strings of letters and sell the same products under multiple listings as a means of cornering the market. So basically you'll have a hundred of these brands from the same company filling up the search results with the exact same junk and pushing everyone else out. Now, Amazon clearly has the resources to clean up its act. And thanks to the ftc, they've miraculously started enforcing some of these policies recently for Chinese sellers. But why did Amazon wait so long to do anything? It's because having bad players on their marketplace actually helps Amazon to get what they want. Amazon benefits from this kind of chaos and cutthroat activity because it puts real legitimate businesses on the defensive. Amazon doesn't care who's making the sales, whether it be a legit seller or a Chinese one, because they make money no matter what. And having an unlimited quantity of Chinese sellers on their marketplace allows Amazon to squeeze and bully sellers on its site. If you decide to leave Amazon, no big deal. Someone will always be there to take your place. Now, if you look at the lawsuit closely, the FTC's core argument is about the control that Amazon has over sellers. Because Amazon owns over 50% of E commerce in the U.S. people who want to sell things on the Internet don't have much choice other than to use Amazon. Over 200 million Americans are Amazon prime members, and that's 70% of US households. Prime members get great deals from Amazon, especially fast and free shipping. So why would they want to shop anywhere else? Third party Amazon FBA sellers rely on two the buy box and the prime badge, which Amazon dangles over their heads. If you as a seller have the buy box, you can generate sales. But there's a catch. If you're selling a product anywhere on the Internet for a Lower price, they remove the buy box and make it nearly impossible for users to purchase your item. Amazon has bots that crawl the Internet for your brand.
- [10:24]
Steve Chou
So?
- [10:24]
Co-host or Guest Expert
So this rule is hard to get around. And because most sellers depend on Amazon for 80 to 90% of their sales, they can't risk Amazon finding out. And so what they end up doing is inflating their prices across the web so that they match the same price that they have on Amazon and don't run into this retaliation. This means that you, as the consumer are paying inflated prices everywhere, no matter where you shop online. This practice creates the illusion that Amazon has the lowest prices around. And it often does, but only by force. The FTC is accusing Amazon of artificially inflating its competitors prices to maintain its monopoly power. Think about it this way. In a fair economy, if you had a company jack up prices and provide worse service, it just wouldn't survive. But Amazon's power is preventing that from happening. Amazon sellers are forced to use Amazon FBA because most Amazon shoppers only shop the prime listings. Of the top 10,000 sellers on Amazon, 90% use FBA. And if you don't use FBA, you're sacrificing sales. And at the same time, using FBA allows Amazon to hold your inventory hostage. Many sellers keep large amounts of their inventory in Amazon's warehouses and tailor their business around Amazon sales, which makes the prospect of selling on other platforms less attractive. And then finally, we have Amazon's own private label brands. The FTC alleges that Amazon biases search results in favor of its own products, even when it knows third party sellers are offering higher quality items. Take this listing here from my friend. Amazon blatantly advertises their own copy private label product at 33% off right on her listing. So how can she possibly compete? It's all a race to the bottom. What we see on Amazon now is a whole bunch of cheap junk that lacks quality and random sellers with crappy customer service. Amazon isn't really looking out for you, it's just looking out for Amazon. Now that the FTC lawsuit is moving forward, if Amazon is found guilty, it could face a fine of nearly $44 billion and possibly a breakup of Amazon into smaller companies. But in its current state, the company is powerful enough to bend sellers to its will and jack up prices for consumers. So what do you think? Is Amazon on monopoly or what? Now that you understand what's going on with Amazon, watch this video here if you want to learn about Amazon's recent changes to fight Temu.
- [12:50]
Steve Chou
Hope you enjoyed this episode. I still believe that you can make selling on Amazon work, but you now have to know what you are doing. Selling under your brand is pretty much par for the course. For more information and resources go to my wife quitherjob.com Episode 568 Once again, tickets to the Seller Summit 2025 are now on sale over at sellers summit.com if you want to hang out in person in a small intimate setting, develop real relationships with like minded entrepreneurs and learn a ton, then come to my event. Go to sellersummit.com and if you're interested in starting your own e commerce store, head on over to mywifequitherjob.com and sign up for my free 6 day mini course. Just type in your email and I'll send the course right away via email.