A newly unredacted portion of the Amazon-FTC antitrust lawsuit adds fuel to the allegations that the e-commerce giant essentially forces sellers to use its Fulfillment by Amazon (FBA) fulfillment and logistics service.
The controversy stems from Amazon‘s recently reintroduced Seller Fulfilled Prime (SFP) delivery program. Third-party sellers use this offering to ship Prime-eligible products out of their own warehouses without having to use FBA services.
The program was introduced in 2015 as a way to bring new Prime-eligible inventory to Amazon shoppers, but ended four years later. The commission claims that Amazon executives who recognized that SFP was fostering competition wanted the program canceled.
At the time, Amazon said less than 16 percent of SFP’s U.S. orders met the two-day shipping guarantee required by the program, partly because many sellers did not operate on weekends.
But the FTC claims otherwise, according to the updated complaint released on Thursday. Sellers enrolled in SFP met their promised delivery estimate requirement set by Amazon more than 95 percent of the time in 2018, the lawsuit said. The FTC also claimed that at times, these sellers outperformed FBA-fulfilled orders on this metric.
Amazon disputes the FTC’s account.
“The FTC’s statements that Seller Fulfilled Prime was working well for customers in 2018 are highly misleading,” an Amazon spokesperson told Sourcing Journal. “The fact is that in 2018 sellers using Seller Fulfilled Prime were promising deliveries within two days less than 16 percent of the time—far worse than the performance of sellers using Fulfillment by Amazon and far below the high standards and expectations our customers have for Prime.”
In the program’s first full year, Amazon onboarded more than 3,200 sellers, with approximately 15,000 enrolled in SFP at its peak, the lawsuit claims. Amazon never opened the program to all potentially eligible merchants.
Amazon soured on the program in early 2019, according to the FTC, when it realized that independent fulfillment providers were advertising their ability to help sellers obtain Prime eligibility and fulfill through SFP.
Amazon’s then-CEO of worldwide operations Jeff Wilke wrote that he was “losing [his] mind” after learning that UPS was advertising that its online retail fulfillment service could fulfill Prime-eligible orders. In the same email chain, two other high-level Amazon executives agreed that Amazon should consider shutting down SFP in the U.S.
The company stopped new enrollment in SFP later that year, but the waitlist ballooned to more than 8,000 sellers just six weeks after.
“Amazon caught a glimpse of this alternative universe when it temporarily relaxed its coercive conduct,” the lawsuit said. “As Amazon recognized, this decision was immediately popular with both shoppers and sellers. But internally, Amazon soon realized that its move could enable greater multihoming, facilitating competition that would threaten Amazon’s monopoly power.”
According to the FTC lawsuit, an Amazon executive told colleagues that he had an “‘oh crap’ moment” when he discovered that the SFP program was “fundamentally weakening [Amazon’s] competitive advantage in the U.S…as sellers are now incented to run their own warehouses and enable other marketplaces with inventory that in FBA would only be available to our customers.”
The complaint said that following conversations with sellers, other Amazon executives confirmed that if Amazon did not require FBA for Prime eligibility, many sellers would use independent fulfillment providers to “fulfill on whichever platform gives [the seller] an order.”
Amazon’s former head of global fulfillment services admitted in response that the prospect of independent fulfillment providers increasing competition “keeps me up at night.”
The case argues that independent fulfillment providers’ operations remain far smaller than FBA, fulfilling orders from anywhere from a few thousand to just a few hundred sellers. With that in mind, the FTC argues that had independent fulfillment providers been able to compete for Amazon order volumes, they could have won significant business from Amazon’s third-party sellers.
The reintroduction of SFP appears to be Amazon’s attempt to appease the FTC in the wake of the high-profile antitrust lawsuit. In September, before the commission filed the landmark case, Amazon reneged on the 2 percent fee it was going to slap on third-party sellers using SFP.
“We have learned a lot, and over the last several years we updated the program requirements,” the Amazon spokesperson said. “We’ve now reopened enrollment to an improved Seller Fulfilled Prime program that can meet our customers’ expectations. The misleading figures the FTC points to in the complaint falsely portray how we work with sellers to meet our customers’ high expectations.”
SFP is still a trial program that requires sellers to self-fulfill 100 packages in the 90 days prior to applying, as well as have a valid tracking rate greater than 95 percent, a cancellation rate of less than 2.5 percent and a late shipment rate below 4 percent.