Amazon Sues Counterfeit Sellers, Prioritizing Quality Over Short-Term Growth

This article originally appeared on Real Money on Nov. 15, 2016.

If Amazon (AMZN) is known for anything in the business world, it's for prioritizing growth above everything else. The company's often-aggressive pricing, manic build-out of new warehouses and data centers, big content investments and the steady launching of new perks for Prime subscribers all fit with this theme.

But this week, Jeff Bezos' company made a move that could ding near-term sales -- even if few consumers or pundits are likely to object much to it.

Following a slew of reports highlighting the growing availability of counterfeit goods from third-party Amazon sellers, Amazon has filed its first lawsuits against sellers alleged to have trafficked in fake merchandise. They're aimed at knockoff fitness and lifting equipment products carrying the TRX and Forearm Forklift brand names. TRX brand owner Fitness Anywhere joined Amazon as a plaintiff in one of the suits.

Amazon had already begun requiring more fees and paperwork from sellers looking to sell goods from major brands such as Nike (NKE) and Hasbro (HAS) , and claims it spends tens of millions annually to combat fake-goods sales.

But that wasn't enough for some brands: Shoe vendor Birkenstock announced in July it's pulling its products from Amazon due to the presence of counterfeits, and some merchants have sued the e-commerce giant in the past for its role in allegedly enabling counterfeit sales.

But suing alleged fake-goods sellers represents a clear escalation of Amazon's efforts.

It's a move that Alibaba (BABA) doesn't appear to have made. Though the Chinese e-commerce giant says it has spent hundreds of millions trying to keep fake goods off its marketplaces, they're still not all that hard to find. Luxury brand owner Kering once sued Alibaba over the matter.

Amazon's anti-counterfeiting efforts are bound to be well-received by major brands, but could have an impact on a third-party marketplace business that now accounts for roughly half of its paid unit sales, and whose growth was a big reason the company's North American and international segment sales rose 26% and 28% respectively, in the third quarter, compared to the year-ago period.

And Amazon has profited not only from its cut on marketplace sales, but from the reliance of many sellers on the company's high-margin fulfillment services.

Moreover, with many of the targeted knockoffs provided by Chinese sellers, Amazon's efforts could slow down the company's recent push to take share from eBay (EBAY) and Alibaba among Chinese merchants looking to reach U.S. consumers.

In July, Amazon slashed the shipping fees it charges merchants for small items that can fit in large envelopes -- many U.S. and Chinese merchants rely on eBay to sell such items. A couple months later, Amazon promised such items will be delivered to Prime subs within just five days, down from eight. And the company's Chinese subsidiary has obtained a U.S. ocean freight license that could let it more quickly and cheaply ship goods across the Pacific.

It looks as if Amazon has prioritized quality control and maintaining good relationships with brands over taking share from eBay and Alibaba at all costs. It's hard to argue with the company's thinking, but it's worth remembering that there is a short-term cost involved.

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