You might have seen the headlines over the past year: Chinese sellers are leaving Amazon. Since early 2021, the e-commerce giant says it has banned 3,000 Chinese accounts for using paid reviewers to artificially inflate ratings, a practice known as “brushing.” The narrative sounds pretty simple, right? Dishonest Chinese sellers gaming the system! Of course they should be punished.
Amazon has said that it issued the bans after repeated warnings over manipulated reviews, and that no seller has been targeted by nationality. Meanwhile, in Chinese media, the sellers have a different account. They describe paying ever-rising costs, while struggling with restrictions on how they sell on the platform.
When they have brushed up their ratings, sellers told Chinese tech media Pingwest, it’s because Amazon’s stringent requirements have pushed them to, in order to survive. (A Chinese e-commerce industry association estimates at least 50,000 banned.)
Either way, the relationship has somewhat soured. In 2012, when Amazon entered China and aggressively recruited sellers onto its third-party Marketplace platform, merchants treated founder Jeff Bezos with reverence. Many of them considered him a role model, and resonated with Amazon’s lofty principles of “putting the customer first” and “creating long-term value.”
Amazon Marketplace was appealing to Chinese sellers in two important ways: there was almost no barrier to entry, and they could mark up their products as much as they liked. Products that cost 5–6 yuan on Taobao could be sold for $20 (about 140 yuan) on Amazon — a markup of 20–30 times the original price! Not percent, but times. Lured by the crazy-high profit margin, the number of Chinese sellers on Amazon climbed sharply.
Within a few years, Marketplace growth took off. Between 2014 and 2015, sales from Amazon’s Chinese merchants tripled. By 2017, one-third of all international sellers on Amazon were from China, and Marketplace’s sales volume had surpassed that of the main Amazon platform.
Here comes the catch. Despite all the PR around Amazon Web Services, we know that Marketplace is Amazon’s real moneymaker. Recall that Amazon charges for commissions, advertising, logistics and warehousing. And warehousing costs alone have soared since Chinese sellers came on board, continuing to grow with a nice 11% bump just this February. Costs to advertise — something crucial for smaller sellers — surged 50% during the pandemic.
But the thing is, it’s hard to sell if you’re not part of Prime, wherever you’re based, and that probably means signing up for all the above charges.
And this is the case inside just the Amazon universe. Don’t forget that, over the Covid-19 pandemic, there have been increasing costs outside of that ecosystem too. Ocean shipping costs have jumped. Add foreign exchange pressures, inflation in raw materials costs, and changes in U.S. import tax policies, and Chinese sellers are feeling breathlessly squeezed compared to a few years ago.
Then, we get to the accusations of brushing. Importantly, let’s not deny that many of them did pay up for review brushing. Even the Chinese government has taken notice and reiterated that merchants should strictly obey foreign laws, calling the spate of bans “growing pains.”
Speaking to National Business Daily, merchants claim that the high weighting of customer reviews pushed them to try to influence customer behavior by compensating them for positive feedback. In Pingwest, their defense is that, on Amazon, it’s a high-stakes competition — you have to offer the best-value deal, and be well-reviewed, in order to reach the eyeballs of a browsing customer.
Analysts have observed that Amazon’s recommendation format prioritizes “products” over “shops.” That means that, even if various shops are hawking, say, the same factory-made lightbulb, only one shop is linked to the “Add to Cart” function by default. Other merchants are merely listed underneath as “other sellers,” and they’ll rarely get picked by a buyer.
Chinese sellers tried to get around that. They realized they could either open multiple stores to sell the same product in order to be ranked higher and increase sales, or they could win through ubiquity, by launching rafts of SKUs and dominating a category. While neither directly violated the rules of the platform, Chinese sellers told Pingwest that they believe the bans were in retaliation for that behavior.
Their evidence? The bans, primarily levied against larger accounts, were simultaneously accompanied by a surge to recruit newer and smaller Chinese sellers, according to them. (This is opposite of what happened in previous rounds of bans.) Either way, I don’t think that this proves anything except that Chinese exports are still very important to Amazon.
But sellers are becoming increasingly bitter. Amazon helped these exporters reach a huge and lucrative audience; now, they have an urgent need to wean themselves off.
That’s a good thing. There are a few options: become something like the internationally recognized Chinese brand Anker (harder than it seems, since it requires that these sellers shift into thinking and spending like a standalone brand), or move to another U.S. platform (like Walmart) or one of an increasing number of Chinese-owned platforms (like Shein or TikTok).
Amazon still has a significant advantage in luring Chinese sellers, especially when offering the customer reach of Prime. But the bans last year may have been the final straw. As for me, as a venture investor, I’m not too aggrieved by the bans. I think it’ll lead to even more urgency to diversify and feed new, evolving forms of e-commerce between China and the world.