Amazon is facing a landmark federal lawsuit accusing it of squeezing independent sellers like Top Shelf Brands, a Michigan company that sold hair and beauty products on the platform. In 2022, the company ceased operations and filed for bankruptcy.
Suvesito was the first product that Douglas Merdeza listed for selling on Amazon in 2014. He had ordered a large quantity of the special hair pomade for his barber shop in East Lansing, Michigan. He wanted to see if he could sell something online.
sold it. So, he ordered more. This time they paid some extra money to Amazon to use its warehouse storage and shipping service.
“I calculated, bought what could be sold in a month and shipped it,” says Merdeza. “And it sold out in a day.”
He was trapped. They started selling more hair and beauty products on Amazon. That part-time job soon became his full-time business, Top Shelf Brands. Within a few years, he says, Mrdeza had more than 40 employees, ran four warehouses and was bringing in $10 million in revenue.
“It was definitely thriving,” Mrdeza says. “We were all in.”
Douglas Merdeza’s Amazon store followed its launch in 2014. But by 2022, it went bankrupt.
None of this worked. Today, Top Shelf Brands has gone bankrupt, its employees have been laid off and its warehouses have closed. This is one of an untold number of third-party Amazon merchants who made cash and then lost everything. And it serves as an example of their uncertain situation at Amazon, where everything can change from one day to the next.
Mardeza’s story is at the center of a lawsuit that the Federal Trade Commission brought against Amazon in September. The lawsuit, which involved 17 state attorneys general, alleged that the company illegally used its monopoly power to outcompete rivals, ultimately harming consumers. The FTC says Amazon punishes third-party sellers who offer lower prices on other sites, forcing them to use its shipping service and indiscriminately raising fees.
William Kovacic, a law professor at George Washington University and former FTC chairman, says the commission’s case is similar to cases brought against railroad monopolies a century ago.
“There have long been concerns about how a company that owns a significant asset can impose terms, conditions or restrictions on a third party using that asset,” Kovacic says. “So it’s an old idea that’s new again.”
Amazon described the FTC’s lawsuit as “false on the facts and the law.” A spokesperson for the company told NPR in an email that third-party sellers account for more than 60% of its U.S. sales and “sellers are engaging with our stores more than ever.” He added that sellers who “purchase alternative services from Amazon do so because they provide greater value than they can get elsewhere.”
Amazon’s “Optional Services”
Top shelf brands began decline in 2018.
“There were a lot of moving pieces,” Mrdeza says. “They’re all based on the fact that Amazon is both a marketplace and a competitor.”
While Amazon has opened up its platform to anyone to sell for a nominal commission fee, it is also trying to sell its own products. According to the FTC’s lawsuit, Amazon uses a number of tactics to ensure that its goods remain front and center. And when a product from a third-party seller skyrockets on the platform, Amazon often swoops in to sell the same thing.
This happened to Mrdeza with many of their beauty products. This also happened to seller Nicholas Parks, who is based in Alabama and has an Amazon shop called SnobFoods. It features pantry items like hot sauce, barbecue sauce and mixed spices.
He had been selling Valentina brand hot sauce for more than a decade when Amazon also started selling it. Parks says Amazon can sell it cheap, position itself at the top of search queries and not pay fees for shipping and delivery because it owns those networks.
Nicholas Parks, president of SnobFoods.com, poses in a warehouse where he stores hot sauces sold on Amazon.
“It doesn’t matter if I’ve sold it for 10 or 15 years. Once Amazon starts selling it, I’ll be out of the market for that product,” Parks says. “Right now, I have seven or eight Valentina palettes in my warehouse.”
When Parks tallies the fees he pays Amazon for “alternative services,” including higher-up search placement, warehousing, and shipping, he says he makes at least half of what he earns on the platform. Part goes to Amazon. And if he tries to sell a product at a lower price on another platform, Amazon may cancel his listing or bury it in the platform’s search results.
“You can’t compete head-to-head in any relevant way,” says Parks.
Lindsay Windham, who co-founded the high-end leather accessory brand Distill Union and has a shop on Amazon, says her listings on the site were taken down twice. Once, their best-selling item was pulled during the busy holiday season and it took almost a month to get it re-listed. She says this involved a lot of emails and calls to customer support.
Amazon eventually admitted it was a mistake in both cases, she says.
“Discontinuing a product should not be the default,” says Windham. “These are issues that should be looked into.”
She says when this happens, sellers are not allowed to contact their customers.
“We don’t have any access to consumer information, customer information, so we can’t follow up to provide customer support and we can’t respond to reviews anymore,” says Windham.
“It’s hard to break that mold.”
Amazon dominates online retail in the United States. According to private and government research, it covers more than 40% of online shopping, and nearly two-thirds of American adults subscribe to Amazon Prime. The company has built one of the largest delivery systems in the country with an extensive network of warehouses, air hubs and trucking operations.
All this has made Amazon one of the most valuable corporations in the world, worth $1.3 trillion.
Stacey Mitchell researches corporate power as co-director of the Institute for Local Self-Reliance. He has spent years studying Amazon’s business model and worked with dozens of sellers. Mitchell not only supports the FTC’s lawsuit but also Amazon’s larger breakup. She says that with more competition the company will strive to become better.
“The idea of the breakup is not to break up Amazon as a convenient way to shop, but to save Amazon from itself,” Mitchell says. “Otherwise, we’ll see our experience online diminish. … When you have this kind of monopoly power, you don’t have to work for it.”
When Michigan barber Mrdeza couldn’t compete with Amazon for his beauty products business, he changed his approach. He had employees to pay and warehouses to fill. He also liked selling goods. So he started selling sporting goods and toys – that too on Amazon.
“It takes people who are entrepreneurs and have that can-do mentality, because they know that once you get used to doing things that way, it’s very difficult to break that mold,” Merdeza says. It is difficult.”
But with sporting goods and toys, he says, the financial margin was simply not there. In 2022, Top Shelf Brands ceased operations and filed for bankruptcy.
“You can be nimble. And we certainly were nimble,” Mrdeza says. “But you can only do so much.”
NPR’s Alina Selyukh contributed to this report.
editor’s Note: Amazon is one of NPR’s financial supporters and pays to distribute some of our content.