Amazon Is Destroying Small Business: A Case Study

Fraud, fakes, and scams are common on the internet giant

August 1, 2019, Los Angeles, CA – Behind every Amazon transaction, there is a manufacturer, retailer, and consumer. Amidst all the online fakes, fraud, and scams, there are some honest internet sellers. These legitimate sellers and innovators struggle to compete against companies like Amazon whose marketplace allows fraudsters to sell an inexhaustible supply of counterfeit, fake, and replica products.

Consumers don't know they are getting fakes when they purchase products on Amazon or the other online giants. What is clear is that the authentic products can't compete against China knockoffs with low prices, fraudulent endorsements, and phony product reviews Amazon allows them to post.

Amazon’s counterfeiting activities are old news to brand owners and small businesses,” says Linda Gomez, founder and CEO of beauty accessories manufacturer Et Al Beauty, LLC, the manufacturer and trademark holder for Fullips® beauty products. “Our small business has experienced the rise and fall of the American dream from the flood of e-commerce counterfeits,” adds Gomez, offering a crushing and all-to-common story as told consumer advocate, The Counterfeit Report;

'I was in my 50's. I was looking for something on the market that didn't exist. In the true American style, and within our ability to do it. I turned an idea into reality. I invented, got a patent, and started a business with the help of family and close friends. We were "Made in America" from the start and living the American dream until China decided to steal our ideas, our intellectual property (IP), and pretty much destroy what we built for ourselves, and many other families. Every step created jobs just from our one little beauty product.

As I share with everyone, and I'm sure is seen all the time, if two of my kids weren't attorneys, we would have been done. My kids had enough knowledge to figure out what to do. They talked with our IP attorney, found you, and started to fight the infringement. We went from a few thousand dollars at launch, to soaring into a dream -- almost $1 million in net profit.

We were shipping into 55 countries out of 3 warehouses. We hired people, purchased molds, and our manufacturer in Utah hired more people -- running our product 24 hours around the clock, seven days a week. More and more jobs were created.

Then the counterfeits hit. By 2016, we were almost wiped out. We were forced to lay people off and close our warehouses. We owed taxes on inventory and had contracts we had to honor because we had signed for packaging, molds, printing, warehouse space, etc. We suffered $50,000 in losses from crashing sales as a direct result of counterfeiters. We are competing with people who were, and still are stealing our trademarked brand, patented product, stealing our pictures, and stealing our intellectual property. We were devastated.

Then, still holding on by a thread, we decided to launch another product. The second the product was successful, and the thieves in China did it again. This time they scammed consumers, sending them a product that doesn't work, thus stealing from unknowing American consumers and destroying our reputation and business at the same time.

Counterfeits with our brand name flooded the consumer marketplace via Amazon, eBay, Alibaba, and others. With no support from the US government or legal system, we found our quest to stop the fakes and fraud a losing battle. We'd complain to the online companies; the counterfeit listings would be removed temporarily and then relisted again and again.'

The Counterfeit Report acted on behalf of Fullips and removed over 217,000 infringing fullips® products from Amazon, eBay, Alibaba/AliExpress, and DHgate. The e-commerce giants’ role in enabling and facilitating the sale of counterfeit goods is very clear.

E-commerce sites such as Amazon do not make for a better marketplace that serves consumers. They are no more than arenas of creative destruction, leaving consumers on their own to sort the legitimate, honest sellers from all the bad actors. They are voracious churners of items, indifferent to the damage they cause to consumers and legitimate sellers while fulfilling their desire to be the sole source of items for purchase.  They provide the platform for fraud because they make money allowing fraud -- taking a transaction fee for each item sold. Hardly an incentive to clean up their cesspool of fakes, fraud, and scams.

The value of counterfeit and pirated goods is forecast to grow to $2.8 trillion and cost 5.4 million net job losses by 2022 states a 2017 International Chamber of Commerce Report, and will continue to grow if unchecked.

Amazon commands 50% of e-commerce sales and continues to make its platforms available to counterfeiters and China-based sellers. Amazon has worn out its excuses and illusory but often quoted counterfeit policy: "We strictly prohibit the sale of counterfeit products." It's just lip service.

Consumers can only look to Congress to put aside partisan squabbles and curb the monopolizing behavior before it literally destroys all of America’s manufacturers and small businesses.

Will they?

Editor's note:
Image of Et Al Beauty CEO Linda Gomez and Corporate Counsel Ashley Gomez at a Washington DC "Made in America" anti-counterfeiting conference available here.