Amazon's pursuit of boundless selection has led it to become a massive marketplace with millions of sellers. But has this business strategy put customers at risk? WSJ investigates how unsafe products, including children's products and toys, have become available for purchase.
Photo: John P. Campbell for The Wall Street Journal
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(curious music) - First off, Magformers are fun. It's magnetic construction. I'm the CEO fro Magformers. We're a toy company. On December 27th, we had a lot of work to do in closing out our year. A lot of happiness early in the morning. Some of our toys received awards and excitement of seeing 2018 come to an end. It was mid-morning when all of a sudden we had two of our employees race from different directions in the office. They both were bringing the same communication, and that is that a child had swallowed Magformers. - Jennifer White thought this small piece of plastic was a unique Christmas gift. Instead, the magnets inside of it left hols throughout her son's stomach. - They were doing what magnets do, and try to get to each other through his intestines, and it created holes in the lining. - [Narrator] The toy that caused the injury was purchased on Amazon. The Wall Street Journal set out to investigate how many unsafe products like this are on Amazon's massive Marketplace. The toy gifted to the White family wasn't actually Magformers; rather, it was one of the many similar-looking products for sale on Amazon by a third party. - 300,000 social media hits later, the father of the child identified the product, called IMDEN. It was taken off Amazon's site. It should've been. Unsafe. (curious music) - [Narrator] When Amazon CEO Jeff Bezos started the company, he decided to sell books for a simple reason. There are a lot of books. - Books were great, because books are incredibly unusual in one respect, and that is that there are more items in the book category than there are items in any other category by far. - [Narrator] As Amazon has grown, Bezos and other top Amazon executives have emphasized selection as a key aspect of Amazon's business philosophy. - If you can focus obsessively enough on customer experience: selection. We keep pursuing that notion of Earth's biggest selection. It's selection. The three big ideas are low prices, fast delivery, and vast selection. - [Narrator] Search "magnetic toy" on Amazon and you're presented with an avalanche of choices: colors, shapes, number of pieces, price. In 2001, Jeff Bezos came up with his theory of the virtuous cycle. According to Amazon executives, Bezos originally sketched it on a napkin, and it has since become an important part of Amazon's story. - So our virtuous cycle starts with a terrific customer experience. - [Narrator] It uses the concept of a flywheel, a heavy wheel that's hard to turn initially but generates its own momentum and becomes self-reinforcing once it gets going. In Amazon's case it goes like this: greater selection and lower prices lead to greater customer satisfaction, which leads to more site visits, which makes it more attractive for third-party sellers, which increases selection and simultaneously leads to lower overhead for Amazon, which lowers prices, and round and round it goes. This theory was one of the reasons why Amazon built its Marketplace, which has grown to include millions of third-party sellers. In the view of its executives, more sellers means more selection driving their virtuous cycle. - They bring selection that is really hard for us to get ourselves, and that adds to the customer experience. - What's probably the most surprising to most consumers is the fact that most products sold on Amazon are not sold by Amazon itself. What best describes Amazon is it's a company of systems. Most of the large businesses we build not only have flywheels, but they also have systems, which means they can be scaled, usually without any limit. - [Narrator] An Amazon spokeswoman said the company's goals of unbeatable price, selection, and convenience don't come at the expense of customer safety. Since Jeff Bezos made his napkin drawing, third-party sales have grown from 6% of sales on Amazon to nearly 60%. And as this Marketplace has exploded in size, so too has the need to balance selection and product safety. The Wall Street Journal conducted a search of Amazon's site for items declared unsafe by government agencies or that are deceptively labeled, products that big-box retailers won't sell. The journal's investigation found about 4,100 such products for sale on Amazon, and an additional 6,700 balloons that lacked federally-mandated warning labels. 83% of the listings were updates or removed after the journal sent Amazon the products it identified. The Food and Drug Administration warns this sort of sleeping mat can suffocate infants. Amazon bans them from their Marketplace, but the journal found 80 for sale on the site anyway. Amazon removed all of the infant sleep positioners the journal identified. - The challenge for Amazon is that what built the Amazon Marketplace, it being so open and so welcoming to new sellers, it has also meant that, today, Amazon is really having a hard time enforcing many of its own rules, because it just physically cannot allocate enough human power to police many of these rules. - [Narrator] Within two weeks of Amazon's removing or altering problematic listings, 130 items with the same policy violations reappeared, some sold by the same vendors. An Amazon spokeswoman said it removed these items and refined its tools for catching them. She added that the company's tools prevent most non-compliant listings from ever appearing on the site. And when sellers manage to evade its systems, Amazon acts quickly to remove items and penalize the offending seller. Additionally, she said the company provides resources to sellers about proper labeling and other compliance obligations. (intriguing music) - The Marketplace was very clearly set up to be an independent entity where people could use the technology that Amazon had built but not necessarily be part of Amazon. My name is Rachel Johnson Grier, and I've been working in this consultant business that I started four years ago. We help sellers on Amazon Marketplace. I worked at Amazon for about eight years, and my first role in compliance was handling all of recalls and product safety for North America. I got very familiar with how Amazon enforced on sellers, how they communicated with sellers. We can say that we're not going to interfere in the Marketplace, but as soon as customers are upset or someone could get hurt, now we have a problem. - [Narrator] In 2011, the Consumer Product Safety Commission, or CPSC, issued recalls for many drop-side cribs as the news media and public grew increasingly concerned about their safety. - [Reporter] The largest baby crib recall in history involves more than two million drop-side cribs. - The CPSC was trying to redesign their crib regulations, and all cribs had to meet the new regulation, I believe it was by June 2011. Working with recalls, normally what we would do is we would remove everything from Amazon. I was like, "Then let's remove all the cribs, "and then anything that comes back "is guaranteed to be compliant." I was told that they didn't want to take things down, because it would limit selection. That's what they're incentivized to do: more selection, more sales. As a compliance person, you're incentivized to either meet the law or protect customers, and those two did not go together. At the time, I was about six months pregnant, and what I argued to them was that no mother, no mother ever wants selection that's going to hurt her child, ever. And I lost the argument. And that has ... That has been painful ever since. - [Narrator] An Amazon spokeswoman said the company executes recalls as soon as it is aware of them, and requires sellers to meet any new requirements the CPSC introduces. (intriguing string music) What does it take to ensure a safe children's product? The Wall Street Journal ordered a selection of children's toys that are popular on Amazon and sent them to a federally-certified lab for testing. They were subjected to drop tests, torque tests, chemical tests, and more. Of the 10 toys the journal sent for testing, four failed. One of those was this xylophone from the AILUKI toddler musical instruments set, which was found to contain four times the federal limit of lead for children. The company disputed the results and sent a test report from a different laboratory showing a passing result. The journal spoke to safety and compliance experts who said this discrepancy should trigger a halt to sales and more testing. And Amazon removed these items from their marketplace. Government officials are also turning their attentions to the dangers posed by some products sold on Amazon. - So we're here to announce today that Amazon will commit to legally-binding, nationwide corporate reforms after my office found dozens of children's school supplies and jewelry sold on its Marketplace had illegal levels of toxic metals. We just had some suspicions that there were products out there for sale that had not adequately tested and were not compliant with the law and not safe for children. We tested about a hundred Amazon products. More than half had illegal amounts of lead and cadmium. That's not a great track record to start with. Kids with their toys, with their school supplies, if they're anything like my kids when they were young, they're chewing on those things, they're sleeping with them, they are in close proximity, often for many hours a day. Across the country, consumers made more than 15,000 purchases of these products. So it led to a settlement. Amazon in this case has to see the state, make consumers hold for what they pay for, and most importantly change the corporate practices and detail what that looks like. - [Narrator] An Amazon spokeswoman said the company welcomes ongoing collaboration with the Attorney General to promote customer safety. - The only real way to know, as Amazon, that the products that are being sold on the website are compliant is to pull it from the fulfillment center, send it to a lab themselves, and get it tested. Because otherwise, paperwork is paperwork. You could just make up whatever you want. - [Narrator] Not only are there a lot of unsafe products on Amazon; many of them sold by third parties imitate safe, popular items. - Amazon Marketplace means anyone can sell anything, which also means, if you're a bad actor trying to sell an unsafe product, a counterfeit product, a wrongly-named product ... you can. - [Narrator] A lot of the work rooting out bad sellers on Amazon's Marketplace is done not by Amazon but by other sellers. - Our binder against counterfeit has been going on since 2012. I mean, how many times have some of these changed from one name to another on Amazon? - Oh, they tend to change very quickly, or they're sold under various names. - [Chris Tidwell] Which one is ours? - These two are ours. These two are counterfeit. There's almost no real distinction between the packaging. So when mom and dad get it home, they won't know that something's amiss. And that's our biggest concern. We are showing you how ... easy it is to break one of the knockoffs. (snapping) And these magnets are not something you want laying around your house if you have small children or pets. - [Narrator] An Amazon spokeswoman said the company investigates claims and takes action against bad actors. She said Amazon also gives sellers tools to remove unsafe selection and counterfeit items. She added that, in the case of IMDEN magnetic toy blocks, Amazon removed the item as soon as it became aware of the safety incident. The manufacturer of IMDEN magnetic building blocks declined to comment. Amazon has gotten so big and does so many things that many ask, what is Amazon? Bezos himself has been asked this question. - What is Amazon? I would say really it's a collection of principles, and it's an approach that we deploy. - [Narrator] But if these principles conflict with safety, will they have to change? - The things that they claim to be possible are just ultimately unprofitable. You could argue that many of these issues can and will be solved by Amazon, but they will probably require fundamentally changing the building blocks. - I believe Amazon has the ability to do anything they want. They're the strongest and most powerful retailer at this point in the world. - I in fact don't buy from third-party sellers for my son, because I know that there's a risk there. I typically will buy from well-known brands, and I will bay the extra, because I know what I'm paying for. A lot of consumers don't, or they don't have the resources to make that choice. - I'm under no illusion that somehow our agreement with Amazon is solving the problem by any stretch of the imagination. But do want to communicate to Amazon, "Hey, we're watching"? Yes. You don't get a pass because you're really big and it's really complicated. (soft electronic music)