Amazon was born in 1994, when hedge fund executive Jeff Bezos incorporated the company and began direct-selling books online with a plan to create technology that would make it simple for consumers to make their purchases.
His fairy tale, rags-to-riches story of his rise to wealth and fame and the company's launch toward a near trillion-dollar value is a story that's been chronicled nicely by Encyclopedia Britannica,1 which notes that the company — which Bezos promoted with a "Get Big Fast" slogan — did not post real profits until 2001.
Part of the story is that Bezos realized way back then that he needed a better plan to help his company meet his growth goals — thus spurring the decision to broaden Amazon's scope in two ways: first, by introducing an e-reader he called Kindle; and second, by opening Amazon's doors to third-party sellers.
Today, Kindle, which not only allows consumers to download millions of books and movies, but to publish their own work online through Kindle e-publishing, and third-party sellers are the pillars of Amazon's structure, helping Bezos to be crowned the richest person in the world in 2017, with a net worth of $105.1 billion.2
To illustrate just how much those third-party sellers mean to Amazon, statista.com reports that in the second quarter of 2019, those sellers' products represented 54 percent of Amazon's paid units.3
Unfortunately, those third-party sellers, which have taken over Amazon's platform by selling every imaginable type of product and service, all with a click of a button — the very technology Bezos envisioned from the start — are also a breeding ground for fraudsters who pose as brand name sellers, but actually sell knock-off products. Even worse, some of these fakes could cause real harm to consumers, especially when it comes to foods, drugs, cosmetics and pharmaceuticals.
Is it real or a knock off?
Amazon runs an annual sale they've dubbed Prime Day, which ran July 15 and 16, 2019, for the U.S. 4 On the second evening, as reported by Wired, Anne-Marie Bressler received an automated email from Amazon informing her that one of the nutritional supplements she'd ordered two weeks earlier were likely counterfeit.5
The email recommended she stop using it and dispose of the item. It also said she would be issued a refund for the product. Although Amazon confirmed it sent the email, the company declined to identify the number of people who had been impacted by this knock-off. The supplement is sold by Procter & Gamble, whose spokesperson said in an email:6
"We are aware that some counterfeit Align product was sold on Amazon via third parties. Amazon has confirmed they have stopped third party sales of the Align products in question and Amazon is only selling Align product received directly from P&G manufacturing facilities."
In their statement, Amazon acknowledged a past problem with counterfeiters, saying:7
"We investigate every claim of potential counterfeit thoroughly, and often in partnership with brands, and in the rare instance where a bad actor gets through, we take swift action, including removing the item for sale, permanently banning bad actors, pursuing legal action, and working with law enforcement when appropriate. We have taken these actions against the bad actors in question and proactively notified and refunded customers."
A 2016 report from the Organization for Economic Cooperation and Development8 pegged the counterfeit market at $461 billion a year in 2013. By 2016 that number had skyrocketed to $509 billion9 — two and a half times what it was just eight years earlier in 2008, at $200 billion a year.
What's worse, counterfeiters are infiltrating a wide range of products and name brands, from high fashion to toys to car parts, cosmetics, medical supplies and, as Amazon found, pharmaceutical products, including supplements.10,11
The underlying problem is the fakes are frequently low quality12 and may lead to injury and health concerns, as they did for Heather Oberdorf who was blinded in one eye when a retractable dog leash she purchased from a third-party vendor snapped, hitting her in the face.13
Third party seller products may not be safe
Although the supplement industry is fully regulated under the Dietary Supplement Health and Education Act of 1994 (DSHEA),14 those who are selling knock-off products are not. Yahoo! Finance reported third party sales have jumped from 31% of Amazon sales to 58% in the past 10 years,15 and revenue from these sales grew 20% in the last quarter.16
According to the U.S. Food and Drug Administration,17 they are responsible to take action "against any adulterated or misbranded dietary supplement product after it reaches the market."
Steve Mister, from the Council for Responsible Nutrition, hopes this incident of counterfeit online products will be a wake-up call.18 However, in an interview with NutraIngredients, he expressed concern about how news outlets have reported the issue, saying:19
"It tries to pull in the notion that the products are not pre-tested by the FDA before they go on the market. That's not the issue at all. You could have tested P&G's Align Probiotics for weeks and found out they were exactly what they were portrayed to be on the label and be of high quality. But if someone comes along with a counterfeit, that evades the whole system, and no amount of pre-testing will address that issue."
It isn't only the supplement industry taking a hit from counterfeit products. Counterfeit medications have also become a serious problem, leading the FDA20 to publish a warning in 2013 that purchasing drugs from new or unknown suppliers may create an unnecessary risk for patients, as even cancer medications are being distributed containing no active ingredients.
Amazon has an enormous influence on the market
The Trust Transparency Center works closely with manufacturers in the dietary supplement and wellness market. Last year they reported on Amazon's influence in the industry, quoting a study from Slice Intelligence (now Rakuten Intelligence)21 indicating Amazon's market share in the vitamin and supplement category outpaced all their other e-commerce categories.22
The report showed sales grew 40% in 2016 and in 2017 accounted for 77% of all vitamin and supplement sales made online. The two biggest brick and mortar retailers, GNC and Vitamin Shoppe, only garnered 2.3% of the total e-commerce market in that category.23
Courts disagree over liability for third party sellers
Following Oberdorf's injury, she filed a lawsuit in 2016. As reported in Reuters, product liability is usually governed by state law.24 Before the most recent ruling in her case, several other courts, including two federal appeals courts, had ruled Amazon would not be held liable for third-party vendors.
However, the new ruling from the 3rd U.S. Circuit Court of Appeals in Pennsylvania, which is where Oberdorf lives, reversed the lower court decisions and finds Amazon can be held liable for a third-party vendor sales.
The court's decision was made in part since the Amazon business model creates more than a third-party selling space and essentially enables vendors to conceal themselves from the customer, leaving customers with no direct recourse to the vendor, Reuters said.25
Additionally, the court found the decision would not apply to other online marketplaces since Amazon has created a different platform by providing services from shipping to payment. The court wrote:26
"Amazon's involvement in transactions extends beyond a mere editorial function; it plays a large role in the actual sales process. This includes receiving customer shipping information, processing customer payments, relaying funds and information to third-party vendors, and collecting the fees it charges for providing these services."
Companies like Amazon have relied on protection from Section 230 of the Communications Decency Act, shielding them from liability for what others post on their site, which states:27,28 "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."
Retail sales not an Amazon profit machine
Although Amazon has garnered 77% of the supplement market, their retail sales have not been a profit machine. According to CNBC,29 Amazon reported a record profit in 2018 after minimal returns until 2016.
Online sales have not been profitable for Amazon in the past. The company was briefly valued at $1 trillion in 2018 after their net income tripled from 2017 to 2018, rising from $3.03 billion to $10.7 billion.30
The majority of their money is made through cloud services and digital advertising which Bezos initially claimed — Amazon would be a technology company.31 Toward that end, in 2002 the company added Amazon Web Services to their stable of products, a platform on which many large companies also run, such as Netflix.
However, while retail sales of products they purchase from manufacturers does not offer the company significant markup, the sales from third-party vendors means Amazon doesn't purchase the products but only provides the platform. As Krystal Hu from Yahoo! Finance describes in her video interview:32
"The retail business has not been profitable for them for a while. Part of the reason is they are the retailer itself and it is a very thin margin business, especially as they are providing all the two-day shipping services.
But, for third party sellers they offer a lot of services and they charge a service fee for the ads and the marketing stuff they sell them and that's a very thick margin business. That's the area they are looking to grow. If they want to make the retail part more profitable, part of the solution is to grow the third-party business."
Project Zero places responsibility on merchants, not Amazon
The sale of counterfeit goods has been a known problem for Amazon. In late February 2019, the company announced the initiation of Project Zero.33 The initiative was designed to reduce the number of counterfeit products by allowing some brands to directly remove counterfeit listings themselves, without having to go through a complaint process and wait on Amazon to do it.
In their announcement, Amazon34 touted Project Zero as a combination of "advanced technology, machine learning and innovation" to best detect counterfeit. In the past, brands reported a potential counterfeit to Amazon, which would then investigate and take action.
With this new tool, the brand has the ability to control and remove these products. In addition, Amazon is using product serialization, a unique code for units manufactured for sale on Amazon. These may then be scanned and verified to authenticate the product, helping to detect counterfeiting before it reaches the customer.
Marketplace Pulse35 reports there are 2.5 million sellers on Amazon worldwide. Of those, 25,000 made $1 million in sales and 200,000 have made $100,000 in sales. Many of these are pedaling wholesale items they buy from other suppliers and mark up for sale on Amazon.
Project Zero has been part of a wider effort, including a lawsuit in 2016 against the number of sellers who allegedly listed counterfeit products and an overhaul of its brand registry program.36
Nutrient deficiencies are more common than you might think
This most recent debacle may provide a platform for those who would like the pharmaceutical companies to take over the manufacture and sales of supplements. In this fascinating video with Dr. Andrew Saul, we discuss some of the issues surrounding the need for adequate supplementation and fact-checking.
As we've seen in the past, counterfeiters have infiltrated medications from Big Pharma as well, so there is no reason to believe production of synthetic vitamins and supplements will be safer, and they will likely not be healthy. The FDA regulates supplements; now it's important to protect your health by ensuring the supplements you purchase contain what's on the label.
- Purchase from a trusted and reputable source. If the cost of your supplement is significantly lower than those sold by competitors, it could be you're purchasing a counterfeit product. If it seems too good to be true, it probably is.
- Purchase vitamins produced without soy additives and that are GMO-free
Source: mercola rss