Amazon Retailers' Big Threat: Amazon

Amazon.com: friend or foe? For thousands of small retailers, it sure sounds like both. The Wall Street Journal today dives into the catch-22 of Amazon's Marketplace: It enables these third-party sellers to reach an audience vastly larger than they otherwise could (it has 45% more monthly visitors than eBay), but any success they find there can suddenly turn into success for ... Amazon. The Journal illustrates the headache with the case of Pillow Pets, a $29.99 plush NFL mascot-style pillow. Jeff Peterson said he was fielding 100 orders a day last summer. Then, he says, Amazon took note.

Right before the holidays, it started selling the same head rests, at the same price, and featuring them prominently. Peterson says his sales dropped to just a fifth of what they had been. "I tried lowering the prices, but Amazon would always match my price or go lower until I eventually gave up." Amazon says its "focus is on helping making sellers successful" and notes that sellers typically see a 50% jump in sales after joining Marketplace and taking advantage of Amazon's shipping and storage service. But other sellers echo Peterson's claims. One retailer points to Sophie, the explosively popular teething toy, as a prime example of an item Amazon swooped in on. "We used to sell a ton of Sophies on Amazon," she said. "Not anymore." (More Amazon.com stories.)