The bigger threat to Amazon than FTC

Arhi Kivilahti, Ada Insights' retail analyst, is writing for Inderes about the Nordic Retail Industry. His views do not represent the view of Inderes, and should not be interpreted as an investment recommendation.

The US antitrust agency FTC has released its long-speculated challenge against Amazon. At the heart of the complaint is the market share of Amazon's marketplace and the increased power that Amazon has over the merchants.

From a Nordic point-of-view, the market share of around 35-40% that Amazon has over e-commerce in the US does not seem that big. We have retailers with even higher market shares in the grocery space. On the other hand, Amazon’s market share of the entire retail market in the US is only approaching 10%.

However, a 35-40% market share is big in the United States. Amazon also knows how to take advantage of the superior position of its marketplace. According to some estimates, Amazon takes up to 50% of the product's selling price in various fees, without the risk of having the product in inventory.

Many critics of FTC say that the fees are something any retailer uses. Partly, this is true, but one must remember that there are significant differences compared to Walmart, for example.

• Walmart tends to buy the product from the supplier, carrying part of the risk for the supplier

• The “service” (advertising, placement fees…) margins are significantly smaller than 50% if one reduces the gross margin from the equation

On the other hand, Ben Thompson of Stratechery states that the dominance of the Amazon marketplace results from patient and expensive investment from the company. Something that any other company have not had the courage or vision to do.

Amazon marketplace has also a) created many successful merchants and b) offers the best overall package for merchants.

In addition, the FTC challenge focuses on Amazon's way of limiting merchants' pricing options by preventing them from selling the product for less on other sites.

A solution to the problem of competition from the east?

Until now, Amazon has been able to dictate terms to the merchants because the alternative marketplaces have not been able to offer a similar service. The lawsuit was long expected, but as many commentators point out, it might be challenging for the FTC to get Amazon indicted.

A greater threat to Amazon than the FTC suit is the Chinese marketplaces (especially Temu and Shein) rushing into North America.

They have built economies of scale and know-how already in China. They also are doing a better job in building the case for their service in the US than Alibaba ever was able to. It will be interesting to see if they are able to challenge Amazon and when this could be expected to materialise for the sellers on the Amazon marketplace.

Arhi Kivilahti