In Seattle e-commerce conflict, former retailer Zulily is suing rival Amazon – The Seattle Times

Zulily, the Seattle-based online retailer that recently announced it was going out of business, has sued its former rival Amazon – blaming Amazon’s policies that pushed retailers away from the competition.

In a lawsuit filed Monday in Seattle, Zulily accused the e-commerce giant of engaging in the same anticompetitive business practices that were at the heart of the Federal Trade Commission’s antitrust lawsuit against Amazon earlier this year.

In this case, the FTC accuses Amazon of preventing rival retailers from gaining a foothold in the industry through several tactics, including penalizing third-party sellers who sold their goods at lower prices on platforms other than Amazon disputes these claims and claims that it uses the same tools to advertise low prices on its website as other retailers.

Initially focused on children’s clothing, Zulily evolved into an online platform that markets vendors’ products through thousands of flash sales each year. The company announced Friday that it would lay off hundreds of employees and close its headquarters in Seattle.

In its complaint, Zulily said Amazon penalized sellers who used both platforms, causing those merchants to increase their prices on Zulily’s site, remove some products from Zulily, or stop selling on Zulily altogether. In some cases, sellers never contacted Zulily, the company claimed.

According to the complaint, Zulily lost half of its sellers selling on both Amazon and Zulily within a year.

Amazon denied Zulily’s allegations on Tuesday after making similar claims in a motion to dismiss the FTC lawsuit on Friday.

In court filings, Amazon argued the agency relied on “vague claims” and targeted business practices that benefit customers. It is “common sense” to believe that Amazon has “marginalized” other heavyweight competitors — like Walmart and Target in retail and UPS and FedEx in shipping — Amazon wrote in its filing.

“Amazon competes with thousands of online and brick-and-mortar retailers every day and every minute,” Amazon’s lawyers said in court. “To withstand this competition, Amazon has relentlessly innovated, bringing unprecedented benefits to consumers and pushing competitors to do the same, making every penny of a consumer’s purchase count.”

But just months after Amazon began focusing on the emerging startup four years ago, Zulily has had to change its business strategy, Zulily claimed. It abandoned its “best price promise” and a price comparison tool that it hoped would offer discounts to consumers. This led to a decrease in revenue and consumer traffic on the site.

Once considered a success story — one of the rare startups to surpass the $1 billion valuation threshold — Zulily announced Saturday that it was going out of business. It was “one of Amazon’s victims,” the company’s lawyers wrote in the lawsuit, and “the conspiracy against.” [it] was part of Amazon’s overall plan.”

Price wars

Starting in 2019, Amazon began viewing Zulily as a potential competitor, the complaint says. The e-commerce giant used an algorithm to constantly scan Zulily’s website, looking for lower prices from the same sellers featured on Amazon’s digital store.

If it found a lower price, Zulily claimed, Amazon would penalize these sellers on its own platform by placing their listing lower on the results page or hiding the crucial “Buy Box” that allows buyers to make an immediate purchase. According to FTC and Zulily lawsuits, the “Buy Box” accounts for up to 98% of sales on Amazon. Losing access can be a significant disadvantage for independent sellers.

Zulily said that sellers have asked to increase prices on its platform or remove certain products to comply with Amazon’s policies. Some have stopped selling on Zulily altogether. In one case, Zulily said it worked with a seller to hide its lower price from Amazon’s algorithm – but the e-commerce giant later caught on to it.

In its complaint, Zulily cited five sellers who requested changes to their product listings to appease Amazon. A seller told Zulily that he could no longer afford to lose the Buy Box on Amazon. Another reported that Amazon “told us this indirectly.” [you are] The topic.”

“As much as I don’t like and dislike Amazon [you]“The fact is we sell more on Amazon,” this seller wrote.

Because Zulily also wanted to brag about the lowest prices on the Internet, the two companies were caught in a “continuous price spiral,” the lawsuit says. Once Amazon’s algorithm detected a lower price on Zulily, it adjusted that price on its own platform. Zulily would then pick up on the change and lower the price.

Zulily said these “real-time price wars” would result in both companies lowering their prices multiple times a day.

Eventually, the spirals led Zulily to “remove products from its online store,” the complaint says. “Zulily experienced rapid growth and growing market share for several years before landing on Amazon’s radar. At that time, Amazon’s anti-competitive behavior resulted in a sharp decline in Zulily’s sales.”

Two variants of “customer trust”

Both Zulily and the FTC accuse Amazon of raising prices across digital retail by requiring sellers to agree to contracts that prevent them from offering lower prices outside of Amazon.

The company has changed that contract language in recent years, but the complaint still requires sellers to adhere to the same standards.

According to the complaint, Amazon did not tell sellers when it eliminated a specific price parity clause in its contract in 2019.

Now, sellers must agree to a “fair pricing policy,” which allows Amazon to remove the merchant’s Buy Box, shipping option, or selling privileges entirely if Amazon sees a price on another platform that “damages customer trust “, says the complaint.

A price below Amazon’s could damage that trust, Zulily claimed.

Amazon’s responses to the FTC’s antitrust allegations repeatedly mentioned maintaining customer trust. Reserving the Buy Box only for the lowest price offer is one way to ensure Amazon doesn’t lose customer trust, the company wrote in its motion to dismiss the FTC’s lawsuit.

“Just like any store owner who doesn’t want to promote a bad deal to their customers, we don’t highlight or promote deals that aren’t priced competitively,” David Zapolsky, senior vice president of public policy at Amazon, wrote in a blog post.

On Tuesday, Amazon spokesman Tim Doyle said the company was “proud of the significant investments we are making to provide entrepreneurs with tools and resources to establish and build their brands, connect with more customers and jobs.” can create in their communities.”

Meanwhile, Amazon has introduced another new policy to hold sellers to price parity in 2022, Zulily claimed. The account health assessment policy would show whether a merchant is at risk of deactivation due to non-compliance, including offering a lower price on Amazon.

Amazon used a different punitive tactic for wholesalers, the complaint says. In some cases, sellers have had to pay Amazon when the online superstore lost revenue by lowering the price of the seller’s product to match lower prices on competing websites.

These “true-up” payments did not cause retailers to reduce their prices across the board, Zulily’s complaint said, but instead created a disincentive to offer lower prices anywhere.

“Amazon is the world’s largest online marketplace,” Zulily’s lawyers wrote in Monday’s lawsuit. “But it achieved that distinction and maintains it through anticompetitive behavior that crushes its competitors and drives up prices for consumers everywhere.”

The “true price”

In its dispute with Amazon, Zulily is also facing legal issues of its own, including allegations from sellers that the company failed to pay invoices or failed to respond to sellers who asked for more information.

Founded in 2010 by two former executives of online jewelry retailer Blue Nile, Zulily wowed the tech world with a multibillion-dollar IPO in 2013. The following year, the company had annual revenue of about $1 billion and a market valuation of about $7 billion. Dollar.

But the early growth could not be sustained and there were repeated job cuts, a headquarters move and a change in ownership. In May, Los Angeles-based private equity firm Regent bought Zulily for an undisclosed amount. Last week, more than 800 employees were laid off, including 292 in the Seattle area.

David Tawil, an attorney who has followed retail emergencies, said Monday’s lawsuit casts the sale and closure of Zulily in a new light.

Regent’s decision to close after just seven months and before the holiday season, when many retailers rely on a sales boost, does not reflect a “good faith effort” to get the business back on track, Tawil said.

“Ultimately, the litigation is the real price,” he said.

There will be no resolution in either dispute in the foreseeable future, Tawil continued, but the legal action raises further questions.

“If Amazon did this to Zulily, they certainly did not implement this course of action with respect to any single company,” he said. “If this strategy worked, they would use this playbook again and again.”