#101 – INFORM Act, 3% Inflation, & Fortnite’s $520M e-commerce abuse

by | Dec 26, 2022 | Recent Newsletters

To those who celebrate, I hope you had a wonderful Hanukkah and Christmas, and that all of you have a Happy New Year!

To finish out the year, I've got a ton of news for you about regulation.

In this week's edition, I go in-depth about the newly passed INFORM Act and Warehouse Worker Protection Act. 

I also cover Epic Game's $520M fine for their use of dark patterns, Amazon economists' inflation predictions (which Amazon leaders disagree with), and YouTube's foray into the NFL.

All this and more in this week's 101st Edition of Shopifreaks. Thanks for subscribing and sharing!

Poll of the Week 🗳️

“Should online marketplaces be required to verify sellers?”

🐦 Take the Twitter poll.

🧑‍💼 Take the LinkedIn poll.


Last Weeks Poll Results: I asked how much more you'd pay for shipping online orders to avoid using plastic shipping materials. 56.3% responded that they would not pay anything additional, while 37.5% would pay up to 10% more, and 6.3% would pay over 20% more. Early on in posting that poll, Twitter was having issues and the poll actually disappeared altogether for several days. So it didn't get as many responses as normal. [View Poll]

Stat of the Week 📈

FedEx's average daily package volume was down 9% in the most recent quarter. 

Before the pandemic, roughly 16% of retail was e-commerce. At the peak of lockdown, it touched 22%. Right now, it sits around 19% (and falling).

–According to FedEx CEO Raj Subramanian

Share this week's stat on Twitter & LinkedIn.

1. What is the INFORM Act?

Last week the House and Senate passed a $1.7 trillion funding package that contains legislation to force online marketplaces to verify high-volume sellers. It is now waiting to be signed into law by the President.

The bill, called the INFORM Act, runs for 4,155 pages and allocates $772.5B for domestic programs and $858B for defense including a 10% boost in defense spending, $40B in U.S. emergency spending to assist communities recovering from drought, hurricanes and other natural disasters, and around $45B in Ukraine assistance.

It also includes policy changes related to federal election law that aim to prevent any future presidential candidates from trying to overturn an election.

Onto the e-commerce part…

Click that first link to learn more about the rest of the bill. I'm going to focus on the part that affects e-commerce. 

Tucked into the bill is a piece of legislation that will require online marketplaces like Amazon, Etsy, and eBay to verify high-volume sellers in an attempt to help curb retail crime.

This is legislation that brick-and-mortar retail business owners have been pushing Congress to pass for more than a year, to help curb the amount of goods being stolen from their stores and resold online. (The ultimate retail arbitrage.) 

Marketplaces will be required to verify information like bank account, tax ID, and contact details for sellers who make at least 200 unique sales and earn more than $5,000 a year.

Under the bill, customers can also obtain a seller’s name, phone number, email and physical address, with exceptions to protect merchants who sell out of their homes.

Amazon, eBay and Etsy had initially opposed the verification bill, saying it would damage seller privacy and favor brick-and-mortar retailers over their online competitors, but later threw support behind the legislation after modifications were made to limit the rules to sellers making more than $20,000 in annual revenue.

For sellers making under that amount, the bill says that they don’t have to disclose their personal address or phone number if they respond to customer questions over email or marketplace messaging.

INFORM Act overrides similar state laws, which is a win for e-commerce sites who will no longer have to deal with a multitude of state-level requirements.

Retail theft for the purpose of re-selling the goods online is a big deal: 

  • Target execs reported that the number of thefts in their stores has gone up more than 50%, expecting to reach more than $600M for the full fiscal year.
  • Walmart also reported that theft was higher than it has historically been, and could lead to higher prices and store closures if it persists.
  • Walgreens, Best Buy, Home Depot, and other retailers and grocery chains have reported similar problems.
  • Inventory loss, called “shrink” in the industry, was 1.4% last year, representing $94.5B in losses, according to the National Retail Federation.

I support this legislation…

However to take it a step further, I think that ALL online sellers should have to verify their identity before they can sell anything on a marketplace — without minimum revenue amounts. Everyone should have to verify their identity before they sell their first item. There are numerous secure ID verification services out there to help facilitate this process.

In addition to helping to curb the sale of stolen items, it would help cut down on the sale of counterfeit items and fake goods (where the box comes empty or with a different product), fake reviews, and all sorts of scams and thefts that happen on these marketplaces. This is like Consumer Protection 101 and marketplaces should have been adopting these practices years ago. Why is legislation even required for this to be a reality? 

When I walk into a brick-and-mortar store, I know who I'm buying from. That store had to go through a verification process by their merchant processor in order to accept credit card payments. This should be the case online as well, and marketplaces should be required to do their part to facilitate this basic level of buyer / seller transparency.

I'd imagine that the historic lack of access to sellers' direct contact info was done in part to build a walled garden around their sellers, built to protect their revenue streams (so that buyers didn't bypass the marketplaces). And while that makes sense, if they had spent more time verifying their sellers and creating a safe shopping environment versus dumping sellers onto their marketplace as fast as possible, we wouldn't be in this mess that requires legislation to fix.

So… this part of the INFORM Act that requires marketplaces to verify high volume sellers — I'm in favor of it.

Why that important piece of consumer protection legislation has to be buried in a 4,155 page bill that includes billions of dollars in military spending and foreign aid is a different conversation… 

What are your thoughts? Take the poll on Twitter and LinkedIn and join the conversation. 

2. Amazon economists expect 3% inflation on its marketplace in 2023

Amazon's product prices increased by 6% in 2022, below the average inflation range of 7% to 9% in the US, and next year Amazon expects its product prices to grow below 3% before turning negative in 2024, according to an internal document obtained by Insider.

The 12-page report is part of Amazon's internal research into the broader macroeconomic landscape and touches on topics of a recession possibility, inflation forecast, and their impact on Amazon's overall business.

The report also mentions that the most recent forecasts for the U.S. inflation is near 3% by the end of 2023, and just over 2% in 2024.

However in an e-mail to Insider, Amazon's spokesperson said the company's leadership team disagreed with its own economist and that the document “simply reflects the thoughts of some of our economists.”

Amazon has an optimistic outlook for next year compared to other analysts, estimating only a 30% chance of a U.S. recession in the next 6 months:

  • A Bloomberg Economics study said the US has a 100% chance of entering a recession within the next 12 months.
  • A Federal Reserve staff report found an almost 50% odds of a US recession next year.
  • A survey by the Wall Street Journal put the probability at 63%.

Amazon economists aren't the only ones who aren't doomy and gloomy about a recession. Richard Mills of Ahead of the Herd published an in-depth piece last week about why the Fed pivot will happen faster than people think. 

He notes that the crucial difference between the 1982 recession and the 2022 recession is the U.S.'s historically high debt to GDP ratio, which was around 35% in 1982 but has skyrocketed to 120% today.

Richard writes, “This severely limits how much and how quickly the Fed can raise interest rates, due to the amount of interest that the federal government must pay on its debt.”

He goes on to share that looking at historical data going back to 1972, the last Fed rate hike typically happens about 22 weeks after the peak in CPI — which happened most recently in June. That would put the final Fed rate hike around mid-December, which is when they upped the rate by 0.5% — breaking a string of four straight three-quarter point hikes.

In other words, the Fed's ability to raise rates and force a recession is hindered by the country's enormous debt. 

3. BigCommerce News (Sponsored)

BigCommerce is returning to NRF: Retail's Big Show this Jan 15-17, 2023. Schedule time with our e-commerce experts at Booth #5756 and catch our Big Ideas session. 

Sunday, January 15th | 3:15 – 3:45 PM ET
Exhibit Hall | Level 1 | Stage 1

Igniting Innovation: How Composable Commerce Fuels Digital Transformation Success

The last few years have brought waves of unprecedented change — from explosive ecommerce growth to the proliferation of omnichannel commerce. As consumer behaviors and economic headwinds continue to shift, retailers can no longer rely on legacy monolith technology to deliver the cutting-edge experiences shoppers expect. 

Join BigCommerce CEO, Brent Bellm, as he discusses how building a future-fit technology stack using a composable commerce approach empowers innovation, brand expansion and international growth.

View the rest of the events and schedule a meeting. 

4. NY's Warehouse Worker Protection Act

Last week New York Governor Kathy Hochul signed the Warehouse Worker Protection Act (WWPA), a new legislation that requires employers to inform warehouse distribution workers of their quotas and performance. 

The new state law takes aim at warehouse work quotas like the ones Amazon uses and is written to protect workers from undisclosed or unlawful work speed quotas.

The law doesn't target Amazon specifically, but the authors admit that it was definitely written to address the management practices and quotas that Amazon has grown infamous for.

WWPA follows a similar law that was passed in California last September (AB-701) that required employers to provide their warehouse workers with written descriptions of their quotas and also prevents employers from punishing workers for failing to meet quotas that weren't disclosed to them.

I think the theme of this newsletter is becoming, “Why is legislation even required for this to be a reality?”

However if that's what it takes for companies to provide safe and transparent working environments, then legislation it is. 

Stuart Appelbaum, the Retail, Wholesale and Department Store Union president, said about the legislation, “Amazon alone has opened more than 70 facilities in the state and over half of those facilities have been built since January 2021. At the same time, we have seen increased injury rates for warehouse workers. Due to extreme work quotas, warehouse workers have suffered heart attacks, strokes, repetitive motion injuries, and irreparable life-long joint and back pain.”

5. YouTube won't let Amazon have all of the NFL action

In September I reported that Amazon struck a $13B deal with the NFL to make it the exclusive home of Thursday Night Football, following a four year run at FOX. The partnership marked the league's first all-digital rights agreement.

Flash forward a few months and YouTube wants a piece of that lucrative NFL action as well. 

After DIRECTV made it clear that it had no intention of renewing its deal for the NFL Sunday Night Ticket package, which had been unprofitable for the company for many years, YouTube won the bid, paying an average of $2B/year, which is 33% more than the previous $1.5B deal DIRECTV had.

YouTube outbid: 

  • Amazon – who many people thought would have been the top bidder
  • Apple – who wanted to pay less so it could offer the product at lower prices than DIRECTV had been paying. However contracts that the NFL had with CBS and FOX would have prohibited such a transaction.
  • Walt Disney – who wanted to pick up the rights for its ESPN+ service

DIRECTV had commercial and residential rights, of which YouTube only bought the residential rights. The commercial rights could be sold for another $200M, bringing the total rights fees up 46% to $2.2B.

YouTube will be offering the NFL Sunday Night Ticket package as an add-on to YouTube TV and in the main app through a service called Primetime channels where users can subscribe to individual channels. They have not yet indicated how much it'll cost. 

With Amazon and YouTube now owning the rights to distribute NFL, get ready for NFL merch like you've never seen before. It wouldn't surprise me if they started selling the merch during live gameplay. 

6. Self employed H-1B Visas

Unexpectedly losing your high paying tech job is difficult enough, as tens of thousands of workers this past year can testify. 

However, imagine for a moment, losing your job and getting deported — and having to pay for the plane ticket yourself!

Hundreds of tech workers, who upended their lives and moved their families from their home country to the States to accept tech jobs with major companies like Amazon, Twitter, Facebook, and Google, have found themselves without jobs and at risk of deportation in recent months. 

An Indian engineer, Arush Nagpal, claims that Amazon rescinded his job offer after he moved to Vancouver from Bengaluru. Hundreds of other workers have had their onboarding delayed by over six months or have had offers rescinded. 

There are three types of visas that tech workers are typically here on: 

  • L-1 Visas are for managerial or executive positions in a company, and are granted for three months to five years at a time, with a maximum stay of seven years.
  • H-1B Visas are for foreigners to work specialty jobs that require a bachelor's degree or equivalent, including occupations in IT, finance, engineering, architecture, etc.
  • TN Visas allows citizens of Canada and Mexico, as NAFTA professionals, to work in the United States in prearranged business activities.

The regulations for each visa are different. For example, H-1B rules require the employer to pay for airfare back home if employment is terminated, while L-1 visas don't have that rule.

The result is that some workers are being let go by companies and have to either find another job before their visa expires or relocate themselves and their family back to their home country on their own dime. 

Keep in mind that many foreign workers sold their homes and spent considerable amounts of money to come here and work for these tech companies because they thought they were entering into high paying stable jobs. 

Tahmina Watson, an immigration lawyer in Seattle who works with tech employees on visas, recommends that laid-off visa holders should consider a self-employed visa if they want to start a business.

Many workers don't know that they can have a self-employed H-1B Visa with their own company, which requires a very put-together application with strong documentation, but is very possible to obtain. The key requirement is that you must demonstrate an employer-employee relationship with your own company as the sponsor. 

If you have any friends or former colleagues in a precarious situation who are desperately looking for employment to retain their eligibility to stay in the U.S., perhaps an H-1B Visa could be an option for them. 

I'm no expert at immigration, and while this news is only loosely related to e-commerce, I wanted to share the information to help members of our community and their extended networks who are at risk of deportation.

7. Walmart's four challenges in 2023

Business Insider reported on four major challenges that analysts expect Walmart to encounter in 2023, which I'll recap below.

  1. Too much excess inventory – Supply chain and inflation issues led Walmart to having more supplies on hand than consumers were buying, which led to unwalkable backrooms packed with full pallets. However the company has been actively working to liquidate inventory, reporting only a 13% YoY increase in inventory in November, down from 32% in May.
  2. Growing e-commerce while mitigating costs – Walmart experienced a 97% YoY growth during the second quarter of 2020, but online growth has been slower since then despite efforts. The company saw an 8% decline in average daily visits to its website this year through November compared to last year. 
  3. Expanding healthcare clinics – Walmart currently only has 32 clinics across five states, while watching competitors like Amazon make major strides in 2022. The company plans to launch 16 more clinics in Florida by the end of the year, but it still needs to solve the operational challenges many of its existing clinics have faced.
  4. Launching new customer banking services – Since acquiring One bank last year and adopting its name, Walmart has worked to recruit top talent from Goldman Sachs and Apple to build out its financial services division. Although current and former customers of One have experienced issues with the bank, the service is still relatively new and Walmart is pushing forward to sign up employees for a bank account, with plans to launch BNPL service next year.

Do you agree with those analyst or feel that Walmart is well-positioned to overcome all these challenges? My guess is that they will blow past analyst expectations for #2 next year. 

8. Epic Games fined $520M for privacy and e-commerce abuses

U.S. federal regulators announced that Epic Games, the maker of Fortnite, will pay $520 in penalties and refunds to settle complaints around children's privacy and its payment methods that tricked players into making unintended purchases.

The $520M consists of $245M in customer refunds and a $275M fine for collecting personal information on players under the age of 13 without informing their parents or getting their consent. It's the biggest penalty ever imposed for breaking this or any other FTC rule.

The $245M in customer refunds will go to players who fell victim to dark patterns, which are deceptive online techniques designed to coerce users into doing things that they didn't intend to do.

I recently reported on Block and Amazon coming under fire for employing dark pattern tactics. 

I love this news! I feel like for the past two years, all the new consumer protections and major enforcements of existing regulations were happening in India and the EU. Now it's nice to finally see the FTC step up to the plate within our own borders.

As much as I appreciate Big Tech (and partially attribute my livelihood to them), we can't let them go unchecked or allow them to police themselves. Technology plays too important of a role in our economy to continue down the path that they've previously taken. 

9. Other e-commerce news of interest

Disney Resort in Tokyo changed its user agreement for park visitors to prohibit them from buying products and souvenirs for the purpose of reselling them, which has become a major problem for visitors. If a person violates the rule, it can result in Disney banning them from entering the Parks or using their services.


Wix appointed Vargab Bakshi as VP and Country Head in India in a bid to capture a bigger market share in the country. India's 15M users account for about 6.5% of Wix's global user base, and the company is upbeat about its prospects in the country.


The Confederation of All India Traders has demanded the government to immediate roll out a robust and strong e-commerce policy, formation of a regulatory authority for e-commerce and immediate release of e-commerce rules under Consumer Protection Act. The trade leaders said that enough is enough in regards to the unethical collusive activities of foreign e-commerce players and brand owning companies. 


Sezzle launched a partnership with the Independent College Bookstore Association (ICBA), a support group for college stores, to offer BNPL for buying textbooks, school supplies, and college gear. Now students can pay for their school supplies in 4 interest free installments followed by their tuition for the rest of their lives. What a band-aid solution to a growing problem of unaffordable and inflated college expenses!


Weis Markets, a mid-Alantic grocer that operates 197 brick-and-mortar stores, is creating an omni commerce shopping environment that unifies their commerce, loyalty, and promotions into one platform. The new platform, powered by Toshiba Elera platform, will tie seamlessly into the company's existing POS hardware infrastructure. The grocer will also be able to obtain data-based actionable insights and leverage AI to make strategic pricing and promotional decisions 


Amazon rolled out Prime Gaming, its subscription service that offers access to a number of gaming titles, to its members in India weeks after testing it in the South Asian market. The gaming service is free to Amazon Prime and Video subscribers and offers users access to mobile, PC, and Mac games, as well as in-game loot at no additional cost. 


A Beyond Borders 2022/2023 report has shown that alternative payment methods such as account-to-account transfers, e-wallets, and BNPL solutions, have reached a 39% share of total digital-commerce volume in Latin America. The three countries that use APMs the most are Colombia (50%), El Salvador (49%), and Brazil (44%). 


Goldman Sachs is expanding its banking partnership with Apple, with rumors that customers will be able to view their account balances within their Apple digital wallet. Other banks have previously denied this feature request by Apple, as to not let the company take over their customer experience. Whereas Goldman Sachs, who previously launched a credit card, savings account, and BNPL services for Apple users, has been scaling back its own consumer banking business to focus on banking services to wealth-management customers.


Amazon rolled out a trending searches feature, and “dog Christmas gifts” was a top trend in recent weeks. Survey data has shown for many years that Americans enjoy buying holiday gifts for their pets more than for their coworkers and in-laws. Did you know that I actually published a book about these types of people many years ago?


The IRS delayed its new $600 tax reporting rule, which was supposed to go into effect this coming tax season. Ebay and other platforms, which would have been required to send tax forms to customers who have qualifying transactions, pushed back on the rule, resulting in the IRS agreeing to a one-year reprieve.


Amazon is trying to sell excess space on its fleet of about 100 cargo planes in the US and Europe. Possibilities include filling empty jets returning from Hawaii and Alaska with pineapples and salmon, according to insiders. (So now you'll know why your new phone case smells like fish.) Two weeks ago I reported on Maergo, a platform built to manage and fill excess capacity on commercial aircraft, raising $20M in their recent round, demonstrating that Amazon isn't the only air cargo company with this problem. 


Walmart Canada integrated Western Union into its website to offer customers money transfers. They will also allow customers to use Western Union money transfer services in Walmart stores for 5% less than the nationally published consumer fee rate. Is Walmart going to acquire Western Union and integrate their services into One bank? (Complete speculation.) It would use up about half their cash reserve, but offer a significant value add for both companies. 

10. Seed rounds, IPOs, & acquisitions

Toss, a South Korean financial super app that offers banking, P2P lending, stock trading, insurance, credit scores, and more, raised $405M in a Series G round led by Tonic Private Equity, valuing the company at $7B. The company will use the funds to invest in its products, including digital lending and online payment service for individuals and local merchants. 


Kredito, a Chile-based business lending startup that helps small businesses with spend management, access digital unsecured loans, and obtain credit, raised $6M in a round led by angel investors, just one year after raising $4M in pre-seed funding. The company wasn't planning on raising additional funds so soon, but said that it was growing faster than expected and needed to add to their small team to meet growth. 


Revel.xyz, a crypto social collectibles startup that offers a socical media platform for NFT collectors, raised $7.8M in a round led by Dragonfly Capital. The funds will be used to expand its product offering, which it describes as a cross between Instagram and Robinhood. (LOL. I would pick a different analogy on both fronts.)


Advanced Commerce, a UK-based visual merchandising platform used by over 300 enterprise online retailers, raised £1.5M led by Wealth Club, raising £1.3M under the UK Enterprise Investment Scheme (EIS). The company will use the funds to accelerate growth, expand geographically, and develop new products in the same ecosystem.

What'd I miss?

Shopifreaks is a community effort and I appreciate your contributions to help keep the rest of our readers in the know with the latest happenings in e-commerce. Whenever you have news to share, you can e-mail [email protected] or hit reply to any of my newsletters.

You can also mention @shopifreaks on Twitter or submit posts to r/Shopifreaks on Reddit, and I'll curate the best submissions each week for inclusion in the newsletter. 

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See you next Monday,

PAUL

Paul E. Drecksler
www.shopifreaks.com
[email protected]

PS: What's the difference between a good joke and a bad joke timing.

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