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Amazon Lending Practices Come Under Fire amid Novelty Clampdown

An Amazon seller who took out half a million dollars in loans through its Lending program is now finding the company limiting the number of products she can list on the marketplace. As a result of the new policy involving “Novelty SKUs,” she’s wondering how Amazon.com expects her to pay off the loans it so willingly offered her business.

Described here, the brand new policy limits the amount of novelty SKUs sellers can list to either 25,000, 100,000, or 2 million, depending on the seller. In Zu Adams’ case, Amazon gave her one month to winnow down her 2 million SKUs to a mere 100,000.

Adams, who also sells on her own website Riverstonegoods.com, finds herself in a similar predicament as Jerry Kozak of Ann Arbor T-Shirt Company who had to winnow his company’s 6 million SKUs to 100,000 with only 30 days’ notice.

Both merchants told EcommerceBytes they had checked in with Amazon about any SKU limits before investing in expansion plans on its marketplace. In an email Adams received in February of last year, an Amazon seller support rep said, “I have read your email and I understand that you are planning on a big expansion this year and you wanted to know if we have a SKU limit and what it is. As a seller support associate I would like to inform you that there is no SKU limit, you can create any number of SKU and inventory as per your requirement.”

Adams said her sales through the Amazon channel have already plummeted to almost half of what they had been, which makes up a significant portion of her company’s revenue. With over 20 employees, Adams has already laid off some workers and worries about more layoffs, which she says are unavoidable if she’s not allowed to increase her SKUs on Amazon. Ann Arbor T-Shirt Company’s Kozak also laid off workers, and another seller posting on an online discussion board said he laid off 4 out of his 10 employees. That seller, who has not responded to our phone and email inquiries, wrote on the board that for his Amazon account, 100,000 SKUs would equal only 650 designs because of multiple style, color and size choices.

What perplexes Adams is that Amazon willingly made loans available to her through its Amazon Lending program to help her list more items, but is suddenly limiting how many items she can list. In fact, it continues to make more funds available to her.

On February 3, Amazon sent an email informing her it was restricting the number of SKUs she could sell on the site to 100,000 SKUs – and 2 weeks later, she received another solicitation to take out more loans. In the February 20th email, Amazon advised her it had posted “a new Amazon Lending business loan invitation” to her account to provide her with “quick access to capital that can be used to purchase additional inventory to sell on Amazon.com.”

“We hope you can use the Amazon Lending loan proceeds to bolster your stock levels and maximize your order volume in 2014!”

The practice of marketplaces loaning money to the merchants who sell on their platforms is new territory and may open them up to scrutiny in cases where they encourage sellers to borrow while simultaneously restricting their accounts.

Adams explained, “In the past 19 months, we have taken out $557,000 in Amazon loans. So over half a million dollars of loans provided to us by Amazon have been used to grow our Amazon business since late 2012. This money has ALL been used for importing inventory, new equipment, custom software and labor toward adding more SKUs to Amazon. In fact, we just spent $85K in new equipment in January we would have never purchased had we known what they were about to do.” She says she currently has over $130,000 left to repay Amazon Lending.

Adams said another issue she faces is a requirement in her contract that she ensure that she make available for listing for sale on Amazon each product that she offers on other sales channels, including each variation – i.e., all sizes, colors and configurations. The requirement is included in the “Parity with Seller Sales Channels” clause that also requires sellers to price items on Amazon at least as favorably as on other channels.

Amazon has not responded to her request for her contract to be modified to account for its new restrictions, but we found a reference to “selection parity” with regard to the new Novelty SKU restrictions on this Amazon help page:

“If your seller agreement requires selection parity between your product listings on Amazon.com and your other sales channels, this requirement will not be enforced with respect to any SKUs that are removed to comply with the maximum number of SKUs requirement.”

We wondered how Amazon expected sellers who took out loans via the Amazon Lending program to repay those loans after limiting the number of Novelty SKUs they were allowed to list, and asked the company. Amazon spokesperson Erik Fairleigh, who provided a statement in response to the story we broke about Novelty SKUs last month, has declined to comment for subsequent stories, including today’s.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.