Amazon.com's Latest Challenges Come to Light: Counterfeit Goods and Angry Brand Owners

By Markets Fool.com

"Move fast and break things" is a motto associated withFacebook, but it could just as easily be applied toAmazon.com (NASDAQ: AMZN). The e-commerce leader relentlessly invents and pioneers new business lines so commonly that the company is no longer easily defined. It's an e-commerce vendor; a maker of gadgets like the Kindle and the Echo; a cloud computing service; and a streaming-video provider, among other things.

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Along the way, the company has run into its share of controversy. Amazon was widely criticized by brick-and-mortar competitors and government regulators for resisting the collection of state sales taxes until it was in the company's interest to do so. Last year, aNew York Timesarticle revealed Amazon to be a brutally competitive and unpleasant workplace for many of its employees. And the company has also been accused of being an abusive monopolist in book sales, to the extent of imposing excessive delays on shipments of Hachette books after a dispute with the publishing company.

Now, Amazon has sparked the ire of its suppliers once again: Many are complaining that a crop of Chinese sellers is offering counterfeit products on the site, undermining their brands.

These boots were made for walking

Highlighting the growing problem with counterfeits is Birkenstock's recent decision to pull its goods from Amazon's U.S. website as of the end of 2016 -- the sandal-maker is the highest profile company to make such a decision.

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In a memo to his retail partners, Birkenstock USA CEO David Kahan said, "The Amazon marketplace creates an environment where we experience unacceptable business practices which we believe jeopardize our brand.Policing this activity internally and in partnership with Amazon.com has proven impossible."

For example, Chinese vendors are selling Birkenstock's popular Arizona sandal for $79.99, $20 under its retail price. Kahan says that he presented Amazon with ideas about how to resolve the problem, but the company's response was to insist that the shoemaker sell its entire catalog to Amazon, allowing it take over the brand's e-commerce operations.

A retailer revolt

Birkenstock isn't the only seller being plagued by fakes. Many U.S. companies have been losing share to Chinese counterfeiters, and at a recent conference with 300 of the top Amazon marketplace sellers, vendors grilled Amazon SVP of Seller Services Sebastian Gunningham about the knockoff products.Fraudulent sellers often pay for fake customer reviews, game Amazon's logistics system, and sell from multiple accounts to ensure that they're listed at the top position.

Amazon maintains a strict policy against counterfeiters, saying, "Amazon does not allow the sale of counterfeit items on its Marketplace and occurrences of counterfeit products are very rare. Every customer who orders on Amazon is covered by our A-Z guarantee and if they do receive counterfeit goods from a marketplace seller, we will refund or replace that item."

However, sellers complain that Amazon is not proactive enough to keep counterfeiters off of its site, and counterfeiting does not appear to be a high-priority problem for the e-commerce leader. The issue has also intensified as Amazon has courted Chinese sellers. Sales from China-based sellers doubled last year, even as overall revenue at Amazon grew just 20%.

In addition to Birkenstock, other well-known retailers such as Canada Goose andMichael Korshave also been undermined by counterfeiters. For example, Michael Kors' signature tote bag, normally $198, is listed at $101 by multiple sellers.

The issue doesn't seem to have reached a tipping point yet -- Amazon barely acknowledges counterfeiting as a risk in its annual report, but it may represent an opportunity for its rivals. Amazon's third-party marketplace now represents about half of its sales, but its rush into the business and problems with counterfeit goods could give a competitor like Wal-Marta better way to advance its struggling e-commerce operation. Wal-Mart has made efforts to step up its marketplace recently by bringing in new sellers. As hundreds of Amazon vendors cry foul about counterfeiters, now may the be the perfect moment for Wal-Mart and other competitors to lure those partners and build an offering that can truly challenge Amazon.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool owns shares of Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.