Amazon struggles to police safety of products sold by third parties on its site, WSJ investigation finds

Thousands of items for sale on Amazon “have been declared unsafe by federal agencies, are deceptively labeled or are banned by federal regulators,” according to a Wall Street Journal investigation published Friday.

The report, documenting potentially unsafe products ranging from medications to toys to motorcycle helmets that are sold on the e-commerce site by third-party sellers, is one of the most comprehensive looks yet at a downside to a fundamental but not well understood part of Amazon’s retail business: The majority of the physical products sold on its massive website now come not from Amazon itself but from third-party sellers — ranging from giant consumer brands to individuals reselling merchandise out of their garages to anonymous Chinese manufacturers.

The Journal’s investigation found that Amazon “exercises limited oversight over items listed by millions of third-party sellers,” and documented 4,152 individual products deemed dangerous, deceptively labeled or banned. The company pushed back with a blog post Friday describing its efforts to improve product safety and compliance — on which it says it spent $400 million last year — and calling safety  “a top priority at Amazon.”

The company’s statement did not dispute the main findings of the newspaper’s investigation and the company mostly declined to comment on the specific incidents and products in the report, including an investigation by  Washington state’s Attorney General that found children’s school supplies and jewelry with illegal levels of lead and cadmium for sale on the site.

The third-party seller business, which dates back to 1999 and which Jeff Bezos touted in his annual letter to shareholders in April, is an increasingly lucrative and fast-growing part of Amazon’s retail empire, allowing it to offer vast selection and generate a second return on its investments in an unrivaled e-commerce delivery infrastructure. The company said on Thursday it will spend some $15 billion this year on a broad range of programs, tools and services to help small businesses sell on its site.

But when confronted with product liability lawsuits stemming from these third-party sales, Amazon’s strategy has been to distance itself and disclaim responsibility. In court, Amazon argues it isn’t actually the seller and therefore is not liable under state product liability statutes. It claims protection under Section 230 of the Communications Decency Act of 1996 from liability for what third parties post on its site, the Journal reported.

An attorney for Amazon, commenting on a case in which a man died in a crash wearing a recalled motorcycle helmet that had been purchased from a third-party seller on its site, said, according to the Journal investigation: “Basically, a third party was using Amazon as a bulletin board to advertise the product and sell.”

In 2018, Amazon collected $42.7 billion from a combination of commissions, fulfillment and shipping fees and payment for other services that third party sellers pay Amazon to reach customers.

Retail rivals Walmart and Target are building their own third-party marketplaces. They are smaller than Amazon’s by orders of magnitude and have stricter barriers for merchants wishing to sell on their platforms, the Journal reported.

In Amazon’s response to the Journal investigation, it said it invested more than $400 million last year “to protect our store and our customers and built robust programs to ensure products offered are safe, compliant, and authentic.” That’s less than 1% of the third-party seller fees it was paid in 2018.

“We have developed, and continuously refine and improve, our tools that prevent suspicious, unsafe, or non-compliant products from being listed in our store,” the company noted. It described “proprietary machine learning technology” meant to stop bad actors from listing products; testing and compliance requirements; and “a dedicated global team of compliance specialists” who review safety documents provided by sellers. These and other efforts resulted in more than 3 billion “suspect listings” being blocked in 2018.

But many are still getting through.

In the course of the Journal’s investigation, which included independent testing of 10 toys in a federally certified lab, reporters identified more than 10,800 suspect products – the majority being balloons without federally required choking-hazard labels – and notified Amazon. The company took down or altered listings for 83% of the products reporters identified. But in many instances reporters continued to find products with the same violations listed on the site weeks later.

That was the experience of Washington state investigators, who notified Amazon in spring 2018 of children’s school supplies and jewelry they had purchased on its site with illegal and dangerous levels of lead and cadmium. The company told investigators it had removed the products.

“We immediately went back on the website and were able to find those products again,” Kelly Wood, a Washington state assistant attorney general, told The Seattle Times in May.

As a result of that investigation, Washington Attorney General Bob Ferguson reached a settlement with Amazon requiring it to obtain from third-party sellers of children’s products a certificate proving safety and compliance with federal and state consumer-protection statutes. The company paid Ferguson’s office $700,000 as part of the settlement but admitted no wrongdoing.

Consumer safety advocates said the investigation suggests Amazon’s vaunted “customer obsession” has some significant blind spots. For example, the Journal investigation noted Amazon’s failure to remove from its site listings for paint strippers with methylene chloride, despite its dangers, a forthcoming federal ban and the company’s own pledge to do so.

That failure “demonstrates the company is putting profits ahead of the health of its customers,” Laurie Valeriano, executive director of Toxic-Free Future, a Seattle nonprofit, said in a statement. “If other retailers can enforce restrictions on harmful chemicals, so can Amazon.”

Amazon in its Friday blog post described efforts to scan active listings and customer reviews to detect product concerns; channels for government, industry and consumer groups and customers to report unsafe products; notification practices meant to alert purchasers of unsafe products; and work with regulatory agencies and industry groups on new “solutions and guidelines.”

Meanwhile, its risk disclosures to investors are peppered with warnings about the very issues at the heart of the Journal’s investigation: One such disclosure in its Securities and Exchange Commission filings notes that the company “may be unable to prevent” third-party sales of “counterfeit, pirated, or stolen goods,” or goods that are sold in an “unlawful or unethical manner” or in violation of its own policies.

The disclosure notes that the law governing liability of these sales is unsettled, and that “to the extent any of this occurs, it could harm our business or damage our reputation and we could face civil or criminal liability for unlawful activities by our sellers.”