Amazon Sellers Need to Stop Dropshipping and Arbitrage. Here’s Why.

This post is by Chris McCabe, owner and founder of ecommerceChris, LLC, an Amazon seller account consultancy.

Dropshippers and arbitrage sellers on Amazon can’t catch a break.

Things have changed in the last several months to make life even tougher for resellers trying to maintain a successful account. The number of sellers contacting me after they have been suspended due to a lack of adequate supply chain information has been multiplying every week.

We have tracked so many cases like this throughout 2019, that we now wonder why sellers continue to use these sourcing methods at all. Sellers like these, with weak supplier info or who lack invoices, need to modify their business models, and fast.

Why does Amazon ask sellers for invoices and other sourcing information?

We’ve known for a long time now that Notice of Claimed Infringement teams have the job of protecting Amazon from legal liability, due to IP or counterfeit claims.

How do they do it? By demanding sourcing information from sellers, early and often. Buyer complaints of inauthenticity, however, aren’t the biggest trigger for these requests anymore. You should worry more about two other parties in the ecosystem: Amazon itself, and the brands that pester them to remove your listings.

Anyone who doesn’t have an invoice for items they have listed on the site now faces requests for very specific supplier information, and Amazon will quickly deny reinstatement if they don’t get it. Why the change? Amazon needs reassurance that you won’t cause future infringement claims that drag them into the fray. They’re also creating programs like Project Zero to avoid being caught in the middle.

Why is Amazon suspending people BEFORE there’s a sale?

It’s extremely common now for Amazon to suspend sellers for potentially inauthentic items before they sell the products at all. Grief-stricken posts appear on seller forums and Facebook groups concerning the lack of fairness around these preemptive suspensions.

Unfortunately, fairness doesn’t really come into it. Experts, myself included, tend to agree that Amazon shoots first, and asks questions later. They’d rather suspend the account straight away, and then look at your plans to spare them from the counterfeit claims and worsening liability that might come later.

This isn’t going away anytime soon. You will continue to be asked by Amazon for invoices, proof of authenticity, and letters of authorization or other details. This is very difficult, if not impossible, for sellers who source products by dropshipping, retail arbitrage or online arbitrage.

If Amazon demands that sourcing occurs a certain way to satisfy their need to protect IP rights ownership AND to reduce counterfeit claims, then how can you continue to rely upon a model they reject? You cannot, and need to change it.

Is it OK to buy from other Amazon sellers?

Sellers who buy from other Amazon sellers, and expect to show their order history as proof of authenticity, run into trouble often.

Surely you can show them orders from an Amazon seller, since Amazon vets their own resellers, right? Not really. Showing that you bought it on Amazon vs. eBay or Alibaba won’t make much difference. Amazon won’t assume the responsibility of “clearing” their sellers to supply you. You need to vet them just as you would any other supplier.

Do brands have to make a test buy before filing a claim?

In theory, Amazon must require a test buy before taking action, as that is etched into policy enforcement SOPs. In practice, if you contact Notice-Dispute teams and tell them over and over that the brand never bought the items from you, and therefore cannot prove the items are fake, you’ll get ignored.

Notice teams are a big part of Amazon’s ever-expanding communications black hole. They continually send the same messages that say the same thing each time, asking you to contact the brand to retract their claim.

Unless you enjoy getting stuck in that endless cycle of repetition, make sure you don’t list or sell products from brands that have “weaponized” these processes. No seller should be accused of selling fake products without evidence, but you also can’t expect Amazon to have your back when accusations like this fly.

Why does this affect dropshippers and arbitrage sellers more than others?

Over the past couple of years, much ink has been spilled covering the end of retail arbitrage, online arbitrage and dropshipping as effective models for sourcing products to sell on Amazon. These type of sellers report ASIN and account suspensions more often than sellers with conventional product supply chains, and the documentation that comes along with it.

For arbitrage sellers, the main problem is not the lack of a business invoice, as Amazon’s Product Quality and Notice teams still accept retail receipts as proof of authenticity. It’s that they have no contact with the brand or an approved distributor, so there is no way for them to produce an authenticity letter on their supplier’s letterhead, signed by a sales manager or an owner.

Dropshippers have even less to show. At least arbitrage sellers have a receipt, but dropshippers have no invoices or other verifiable supplier details on hand when they list their products. Amazon wants to see where you bought the items before you sell anything. This is pretty incompatible with the dropshipping model, which is all about buying from your supplier only after you have received an order from your customer.

Although dropshipping alone does not contravene current Amazon policy, their anti-counterfeit policy doesn’t account for items you haven’t already bought at the time of listing. You’ll need to find a good way to explain why you don’t have acceptable documents for items you are offering for sale, and “I’m a dropshipper” isn’t going to cut it.

Is dropshipping and arbitrage allowed on Amazon or not?

Amazon isn’t planning to post a banner in Seller Central that states “Dropshipping and arbitrage are dead. These are no longer valid sourcing models.” Policy team enforcement against these types of sellers shows up in much more subtle forms. 

Most often, they will ask for “proof of authenticity” in the shape of invoices and authorization letters to put through their verification process. If you can’t meet their standard for “proof” of authentic and legitimately sourced products, they’ll take your ASINs away and say you haven’t provided documentation that they could verify.

If you’re a new seller, and if the invoices they want don’t exist, then you haven’t proven you can sell ANY branded listings. So many new accounts get suspended, because they don’t have acceptable supply chain documents AND an acceptable plan of action (POA) setting out how the seller will maintain sourcing standards now and in the future.

As long as you lack a well-thought out strategy to provide sourcing documentation that meets Amazon’s requirements, your seller account is defenseless against enforcement actions like ASIN and account suspension.

So what CAN you do to protect your Amazon seller account?

1. Don’t rely on what worked in the past

We often hear from Amazon sellers, “We’ve always done it this way, and there’s never been a problem before.”

But what worked in the past has no bearing on current enforcement. Amazon really does not care how long you’ve sourced in a particular way. What matters is if the brands you sell, or even new ones you start offering, suddenly begin submitting infringement claims against you.

Once brands submit a claim, they compel Amazon to act. Amazon won’t begin by asking, “Have you always sourced the same branded items from the same supplier, with no problems before?” The past is the past. Your account suspension lives in the now.

Like any other business, Amazon decides what works today, and does not commit to keeping things the same just for the sake of consistency. What worked fine two or three years ago may clash with how policy and product quality enforcement teams operate these days. Sellers must evolve or they will get left behind.

Think about the future a lot, because Amazon sure does. One of their common messages has an even split between past and future information requested:

Please reply to this email with a plan that explains

— The issues that caused the complaints.

— The actions you have taken to resolve the issues and prevent similar complaints.

— Future inventory details.

— Future Supplier details and sample invoices for these items you wish to sell.

They need to know that your account won’t present problems in the future. They don’t want investigators sending warnings to you daily, weekly, monthly.

So, you can only sell what you have acceptable sourcing documentation for, and you won’t be able to sell brands who are doing their utmost to drive you off the site. Make sure you have the ability to get invoices from the future.

2. Don’t listen to anyone who tells you to “make an invoice”

There are consultants, advisors and black hat sellers out there who say the best thing to do is to create your own invoices, if you don’t have the right documentation that Amazon requested.

I’ve lost count of how many dropshipping sellers have told me they hired a company to fake invoices for them, because they didn’t have real invoices to show to Amazon.

Any company that offers to do this for you doesn’t know the law, or doesn’t care, and involves you in an effort to commit fraud. The fact that these black hat types exist and that they profit from otherwise well-meaning sellers is a crime in itself. Please, don’t give them your money.

I understand that sellers get desperate for anything that works, but this particular scheme fails a lot of the time. You get a message from Amazon saying that you are banned for falsifying supplier info, altering invoices, or fabricating documents. You’ll stay banned forever and may never be able to retrieve your funds. Lately, they tend to keep that cash unless you can pry it out of their hands.

3. Actively pursue new sourcing avenues, especially if you dropship

If you dropship or use any other sourcing system that provides no documentation until after a sale is made, then now is the time to act.

Don’t just think about it. Many sellers told me months or even years ago that they planned to change their sourcing methods, but most are still doing the same thing now. Some of the suspended dropshippers I hear from resist any change to their model, even if it would help get their account back.

So, if your sourcing model is 100% dropshipping, continuing along that path means you could get flagged anytime for an ASIN review, and asked for verifiable invoices. If you lack the documents that they ask for, then you can expect your account to get suspended, eventually.

Do you want to keep risking that each day that you sell? It’s not a long-term business plan that I recommend.

4. Don’t waste time pointing to other sellers doing the same thing, or debating the first-sale doctrine

It’s never difficult to find listings on Amazon that show policy violations or bad practices that would not survive a report to Catalog teams. Amazon has never had tools that can flag every violation as soon as it happens. In theory, every seller should be treated the same way for the same practices, yet they never will be. The scale of the Amazon marketplace makes that impossible.

Instead, enforcement is haphazard, inconsistent, and difficult to predict. The only way to maintain a solid business is to stay away from any chance that a request for your supplier documentation will lead to a suspension.

If Amazon asks for more proof that you have the right to sell a particular brand, and you don’t have it, don’t play games arguing the first-sale doctrine. Amazon doesn’t care, and you’re not going to be arguing it in court anytime soon unless you have loads of spare cash to burn.

5. Don’t wait for Amazon to announce their policy publicly

If you wait for Amazon to spell out their policy enforcement changes in an open forum, you’ll be waiting for a long time. They write rules using generic language and vague guidance for a reason: the rules have to be followed their way, based on their interpretation, and not endlessly scrutinized word-for-word by sellers.

The only way to protect your account is to have acceptable invoices and supply chain documentation on hand for all the products you have listed on Amazon. Anything short of that is just gambling with your selling privileges.

The time has come for Amazon sellers to move away from arbitrage and dropshipping. Notice teams would not suspend as many accounts as they do on a daily, or even hourly, basis if this were not a sign of Amazon’s intentions for resellers. The writing has been on the wall for some time, even if Amazon says they investigate sellers on a case-by-case basis.

This post was by Chris McCabe, owner and founder of ecommerceChris, LLC, an Amazon seller account consultancy. Chris was formerly an Investigation Specialist for Amazon’s Seller Performance team.