Canadian small and medium-sized businesses that sell their products on Amazon say the e-commerce giant has created an “imbalance of power” that puts them at a disadvantage, according to a new report.
The Canadian Federation of Independent Business (CFIB) also found a majority of its members that don’t use Amazon’s services are having a harder time competing with the company and other large digital retailers — particularly as Canadian consumers continue to prioritize online shopping over brick-and-mortar stores.
The CFIB’s report, released Thursday, says the combination of Amazon’s dominance in the e-commerce space, and a lack of government support for small businesses who need to enter that space to survive, is leading to fewer startups in Canada and driving entrepreneurs away from the marketplace.
“Small business owners have gone through so much throughout the pandemic,” the report’s author, CFIB senior policy analyst Michelle Auger, told Global News.
“What we saw is that it was really those large multinationals that really were able to leverage those online sales, whereas small businesses kind of fell to the back and unfortunately are still struggling to compete in those online markets.”
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The report comes shortly after the U.S. Federal Trade Commission (FTC) and 17 states filed an antitrust lawsuit against Amazon, accusing it of “unlawful conduct” and illegally maintaining a monopoly over the U.S. retail and technology marketplace by stifling competition and squeezing small businesses who use Amazon’s services with exorbitant fees.
Amazon has denied wrongdoing and said the FTC’s lawsuit is “wrong on the facts.”
The Competition Bureau of Canada announced an investigation into Amazon’s business practices in 2020 — roughly a year after the FTC began looking at the company — but has been silent on its progress since inviting market participants to provide input in August of that year. Amazon says it is cooperating with the investigation.
Much of the allegations in the U.S. lawsuit are echoed in the CFIB report, which includes first-hand accounts from business owners across various industries who use Amazon’s Marketplace platform to sell its products.
The CFIB notes just two per cent of its more than 97,000 member businesses use Amazon services. Of those, a majority — 55 per cent — said they were dissatisfied with their experience.
The report said businesses told them that if a product they were selling on the platform became popular, Amazon appeared to push customers away from those products toward identical ones sold directly by Amazon. Independent listings were then buried in search results, the report said, and suppliers would suddenly stop working with the businesses — even threatening legal action.
“We recently stopped selling on Amazon because it was pretty much taking all of our sales (we’d be lucky if we got one per month),” said an anonymous retailer from Alberta quoted in the report.
“We can no longer sell certain brand name shoes, as our suppliers are not allowing us to ship to the U.S., even though the exact same shoes can be found on Amazon.com.”
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The report also says businesses reported facing confusing fee structures that hurt their bottom line, and felt forced to lower their prices further to qualify for Amazon’s “buy box” feature that allows for one-click ordering.
Businesses complained that Amazon did not allow them to communicate directly with customers who may have an issue with a product or an order, and took control of refund decisions that unduly favour the customer at the expense of the sellers. Those businesses also reported a lack of support from Amazon when disputes arose, including sudden suspensions of seller accounts.
“These large online platforms act as gatekeepers,” Auger said. “And because they have such a dominant position in the online world, they can really leverage the size of their business and kind of take advantage of small businesses.”
According to the American anti-monopoly organization Institute for Local Self-Reliance, third-party U.S. sellers who use Amazon spent 45 per cent of their revenue on the fees in the first half of this year — up from 35 per cent in 2020 and 19 per cent in 2014.
The report notes that many CFIB members who use Amazon “have expressed that the situation feels similar in Canada.”
Amazon was estimated to control nearly 40 per cent of the U.S. e-commerce market last year, according to market research company eMarketer. The next top 14 companies — including major brands like Walmart, eBay and Target — make up a combined 31 per cent.
In Canada, Amazon’s footprint is even higher, according to eMarketer, accounting for 41.5 per cent of all e-commerce sales this year. The company’s U.S. share remains relatively steady at 37.6 per cent.
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Amazon recently highlighted the “big success” it says Canadian small businesses have experienced using its Marketplace platform. A blog post published earlier this month claims average sales from Canadian third-party sellers rose 13 per cent to US$85,000 in 2021.
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The company claims businesses choose Amazon’s services for e-commerce because they “offer them great value,” as well as “powerful tools, services, and programs to drive their business growth” at a cost that is “typically lower than their alternatives.”
But the CFIB argues businesses who have used Amazon felt they have no choice but to take advantage of those lower costs, if only to stay afloat amid an increasingly digital economy — allowing Amazon to take advantage.
Amazon said the two per cent of CFIB members that said they have used the company’s services “is a tiny fraction in comparison to the tens of thousands of sellers in Canada that use Amazon to sell and reach customers.”
Barbara Agrait, a spokesperson for Amazon, told Global News the data in the CFIB report appeared “cherry-picked to fit a false narrative.”
The continued importance of e-commerce has led a majority of CFIB members to say they are planning to maintain or grow their online presence this year, according to the report. Yet it also notes that close to 90 per cent of those members feel the dominance of Amazon, Walmart and other online giants is threatening their ability to compete in that space.
The report includes several recommendations for Amazon, the federal government and consumers themselves to ensure small and medium-sized businesses have a fighting chance in the modern economy.
The CFIB says Amazon should be more transparent with its algorithm, customer and marketplace data to allow smaller businesses to properly compete. It also wants Amazon to lower its seller fees, promote independent sellers and hire an independent ombudsman or committee to resolve disputes with customers and Amazon itself.
A spokesperson for Amazon was unable to immediately respond to the recommendations in the report, of which it was not given a copy ahead of publication.
The report says the federal government should also step up its support for smaller businesses, including through its modernization of the Competition Act, which remains under review.
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The government has previously said Bill C-56 — introduced by the Liberal government this fall as a way to enhance competition in the grocery sector — would apply to other sectors including e-commerce and technology, and was “the first response” to the findings from over a year of consultations on the Competition Act.
A report from those consultations found strong support for tackling monopolies and oligopolies in the marketplace and loosening the threshold for proving anti-competitive behaviour by dominant companies.
The CFIB is also calling on Ottawa to lower the $500,000 annual revenue threshold for small businesses to access grants through the Canada Digital Adoption Act that can help with the financial burden of shifting to an e-commerce platform, and the continuation of other financial relief programs the government plans to begin phasing out next year like the Accelerated Investment Initiative.
Finally, the report recommends the government work with Canada Post to provide more varied price points, including deeper discounts to small businesses, to reduce the financial burden of shipping their products.
Government agencies and Canada Post did not immediately respond to requests for comment on the CFIB’s recommendations.
Auger says Canadians can also play a role in helping small businesses survive and thrive by prioritizing them for their shopping needs, particularly as the holiday season gets underway.
“Shift the way you’re spending and really seek out those small businesses, especially if you’re doing online shopping,” she said. “Just make the extra effort.”