For Leo Friedman, selling on Amazon is a Catch-22.

One the one hand, says the founder/owner of promotional products distributorship iPromo (asi/229471), the terms and fees the mega online marketplace imposes are frustrating and prohibitive, forcing a company to chose between minimal margin on a sale or increasing pricing just to make the transaction worthwhile.

On the other hand, iPromo generates a bit under 10% of its business through Amazon and doesn’t want to cede the exposure it gets by being an active seller on the platform.

“More than half of consumers start their online shopping on Amazon, even if they end up purchasing somewhere else,” says Friedman. “Amazon has the eyeballs. We feel it’s important to be on there.”

The fees and terms that Friedman finds foiling are at the center of a blockbuster lawsuit that the Federal Trade Commission (FTC) and 17 state attorneys general have brought against Amazon.

Filed in federal court this week, the suit alleges that the online retail and technology company is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.

Any outcome in what will likely prove a complicated and contested case appears far off. Still, distributors like Friedman who sell on Amazon – and others in the industry watchful of the digital behemoth because of its ability to impact the marketplace – are keeping an eye on the case. Here’s a look at the lawsuit and how certain promo pros view the Amazon selling experience and the suit.

‘Unlawful Coercion’

In a 172-page complaint, the FTC argues that Amazon’s alleged unfair practices empower the company to prevent rivals and third-party sellers from lowering prices, innovating and fairly competing. All that degrades quality for shoppers and contributes to inflation across the U.S. economy, given that Amazon’s impact extends to hundreds of billions of dollars in retail sales every year, the suit charges.

“The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,” says FTC Chair Lina M. Khan.

1. Today @FTC and 17 state AGs filed a lawsuit detailing how Amazon uses punitive & coercive tactics to unlawfully maintain its monopolies. Amazon is exploiting its monopoly power to enrich itself while raising prices & degrading service for its customers.https://t.co/7NiPGxx2CU

— Lina Khan (@linakhanFTC) September 26, 2023

To wit, the FTC asserts that Amazon institutes anti-discounting measures that punish sellers (like iPromo) and deter other online retailers from offering prices lower than Amazon, keeping prices higher for products across the online shopping market. For example, if Amazon discovers that a seller is offering lower-priced goods elsewhere, Amazon can bury discounting sellers so far down in Amazon’s search results that they become effectively invisible, according to the FTC.

Friedman says it can actually go further than that. “They’ll delete the product, and you can ultimately face being banned from selling on their platform,” he tells ASI Media.

The FTC maintains Amazon also strongarms third-party sellers into using Amazon fulfillment services. It does this by conditioning sellers’ ability to obtain “Prime” status on their products on the businesses doing fulfillment through Amazon. This “has made it substantially more expensive for sellers on Amazon to also offer their products on other platforms,” the FTC says. “This unlawful coercion has in turn limited competitors’ ability to effectively compete against Amazon.”

As a remedy, the FTC is asking a judge in the U.S. District Court for the Western District of Washington to issue an order that would ban Amazon from engaging in the alleged anticompetitive behavior. Media outlets like CNN Business reported that the FTC hasn’t ruled out pursuing a breakup of Amazon’s alleged monopoly or coming after certain Amazon executives as individuals. Whether that will come to pass remains to be seen.

‘Forced To Sell Stuff for More’

For sure, Amazon has already had a multifaceted impact on promo.

Perhaps most broadly, its massive selection of products and lightning-quick fulfillment has played a significant role in reconditioning many B2B merch buyers to expect a wider spectrum of choices and super-fast delivery.

Amazon also has launched its own business channels that compete directly with traditional promo firms, such as Amazon Merch on Demand. Also, of course, Amazon provides a platform in which businesses can sell customized/personalized products, and both promo distributors and suppliers have competed there, selling directly to end-buyers.

iPromo has sold on Amazon for about eight years. For Friedman, the fees that Amazon institutes are the most vexing issue. They can be so exorbitant, he says, that they virtually erase margin on an order.

“Amazon has the eyeballs. We feel it’s important to be on there.” Leo Friedman, iPromo

One way of somewhat offsetting that is to increase the price charged – though that puts in motion an unfortunate chain effect, Friedman says. Amazon, he continues, does not allow those who sell on its platform to offer a product elsewhere for “so much as one penny less” than what’s charged on Amazon. Doing so and getting caught could get the product deleted from Amazon’s marketplace, Friedman tells ASI Media.

As a result, Friedman continues, a seller often has to choose between garnering little profit due to the fees or increasing the price on Amazon – and other places it advertises the item for sale online, including its own website.

“A business may be forced to sell stuff for 15% to 20% more everywhere, not just on Amazon,” Friedman says. “Multiplied out across the sellers on Amazon, this drives overall inflation.”

While iPromo has so far elected to stick with selling on Amazon, Top 40 distributor Quality Logo Products (QLP, asi/302967) stopped doing so several years ago. The “overburdensome fees” that the FTC is targeting was a key reason why, says QLP President Bret Bonnet.

“It was a total nightmare.” Distributor Bret Bonnet of QLP on selling on Amazon

“It was a total nightmare,” Bonnet says. “Amazon tries to control the customer relationship, including hiding the necessary contact details a distributor normally needs to proof/communicate with a client. But that was the least of our problems. Amazon’s fee structure is ridiculous. Amazon takes such a huge cut, often a fixed percentage, that by the time everything is said and done, you end up working twice as hard for less than a quarter of the profit had one processed the order directly without Amazon. We’re in the business of making money, so we dropped Amazon rather quickly.”

Friedman doesn’t have a strong feeling on how the suit will play out. Sure, it could result in Amazon having to allow sellers to price lower elsewhere or having to reduce its fees, but there are so many variables, he says. “Maybe they say you can price what you want in other places, but we’re going to raise fees on you,” Friedman adds. “There’s a lot up in the air.”

At the end of the day, Bonnet doesn’t think the suit will lead to much change. Amazon, he thinks, will continue being Amazon.

“Amazon has a deep bench of lawyers and lobbyists prepared to overcome this suit,” Bonnet says. “The U.S. government is ill prepared to handle such cases. They’re not going to break up Amazon or force it to change its business practices. … The government and the laws on the books need to be modernized to handle these modern-day scenarios, but with this case … nothing’s going to come of it. It’s a big nothing burger.”