[awillen]

This explanation doesn't explain the difference to me at all. Costco can see that vodka sells well, so they can make Kirkland brand vodka. They control the layout of the store, so they can change the layout so people see Kirkland brand first when they get to the liquor section. They know the pricing of other vodkas and which ones sell well, so they can source Kirkland vodka at an ideal price point.

None of what you've described about Amazon differentiates it from Costco at all.

[codemac]

It's simple, Costco actually buys the inventory, and resells it. There are more advanced kinds of agreements (like buy back X number of coats of you sell less than Y) but that's largely how they operate.

Amazon is much more like a digital mall in that they rent out their store features for sellers.

However, Amazon would like to be seen by the customer as Costco and this causes dissonance between how they treat sellers, and how they treat customers.

[awillen]

Okay, you've described the business models, but so what?

In both cases, they still use the sales data available to them to create and sell their own products at the expense of third party sellers. In Amazon's case, that means diverting customers away from third party listings to their own. In Costco's case, that means making fewer purchases from third party sellers because the amount of shelf space available decreases as Costco puts more of its own products out.

The type of sales relationship that they have with third party sellers doesn't change the fact that both are using sales data to create and sell their own products at the expense of those third parties.

[ClumsyPilot]

>"Okay, you've described the business models, but so what?"

That the defining feature mate!

Getting paid an extra to provide premium service to a customer is normal in some areas, but it's a crime of you hold public office.

[hirako2000]

S/he may argue that public officials manage to do it too, despite its illegality, hence it's Okay for Amazon to do so. For some, whatever Amazon does is okay, there will always be some other cases happening elsewhere that in some twisted ways are the same. I think most people are only ever consumers, and can't escape their subjectivity on this matter. They get theit toys delivered within a couple of days, the invoice says free delivery, they want things to remain that way so what ever Amazon is doing is okay (for them, for now)

[cgriswald]

You can't see the difference because you're conflating the terms seller and vendor. There are no third-party sellers at Costco.

The difference really comes down to three things: the layer on which the competition occurs, whose data is being used, and whether the competition is fair (which comes down to risk/reward).

At Costco, the competition occurs between manufacturers. Costco uses its own retail data as a retailer. The risk to the vendor to sell at Costco is marginal (even if they have to pay for shelf space) compared to being in the market at all. Costco can compete with a store brand, but if they want to sell the vendors products they have to go to the vendor. They can't undercut the vendor with an equivalent product unless they make an equivalent product for cheaper. The risk is spread out and Costco owns a healthy amount of it.

At Amazon, the competition occurs between retailers. Amazon uses its competitors data, which it gains by being a 'marketplace'. The other retailer carries all the risks associated with being a retailer. Amazon takes a piece of it, the size of which depends on what 'services' the retailer uses through Amazon's marketplace. If the retailer fails, Amazon loses nothing. If the retailer wins, Amazon can use the retailers' data and begin selling the same product. It can use its size and the retailers' own numbers to get a better deal with the vendor and undercut the other retailers price on the same exact product. (Store brands are also an option and an issue, but if you're focused on that, you're missing the forest for the trees.) The retailer takes the vast majority of the risk, but Amazon can, at its option, swoop in and take the majority of the reward.

[cwyers]

In the Costco model, Costco pays up front for the vodka and incurs all the risk if the vodka doesn't sell. In the Amazon model, Amazon charges third-party sellers "rent" to be on the platform in the form of a cut of all transactions, but the third-party sellers still incur all risk for inventory that doesn't sell. And then Amazon turns around and uses the sales data from the third-party sellers to undercut them later on.

[megaman821]

I am not sure about Costco, but Best Buy does not purchase all the items it sells. For some items it only remits a payment to the manufacturer after the item has sold. Should they not get to see the sales data?

[dec0dedab0de]

In both cases, they still use the sales data available to them to create and sell their own products at the expense of third party sellers.

Costco doesn't have any third party sellers. Costco is the only seller.

[nkrisc]

> relationship that they have with third party sellers

There are no third party sellers at Costco, it’s only Costco.

[colejohnson66]

Not always true. Usually, Costco/Target/Walmart/etc. pay for it before it sells, but it’s not always like that. “Vendor” products like Frito Lay, Bimbo, etc. are sometimes given the ability to just put product on the floor at no cost to the retailer. When it sells, the retailer will send money to the vendor.

[gamblor956]

Consignment sales represent less than 1% of retail sales at these stores, and generally only are required for new products that the retailer will not purchase in bulk before the distributor proves market demand.

Generally, for the sales you have described, the consignment sales are paired with marketing efforts by the distributor to demonstrate customer interest. If the test succeeds, the store will purchase future lots from the distributor. If the test does not, the product disappears from the shelves and the distributor stops selling it.

[nkrisc]

I know, but I deliberately didn’t mention that because it’s the exception, not the rule.

If you pick up a random item in Costco, it’s paid for and sold by Costco.

[awillen]

Costco buys products from third party sellers. That is a relationship with third party sellers.

[nkrisc]

No, those are Costco’s suppliers which are completely invisible to the customer and completely different.

Costco purchases the items from the suppliers, generally. They then resell them to you for a markup.

With few exceptions, every single item in Costco is sold by the first party seller: Costco. So my point stands: third party sellers are generally not a part of the Costco experience.

[arrosenberg]

Yes, but the terms of the relationship make Amazon's behavior anti-competitive. Costco isn't going to various brands and asking them to sell at Costco, they buy inventory and resell it at a profit. Amazon has convinced a large portion of the retail market to feudalize themselves on Amazon's platform, then they are using the data accrued to take over the markets of their current and former tenants.

[HWR_14]

Costco sources Kirkland products from people they already do business with. So if they see your Vodka is doing great, they call you and ask (well, as a giant customer of yours "ask") you to make a Kirkland version as well. On those bottles you'll make less, but you're still going to make a lot of money there. And getting cheaper people to buy your product without diluting your brand. And a lot of money off your branded product. Most things I've seen from manufacturers online is that being asked to supply Costco with their product and the Kirkland version is a win from both asks.

[411111111111111]

I think the only difference is that Amazon is a digital marketplace, so they can and do let their users pioneer what gets sold.

Space is at a premium with a physical location, so the likelihood of an actual store exploiting that is extremely unlikely

[awillen]

Unlikely? I literally just described an example of Costco doing this right now with vodka. That's not a hypothetical - Kirkland brand vodka is a real thing.

Your logic is backwards - when space is at a premium, making the most profit off each item in that space is critical. It makes more sense for Costco to do this than it does for Amazon, not less.

[fredophile]

Store brand products are not new and not the issue. Let's pretend that Costco didn't currently sell vodka at all. If Costco wants to know if they should start selling vodka or bottling their own vodka and selling that they don't have access to the sales data from the liquor store next door to Costco. Amazon is letting other businesses take the risks and using sales data from those businesses to outcompete them.

[gamblor956]

That's the right way to look at it, missing just one crucial detail.

Costco pays for the items that appear on its shelves (excepting the <1% of goods that are on a consignment basis, usually new trial products). The distributor of the store brand and the name brand have already been paid for the products (and are usually the same company).

Amazon gets paid by the distributors (aka third party sellers) on Amazon.com for handling their sales (even in instances where it is not handling fulfillment), while also competing against them. That is where the anticompetitive concerns arise.

If Amazon just sold stuff through the Amazon.com seller, and didn't have third-party sellers, (or if it operated a separate website for third party sellers) that would be fine.

[Nasrudith]

Don't most large brick and mortar retailers maintain refund for unsold goods agreements in addition to defects? Generally only exercised if they are complete failures.

Effectively the difference in practice is a matter of financing and grain of operation - older retail would gain more and give no extra to upfront sales of say toliet paper after a demand spike raised prices while Amazon would give them a per sale percentage cut.

At what point does own involvement in consignment sales models become not fine? If it works at 1% consignment. Is it 25%? 50%? 75%? 90%? Or more likely it doesn't exist because the whole concept is a fabrication that pays no attention to real law and operates in the court of public opinion to push their bullshit which wouldn't even need a defendant motion before winding up dismissed by a judge because they cannot point to any real laws?

[gamblor956]

I don't know why HN is so focused on consignment sales. They are a tiny portion of the retail market, because no store (even Walmart) has the leverage to force consignment terms on their suppliers except for the tiny portion consisting of new products that distributors are trying to get stores to start selling.

Also, Amazon does not give a per sale cut of the percentage, nor would they, since that's not how consignment works. Consignment goods are still sold at retail price; the only difference is that the supplier only gets paid for goods that sold. They don't get to share in the (additional) profits if the retailer (aka "Amazon.com")charges more due to spiking prices.

[judge2020]

But Costco does sell Vodka and wouldn't have made that product if Vodka sold 10% of what it actually sells. Because Amazon sells literally everything, is it a crime to do what Costco does, just on a bigger scale?

The only end-goal that would actually solve the problem fairly is if companies couldn't sell first-party products (or products from a partner where they have a vested interest in) in their store. If you just take care of the one company, you end up with other companies doing the same thing in 20 years like how iOS still has a default music player when MS got burnt for that with having a default browser.

[fredophile]

I feel like people in this thread are being deliberately obtuse. The issue isn't about selling vodka. It isn't about selling store brand alternatives to brand name products. The issue is where Amazon is getting their data from when decided what products to sell and what store brand products to make.

When Costco decides to make a store brand alternative they are using sales data for things they have sold in their store. Amazon is using data for things other people have sold. Amazon is not doing what Costco does.

[cycomanic]

This is not about making a home brand. Amazon can literally look at the sells data of e.g. some seller which sells Nike Air Jordans (as a stupid example) and go and source those themselves and offer them (the exact same brand) cheaper than the seller, because they have all the sales data. Now how would Cosco do this?

[judge2020]

Costco also looks at sales data for competing products (within Costco) and chooses to make house brands of those products.

It's not like Amazon sees sales data from someone's shopify site if people choose to sell on both brand.com and amazon.com.

[raisedbyninjas]

When Costco sells Kirkland brand vodka and Grey Goose, all bottles of Grey Goose are sold the same way. Costco purchases directly or from a distributor. Grey Goose may or may not pay for shelf space, IDK. Purchasing premium shelf space is a common practice for other retailers and grocers. When Grey Goose is sold on Amazon, either Amazon buys it and re-sells it or Grey Goose sells it through a marketplace account incurring Amazon's marketplace fees. So Amazon can always have two listings for one product, a marketplace listing and an Amazon listing. Their Amazon listing can always be cheaper.

[mattmcknight]

They don't have two listings though. They list the prices of all sellers in one item, with the lowest price as the default.