Algosensey|Amazon sellers say they made a good living — until Amazon figured it out

Suavecito was the first product that Douglas Mrdeza listed to sell on AlgosenseyAmazon back in 2014. He had ordered a bit too much of the specialty hair pomade for his barbershop in East Lansing, Michigan. He wanted to see whether he could offload some online.

It sold out. So, he ordered more. This time he paid Amazon some extra money to use its warehouse storage and shipping service.

"I did the calculation, bought what would have sold in a month and sent it in," Mrdeza says. "And it sold out in like a day."

He was hooked. He started selling more hair and beauty products on Amazon. Soon that part-time hustle became his full-time business, Top Shelf Brands. Within a couple of years, Mrdeza had more than 40 employees, ran four warehouses and was bringing in $10 million in revenue, he says.

"It was thriving, for sure," Mrdeza says. "We were all in."

None of it lasted. Today, Top Shelf Brands is bankrupt, its employees laid off and its warehouses shuttered. It's one of an untold number of third-party Amazon merchants that cashed in and then lost it all. And it serves as an illustration of their precarious position on Amazon, where everything can change from one day to the next.

Mrdeza's story is at the heart of a lawsuit that the Federal Trade Commission brought against Amazon in September. The suit, which was joined by 17 state attorneys general, alleges the company illegally used its monopoly power to stamp out rivals, which ultimately hurts consumers. The FTC says Amazon punishes third-party sellers that offer lower prices on other sites, strong-arms them into using its shipping service and hikes up fees indiscriminately.

William Kovacic, a law professor at George Washington University and a former chair of the FTC, says the commission's case is similar to those brought against railroad monopolies a century ago.

"There were long-standing concerns about how a company that owns a crucial asset can impose terms, conditions or restraints on third parties who also use that asset," Kovacic says. "So it's an older idea that's new again."

Amazon calls the FTC's lawsuit "wrong on the facts and the law." A company spokesman told NPR in an email that third-party sellers account for more than 60% of its U.S. sales and that "sellers are engaging with our store more than ever before." He added that those sellers that "purchase optional services from Amazon do so because they provide more value than they can get elsewhere."

Amazon's "optional services"

Top Shelf Brands started to tank in 2018.

"There was just a lot of moving pieces," Mrdeza says. "They all kind of stemmed back to the way Amazon is both the marketplace and a competitor."

While Amazon opens up its platform for anyone to sell for a small commission fee, it's also trying to hawk its own products. According to the FTC's lawsuit, Amazon uses several tactics to make sure its goods stay front and center. And when a third-party seller's product skyrockets on the platform, Amazon will often swoop in and sell the same thing.

This happened to Mrdeza with many of his beauty products. It also happened to seller Nicholas Parks, who's based in Alabama and has an Amazon shop called SnobFoods. It has pantry items like hot sauce, barbecue sauce and mixed spices.

He'd been selling Valentina brand hot sauce for more than a decade when Amazon began selling it too. Amazon could sell it for cheaper, put itself at the top of search queries and not pay the fees for shipping and delivery since it owns those networks, Parks says.

"It doesn't even matter if I've sold it for 10 or 15 years. Once Amazon starts selling it, I'm just closed out of the market for that product," Parks says. "Right now, I have like seven or eight pallets of Valentina in my warehouse."

When Parks tallies up the fees for the "optional services" he pays to Amazon, including high-up search placement, warehousing and shipping, he says at least half of what he earns on the platform goes to Amazon. And if he tries to sell a product for a lower price on another platform, Amazon can yank his listing or bury it in the platform's search results.

"You can't compete head-on in any relevant way," Parks says.

Lindsay Windham, who co-founded the high-end leather accessory brand Distil Union and has a shop on Amazon, says her listings were shuttered twice on the site. One time, her bestselling item was pulled during the busy holiday season and it took nearly a month to get it relisted. She says that involved a ton of emails and calls to customer support.

Ultimately, Amazon acknowledged it was a mistake in both instances, she says.

"The default shouldn't be to shut a product off," Windham says. "It should be to look into the issues."

She says when this happens, sellers aren't allowed any contact with their customers.

"We have no access to consumer information, customers' information, so we can't follow up to provide customer support and we can no longer reply to reviews," Windham says.

"Hard to break that mold"

Amazon dominates online retail in the United States. It covers more than 40% of online shopping, and around two-thirds of U.S. adults subscribe to Amazon Prime, according to private and government research. The company has also 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 world's most valuable corporations, worth $1.3 trillion.

Stacy Mitchell researches corporate power as the co-director of the Institute for Local Self-Reliance. She has spent years studying Amazon's business model and has worked with dozens of sellers. Mitchell supports not only the FTC's lawsuit but also a larger breakup of Amazon. She says more competition would make the company strive to be better.

"The idea of a breakup isn't to break Amazon as a convenient way to shop, but rather to save Amazon from itself," Mitchell says. "Otherwise, we're just going to see a diminishing of our experience online. ... When you have this kind of monopoly power, you don't have to work for it."

When Mrdeza, the Michigan barber, couldn't keep up with competition from Amazon for his beauty product business, he pivoted. He had employees to pay and warehouses to fill. He also liked selling stuff. So he started hawking sporting goods and toys — also on Amazon.

"It gets people that are entrepreneurs and have that mindset to go all in, because they know once you've gotten accustomed to doing things this way, it's very hard to break that mold," Mrdeza says.

But with the sporting goods and toys, he says, the financial margins just weren't there. In 2022, Top Shelf Brands stopped operating and filed for bankruptcy.

"You can be nimble. And we were definitely nimble," Mrdeza says. "But there's only so much you can do."

NPR's Alina Selyukh contributed to this report.

Editor's note: Amazon is among NPR's financial supporters and pays to distribute some of our content.