Amazon and SMEs

– in Westminster Hall at 4:15 pm on 27th March 2019.

Alert me about debates like this

Photo of Kevin Brennan Kevin Brennan Shadow Minister (Digital, Culture, Media and Sport) (Arts and Heritage)

I beg to move,

That this House
has considered Amazon and the treatment of SMEs.

It is Kevin Brennan, actually, Mr Chope. I was once briefly knighted in the Mail Online by a journalist making exactly the same mistake, but I always consider myself more shovelry than chivalry.

I am grateful for the opportunity to speak in the debate today about Amazon. I will tell a story about my constituent, Roland Brana, who this year should have been celebrating 20 years of his successful and growing family business, selling motorcycle protective clothing. He spent 11 years as a sole trader, then eight years as a limited company, and in each year he achieved continued growth. It was a successful, viable business with quality products that were competitively priced and in demand.

In 1999 his business, Bikers Gear, began importing self-designed own brand motorcycle clothing from a factory in Pakistan and sold it online via his own website and on eBay. In 2001 he opened a high street shop in Barry, south Wales, and in 2002 he accepted an invitation from Amazon to become a merchant on its newly launched non-video and book UK marketplace. His business continued to flourish. In March 2010, Bikers Gear UK was incorporated as a limited company and in 2013 the brand launched across Europe via Amazon’s European platforms.

In 2013 Bikers Gear registered for VAT in both Germany and France, and in 2014 a German and French speaking customer service team was launched, based in Leipzig. In 2015 Mr Brana completed EU-wide registration of the Bikers Gear trademark logo. This should be the story of a lad from a council estate and a single-parent family who made good. Instead, it is the story of a small businessman who finds himself having to start all over again, having had to close his business, because of the way that his small company, Bikers Gear UK, was treated by the global conglomerate Amazon.

The real problems started when Amazon approached Mr Brana in May 2016 for a retail manufacturer partnership. He accepted that as an opportunity for the business to go to the next stage. He would concentrate on expanding the manufacturing of the product and Amazon would concentrate on selling. Amazon forecast great potential for growth. He was aware that one of his manufacturers in Pakistan had a family relative trading in Australia, who sold similar motorcycle garments, so in 2010 he created an image user agreement to protect his online images from any potential infringement by this Australian brand.

Following the agreement, during 2017 Mr Brana began to receive offers of orders for more than €1 million from Amazon. To begin with he could not accept many of the orders because of delivery windows and not holding enough stock in south Wales. The problem lay with his main supplier in Pakistan, which was refusing many large purchase orders. He took action to drop this supplier. Because of this and complaints from Amazon regarding poor order acceptance rates, Mr Brana travelled to Luxembourg twice in 2017 and met Amazon buyers. Mr Brana reassured them that he would increase the stock in the south Wales warehouse to improve the order acceptance rate for 2018. He explained to Amazon buyers that the low acceptance rate was due to the problem at one particular factory, and explained that, to resolve the supply issue in 2018, he planned to introduce another supplier. He informed them that he would personally be investing £75,000 to increase his holding stock as he was fully committed to the Bikers Gear UK business, and that he would do so by re-mortgaging his home.

In 2018, Mr Brana approached Barclays Bank, obtained the mortgage and, as promised, began increasing the stock in his south Wales warehouse. All should have been well but, at the same time, he noticed that the Amazon order had by now almost stopped. He started investigating and noticed that the Australian brand had started selling its brand on the Amazon UK platform. At that point, it appeared to be offering different garments from the Bikers Gear UK garments and not selling products with his barcode or European article number—now known as the international article number—that delineated the product on websites. With the exception of the new 2018 range, however, no orders were being received from Amazon by Bikers Gear UK. Even its best-selling garments were not being ordered.

Mr Brana presumed that Amazon holding stock would run out and he would be able to return to selling the garments successfully, as he did prior to the 2016 Amazon agreement. He started checking the website stock level, which is clearly visible when someone makes a purchase on the Amazon website. It would state things such as, “Four left in stock—more on the way.” He checked back days later, and the stock available had gone up on his product from four to 18. It was clear that, even though Amazon had not purchased any new stock, its inventory was going up, not down. Something was clearly wrong.

Photo of Alex Sobel Alex Sobel Labour/Co-operative, Leeds North West

The experience of my hon. Friend’s constituent is not uncommon. Many people who allowed Amazon to take the business end away found that Amazon started to sell on their behalf and their business was squeezed. In Germany, a company called Cancom said:

“To team up with Amazon is like to team up with the devil. We team up with Amazon but not in a transactional area.”

This is a common business practice of Amazon’s.

Photo of Kevin Brennan Kevin Brennan Shadow Minister (Digital, Culture, Media and Sport) (Arts and Heritage)

I can only say that I know my constituent would entirely endorse the view of that German company given his personal experience. As I outline the rest of the story of what happened, I think it will become clear why.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

I am aware that SMEs make some £2.3 billion in sales through Amazon, so there is potential for SMEs to do well. Is the hon. Gentleman advocating regulation through the Minister’s Department and through Government to ensure that both companies that use Amazon and Amazon itself can benefit from the sales? I think it is important to do so.

Photo of Kevin Brennan Kevin Brennan Shadow Minister (Digital, Culture, Media and Sport) (Arts and Heritage)

We all understand the importance of online sales to small and medium-sized enterprises, and the huge opportunity that this kind of tech platform has given small businesses. That is to be welcomed, but with that comes a responsibility on tech platforms wielding huge market power to treat small businesses fairly and in an ethical fashion, and I am afraid that that is not what has happened in this case or, as we have heard, in other cases.

As I described earlier, the stock on the website was going up, even though Amazon was not ordering any new stock from my constituent. Something was clearly wrong. He contacted his account manager, who refused to help other than by passing him a link on the Amazon website to report any infringement. He contacted intellectual property lawyers, who advised him to test purchase his own brand listings on the Amazon website. The test purchases, which were advertised as his brand, proved when they turned up to be the Australian brand.

Astonishingly, and in my view dishonestly, Amazon were using his Bikers Gear UK brand to pass off another different brand supplied by the Pakistani factory he had previously ceased trading with. The factory was using Bikers Gear UK garment patterns. He could not establish any line of contact, and by now his Amazon account manager was bouncing back his messages with the message, “mail box unable to receive your mail”.

In effect, Amazon had pilfered all Mr Brana’s data, his brand name, his product reviews, his barcodes and his customer base. He had lost 75% of work for the past eight months and he would have to liquidate the business before he fell into heavy debt. With September approaching and the bike season closing, he would be in danger of running up debts with good people with whom he had been trading for the past 18 years. As a result, Mr Brana lost his family business and his family lost their jobs in that business.

How could that happen? When Bikers Gear made a commercial decision to end the relationship with its main supplier in Pakistan and move production to a new, modern factory, those suppliers contacted Amazon’s buying team in Luxembourg, requesting to supply Biker Gear UK’s garments direct to them. Mr Brana has seen email evidence from Amazon showing that the Pakistani supplier had made contact with Amazon in Luxembourg. The content of that email was that their factory could supply the garments to Amazon directly. The factory had obtained important Amazon contact email addresses when Mr Brana had failed to remove Amazon’s email contact details from a forwarded message to the factory earlier that year.

In January 2018, Amazon started taking supply from the Pakistani supplier. There was a very slight change to the logo on the garments it supplied to Amazon, but in essence they were Mr Brana’s designs. It was as if someone reversed the tick on Nike trainers, which I am sure you are aware of, Sir Christopher, and then passed them off to the public as an original pair of Nikes. Amazon was by now passing off the non-registered garments to Mr Brana’s European customers, using all his data information.

Within eight months the Bikers Gear company was in financial difficulty and unable to continue its legal action against Amazon. In August 2018, this law-abiding, taxpaying company went into liquidation. Seven people based in the UK lost their jobs, five full time and two part time. The five full-time workers claimed redundancy money from the Government totalling between £25,000 and £30,000. Bikers Gear UK, in its last full financial year’s trading from April 2016 to April 2017, had a turnover of more than £1 million and the company paid taxes and duties approaching £150,000 across the European Union. Today, Amazon continues to pass off those garments to the public.

The Bikers Gear UK business grew organically year on year by reinvesting profits into the company and growing the Bikers Gear catalogue. Ironically, in January of this year, Roland and his company were invited by Lord Eric Pickles to take part in the 2019 Parliamentary Review, originally set up by David Cameron and co-chaired by David Blunkett, to share knowledge and good practice and to raise industry standards. Under the circumstances, Mr Brana felt unable to take up that invitation.

This is a cautionary tale for small businesses: a successful small business sells via Amazon, and Amazon offers a partnership to expand the cake and to take a slice, instead of which it effectively takes the whole cake. Mr Brana now deeply regrets having gone into partnership with Amazon. Far from helping his small business to grow, Amazon effectively cloned his business and starved the original. Amazon is too big for Mr Brana to take on. He is now having to start all over again with his new brand, Black Tab Motorcycle Clothing, and a small retail shop, again in Barry, south Wales. I say to the Minister that that is the type of predatory capitalism being practised by some big tech businesses that the Government need to be aware of and act on, and I ask the Minister what the Government are doing to protect small businesses and people such as my constituent, Roland Brana, from being drowned in the vast waters of Amazon and other institutions of the new high-tech plutocracy.

Photo of Kelly Tolhurst Kelly Tolhurst Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 4:29 pm, 27th March 2019

It is a pleasure to serve under your chairmanship, Sir Christopher. I congratulate Kevin Brennan on securing this important debate and thank him for bringing this issue to Westminster Hall. That has enabled him to highlight the particular case of his constituent and it gives me the opportunity to respond. This subject is of personal interest to me. I am the Minister responsible for small business but, before coming to this place, I ran my own business and dealt with big organisations, so I am not unfamiliar with particular challenges that exist in the wider market and not just in regard to the sectors and platforms to which he referred.

In 2018, 5.7 million UK businesses were SMEs. That represents 99.9% of UK business, 60% of total UK private sector employment and 52% of turnover. People should be in no doubt that this Government, this Department and I understand that SMEs are the backbone of our economy. That is why it is of particular concern to me to hear about the experiences of the hon. Gentleman’s constituent as the SME seller Bikers Gear UK on Amazon. I can only imagine what a difficult experience that must have been for him and his family.

No company should be able to abuse its market position to the detriment of other companies, particularly SMEs. That is why, in our industrial strategy, we committed to a review of competition law, which is ongoing in the Department. As part of the review, we are actively assessing digital markets, including whether those markets pose unique challenges to competition law, such as novel forms of abuse of dominance. Part of the review will also involve assessing recommendations set out to my right hon. Friend the Secretary of State by Andrew Tyrie. His proposals outline reform of the competition and consumer protection regimes led by the Competition and Markets Authority.

The Government also welcome the recent publication from the Digital Competition Expert Panel—it was published alongside the spring statement. That independent report sets out how to unlock competition in digital markets. The panel was led by the renowned economist Jason Furman, who was chief economic adviser to President Obama. The proposals are at the frontier of global thinking on how to deal with the challenges of large digital platforms. One key recommendation is to introduce a new digital markets unit to ensure that digital markets work to deliver competitive outcomes.

In particular, recommendation 5 of the report states:

“To account for future technological change and market dynamics, the digital markets unit should be able to impose measures where a company holds a strategic market status—with enduring market power over a strategic bottleneck market.”

That proposal focuses on firms with “strategic market status”. It would be backed by powers to ensure compliance. We are assessing the proposal but, if taken forward, it would mean that large platforms such as Amazon would need to comply with a statutory code of conduct or some other form of regulatory framework. The code of conduct will cover how large platforms interact with smaller firms, ensuring that that is fair. The Government will consider the reports’ proposals and report back by the summer.

Importantly, the hon. Member for Cardiff West highlights the fact that businesses, and in particular large businesses that are leaders in their industries, must act responsibly. This Government support responsible business as a force for good in society and we are prioritising in our modern industrial strategy responsible long-term business growth. Our new company reporting requirements make big businesses more open, responsive and accountable to society. That includes the issues of executive pay, and relationships with employees, suppliers and customers. Our Inclusive Economy Partnership brings together businesses and civil society to tackle social challenges. Our civil society strategy announced that the Government would refresh their policy approach to responsible business during 2019, and we are partnering with the Department for Digital, Culture, Media and Sport as we work towards that objective.

We recognise that we must be active not just in holding large corporations to account, but in supporting small businesses in our economy, including SME retailers like Bikers Gear UK. This Government are working hard to support retailers of all sizes as they respond to market pressures from a range of factors. Retailers will need to adapt to take on the challenges and opportunities presented by the changes, and the Government want to support the sector as it responds to change.

That is why in March 2018 we established the industry-led Retail Sector Council to bring Government and industry together to boost the sector’s productivity and economic health. All retail activity in the UK, including SME retailers, is represented. I co-chair the council, and it is hugely valuable in understanding the concerns of retailers in the changing landscape. The council has agreed its priority work areas for the next two years: they focus on costs to businesses, skills and lifelong learning, employment protections, the circular economy, consumer protections, and retail and the industrial strategy. A senior industry figure will lead each of the work groups and bring proposals for action for both industry and Government back to the council for consideration.

I want to be clear that this Government want all types of retail to thrive now and in the future and that I am committed to playing my part. I and my officials in the Department regularly engage with Amazon, and I am always vocal in encouraging it to leverage its resources to the benefit of SMEs across the country. Douglas Gurr, Amazon UK country manager, serves on the Retail Sector Council which, as I said, I co-chair. I met Doug and a number of Amazon Marketplace SME retailers last October to discuss and understand the issues they faced. However, this debate has highlighted to me the need to ensure that I reiterate to Amazon that it needs to treat all suppliers with absolute fairness, and I will be sure to make that point to Amazon directly after the debate today.

The hon. Gentleman’s debate has highlighted important issues. I have said before and I will say again that SMEs are the backbone of our economy. This Government are committed to supporting SMEs and to reviewing our frameworks in the context of the ever changing marketplaces and organisations that are growing. No company should act inappropriately in a marketplace or abuse its position.

I trust that the details I have outlined today of the actions we are taking in reviewing competition law and leading the way on responsible business demonstrate to the hon. Member for Cardiff West that the Government and I take these issues very seriously. I again commend him for bringing the debate to Westminster Hall and for giving a very articulate explanation of the particular challenges that his constituent, Mr Brana, has had to endure. I would be more than happy at any stage in the future, if it were necessary, to get further information from his constituent, if he would like that, because this is an area of interest. I would like to finish by saying that I wish the hon. Gentleman’s constituent all the best in his new venture. I wish him every success and I thank the hon. Gentleman for the debate today.

Question put and agreed to.