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Amazon in Europe -- German retailers demand better terms

German third-party sellers have challenged Amazon business practices. Here's how it may lead to changes that influence Amazon's growth across Europe.

After 22 years in business in Germany, Amazon has become as much a part of life there as pilsner and pretzels. In 2019, the tech giant's sales in Europe's largest market topped $22.23 billion, which makes up about 25% of all online shopping in Germany.

But Amazon's German consumers are more satisfied than its German third-party retailers. Even after the company said last July that it planned to end several allegedly anti-competitive practices, some of the 300,000 retailers who sell through Amazon's German Marketplace remain dissatisfied with many of its business practices.

For Amazon, this is cause for concern. Not only is Germany Amazon's second-biggest market worldwide, but European regulators tend to take a harder line with the ecommerce giant. Hiccups in Europe could affect the company's growth everywhere.

The most recent shift in the relationship between Amazon and its third-party retailers occurred in July of 2019, when Amazon changed its terms and conditions with regard to sales on Amazon Marketplace, not only in Germany, but worldwide. Three of the most significant changes include:

  • Liability. Amazon had previously granted itself a complete exclusion of liability toward third-party resellers. Now, the company will be as liable for any breach of major contractual obligations to third-party resellers as it is to its end customers.
  • Termination practices. Amazon waived its previously unlimited right to terminate and block sellers' accounts without warning or explanation, a practice that some sellers saw as abusive. The company agreed that in the future, termination would generally require 30 days' notice and an explanation for the action.
  • Jurisdiction. Amazon agreed that Luxembourg would no longer be the only court of jurisdiction for Amazon Marketplace disputes. Thomas Höppner, a Berlin partner for Hausfeld, a global law firm that specializes in competition disputes, said that in practice, this had made it almost impossible to take Amazon to court because Luxembourg is such a small country, with a population of 600,000, whose largest law firms have significant ties to the major tech giants.

The July letter marked the conclusion of a seven-month investigation of Amazon Marketplace sales practices by Germany's antitrust authority, the German Federal Cartel Office (FCO).

The FCO opened its abuse of dominance investigation in November 2018, following complaints by many sellers.

Andreas Mundt, president of the FCO, touted the settlement as a big gain for Amazon third-party sellers not only in Germany but worldwide, and ended the FCO's investigation. But critics say Mundt's declaration of victory was premature. "The outcome was an agreement on a handful of issues, but not the full range of issues," Höppner said.

Merchants unimpressed

Many merchants were dissatisfied with the outcome, according to Höppner, who said there were more than a hundred complaints from merchants against Amazon prior to this decision. "Amazon's commitment only covers a small area of what the original complaints were all about," he said.

And merchants have yet to see fundamental improvements, according to Höppner. "The dependencies are still there, the handling of accounts still seems to be non-transparent, and while they have released some accounts that were previously closed, I don't get the impression that all the issues have been resolved," he said.

But Höppner added, it really wasn't the point. The primary value was political, he said. The agreement gave both the FCO and Amazon a quick win.

Moreover, he said, Amazon's concessions mostly mirror rules that will go into effect under a new EU platform-to-business trading practices law scheduled to come into force in July 2020. 

Höppner says a number of regulatory issues remained unresolved. At the top of his list of remaining issues is that the governing body in the third-party contract is still Luxembourg. Höppner said that this makes it difficult for third-party retailers to take Amazon to court. German retailers can now bring an action in a German court, but they still need to find a local lawyer willing to make their case according to unfamiliar Luxembourg law. Despite the fact that Germany is Amazon's second biggest market globally, Amazon is hiding, Höppner said. "You wonder why they don't dare to come out and play fair and square."

Other remaining issues include allegations that if sellers somehow behave in a way Amazon doesn't like, Amazon will display products in ways that disadvantage those sellers, such as offering another sales platform a better deal.

Approximately 60% of Amazon's German sales volume is by third-party sellers, according to FCO figures, but since there are 300,000 of them, they lack leverage with the company. Regardless of whether the conflict simply reflects a powerful company taking advantage of relatively defenseless small retailers, or a cultural conflict between hardball American capitalists and the clubby and often protective world of Germany Inc. -- or both -- some sellers are frustrated by their current position.

Höppner noted that the agreement is not actually legally binding. Amazon can stop observing it any time and the FCO could then choose to resume its investigation.

The lesson for Amazon, Höppner said, is to appear to be acquiescing to regulators' demands while not making substantive changes. "Amazon has learned as long as we pretend to play nice and agree, they will leave us alone. And probably this will be true," he said.

Amazon faces more antitrust investigations in EU

But this isn't the end of Amazon's European education. The same day the FCO declared victory, the European Commission announced a formal antitrust investigation of Amazon's use of data on the sales of its third-party resellers. Critics have charged that the company uses the sales data it collects from its third-party sellers' transactions as market research. Among other things, this data is said to inform Amazon's decisions regarding which products it offers on its Amazon Originals private label.

"I think this interplay between Amazon as a merchant platform, as a merchant itself and its relationship to merchants who try to sell their goods is really important," said Höppner, referring to the conflict of interest inherit in such a hybrid business model. Sooner or later, he predicted, legislators in one or more of the major economies will place restrictions on Amazon's use of merchants' data and its management of the Amazon Marketplace.

Until then, however, the biggest challenge for the typical small third-party retailer will not be competition with Amazon, but rather to find a way to stand out among the thousands of other retailers. With millions of different offerings on the market and the number of sellers rising by 20% a year, it is increasingly difficult to stand out.

"It's good for our business as consultants," said Tobias Dziuba, a digital marketing consultant based in Düsseldorf, "but on the other side, do you need 30,000 different doormats, 30,000 different spoons? I don't think so."

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