Congress is considering legislation that jeopardizes two of the things American consumers love most about Amazon: the vast selection and low prices made possible by opening our store to third-party selling partners, and the promise of fast, free shipping through Amazon Prime. Legislation sponsored by Senator Amy Klobuchar, as well as nearly identical legislation in the House sponsored by Representative David Cicilline, targets just a handful of American companies—Amazon, Apple, Facebook, Google, and Microsoft—which have very different business models.
In reality, Amazon’s Consumer business (which this proposed legislation is largely aimed at) has much more in common with thousands of other retailers, like Walmart, Target, and Costco, all of which would be mysteriously excluded from the bill’s proposed regulations. Applying the same broad, vague, and undefined language to all of these different market segments to regulate what are in fact very different companies would cause serious and damaging unintended consequences for American consumers and small businesses the bills purport to protect. Recent amendments to the legislation, put forth by Sen. Klobuchar last week, do nothing to address the most serious concerns with the bill. We think it’s important for people to understand the facts about what would happen if these bills became law.
Degrading the Prime benefits that customers love and small businesses rely on
Consumers love and benefit from Amazon Prime, evidenced in part by the more than 200 million Prime members worldwide. We hear time and time again, and surveys continue to demonstrate every year, that consumers love Prime because they can get virtually any item delivered to their doorstep in one to two days. Many of our Prime members rely on the service for the majority of their everyday and household purchases, including people who don’t live close to major cities, those who struggle to leave their homes, or simply everyday Americans who lead busy professional and personal lives. Prime is much more than a membership program—it’s become a service people love and rely on.
It’s important to remember that it’s not just consumers and Amazon itself that benefit from the Prime service. To enable Prime’s one- to two-day delivery, Amazon invested more than $100 billion over the last 20 years in fulfillment centers, sortation centers, delivery stations, an integrated and streamlined transportation network including aircraft, cargo trucks, and delivery vans, and inventive technology and equipment. And, at the heart of this network are the 1 million people we employ across the U.S. to help us operate and continuously improve this delivery network.
Rather than keep such a highly valuable and capable network to ourselves, we choose to enable other businesses and brands—many of them small and medium-sized American businesses—to use it to grow their own online businesses. We do this through the Fulfillment by Amazon (FBA) service for our selling partners. A key advantage of using FBA is that businesses can offer their products to shoppers under the Prime brand and accompanying benefits, which leads to significantly higher sales volume because so many customers prefer buying items that are eligible for Prime. Critically, using FBA allows these sellers to bypass all the work required to store, fulfill, and get products delivered to customers with the quick delivery and high degree of dependability consumers have come to expect—all at a more affordable cost than they could do on their own.
Sen. Klobuchar’s vaguely worded bill would mandate that Amazon allow other logistics providers to fulfill Prime orders. Such a mandate would make it difficult, and potentially impossible in practice, for Amazon and our selling partners to offer products with Prime’s free two-day shipping (let alone one-day). We’ve tried allowing our selling partners to use other logistics providers to get Prime-eligible products to customers; unfortunately, these providers were not able to consistently deliver in the timeframes Prime customers have come to expect (meeting our “delivery promise” is something we measure and monitor extremely closely). Were this legislation to become law, it would substantially degrade the value and quality of Prime, as many of the products sold in our store today with Prime’s one- to two-day delivery promise would be undeliverable in that time frame. This degradation of the Prime experience would materially hurt not just Amazon (which is what we believe to be the real, unstated goal of the legislation), but, more importantly, every American consumer and small business that currently relies on the Prime service.
Jeopardizing our marketplace and harming small businesses and the 1.8 million U.S. jobs they support
Amazon’s decision over two decades ago to open our virtual shelf space to third-party sellers was a bold one at the time because we weren’t sure how it would impact our own direct retail business. But we pursued it anyway because we believed that it would lead to a better customer experience and help small businesses at the same time. During those 20 years, sellers have grown to become a bustling marketplace that generates nearly 60% of gross merchandise sales on Amazon. There are now over 500,000 U.S. selling partners using Amazon today, and together, they are responsible for more than 1.8 million jobs in the U.S.
Unfortunately, the proposed legislation could meaningfully jeopardize our marketplace. There are a myriad of broadly written restrictions aimed at the concept of self-preferencing that prohibit commonplace retail practices (e.g., utilizing usage and buying data from our stores to personalize consumers’ customer experience, ordering search results by Prime eligibility, etc.). These rules would apply only to companies covered by this proposed legislation (of which Amazon is the only retailer) and would obviously place Amazon’s current customer-obsessed experience at a disadvantage relative to other retailers not forced to operate under these awkward restrictions, such as Walmart, Target, and others. Further, the proposed fines for each incidence of running afoul of these rules are so outlandish and extraordinary (amounting to tens of billions of dollars that would cause us to operate at a loss) that it would make it difficult to justify the risk of Amazon offering a marketplace in which selling partners can participate.
We consistently hear from our selling partners that what they find most valuable in working with us is the broad distribution and traffic from hundreds of millions of consumers they get by listing their products in our store—the very benefit they stand to lose with this proposed legislation. It’s worth remembering that hundreds of thousands of American small and medium-sized businesses make a living via Amazon’s marketplace. Without access to Amazon’s hundreds of millions of customers, it would be much harder for these third-party sellers to create awareness for their business, which impacts not only their own livelihoods, but the nearly 2 million jobs in the U.S. relying on these selling partners and the business they get from selling in Amazon’s store.
If there’s going to be legislation, it should be equitably applied
Oddly, and inappropriately, this legislation is targeted at only one U.S. retailer—Amazon. This has been accomplished by requiring a market value of at least $550 billion to qualify for regulation. We don’t believe this threshold to be unintentional; but rather, targeted and intentional. In 2021, Walmart had annual revenues of $559 billion, nearly $90 billion more than Amazon. CVS had annual revenues of $292 billion; Costco, $196 billion; and Target, $106 billion. But Walmart is excluded despite also being a large retailer that allows small businesses to sell in its online marketplace. Similarly, Target, which is headquartered in Sen. Klobuchar’s home state of Minnesota, is excluded even though it too operates an online marketplace for sellers. And CVS, which is headquartered in Rep. Cicilline’s home state of Rhode Island, is excluded despite being one of the U.S.’s largest retailers, largest health insurance companies, and largest pharmacy benefit managers, all at the same time. While the proposed legislation is flawed for the several reasons mentioned above, if and when Congress decides to enact legislation, it should apply to companies equally instead of just targeting individual ones. Most importantly, any legislation should, in practice, support—not hurt—the small businesses and consumers it purports to protect.
As one of the nation’s largest retailers, we understand our success invites scrutiny. We also understand that such scrutiny can bring calls for new regulations. If Congress believes that the highly competitive retail industry needs regulation, we welcome the opportunity to engage in identifying and addressing legitimate concerns lawmakers may have. But the proposed bills that Congress is now considering, which attempt to broadly cover five companies, each with a vastly different business model, should be reconsidered.
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