5 key takeaways from CNBC investigation

Walmart’s online marketplace has become a crucial component of its strategy to boost profits and compete with its long-time rival, Amazon. As the largest US retailer with over 4,600 locations nationwide, growing online sales is vital for its future success. However, a recent investigation has revealed that Walmart’s digital growth has come at a cost, with some consumers receiving counterfeit and potentially hazardous products from third-party sellers.

The investigation found that Walmart had loosened its controls on third-party sellers in an effort to attract more vendors and appear more welcoming than Amazon. This move has led to an increase in counterfeit products being sold on the platform, with some sellers even stealing the credentials of legitimate businesses to set up accounts. In one instance, a seller was found to be impersonating a large, publicly traded company, Thermo Fisher Scientific, to sell fake health and beauty products.

Stolen Identities and Product Tests

CNBC’s investigation discovered at least 43 third-party sellers who had used stolen identities to set up their accounts on Walmart’s marketplace. Some of these sellers were impersonating well-known companies, while others were smaller, private businesses. To test the authenticity of these products, CNBC purchased six highly rated, deeply discounted beauty products from sellers who were impersonating legitimate businesses. Unfortunately, all of the products tested were found to be counterfeit, according to lab testing and verification from the brands themselves.

Some of the companies being impersonated on Walmart’s platform reported receiving mysterious packages at their homes or businesses, which they later discovered were customer returns. One company, Lifeworks-ACS, received at least 14 returns, all of which were found to be counterfeit. This highlights the severity of the issue and the need for Walmart to take stronger measures to prevent counterfeit products from being sold on its platform.

Employee Pressure and Onboarding Process

Former employees of Walmart’s seller vetting team reported that the company had gradually loosened its controls on third-party sellers during the Covid pandemic. One former employee, Tammie Jones, stated that the requirements to join the marketplace were initially strict but were later relaxed to approve more sellers, even if they had concerns about the applicant’s credentials or documentation. This pressure to approve more sellers has contributed to the influx of counterfeit products on the platform.

The onboarding process for Amazon and Walmart’s marketplaces differs significantly. Amazon often requires sellers to conduct a video interview with a company employee, while Walmart’s marketplace does not list this as a requirement. Additionally, Walmart has made changes to the documentation required from sellers, including no longer requiring a W-9 and EIN form. This lack of stringent vetting has made it easier for counterfeiters to set up shop on the platform.

Walmart’s Changes and the Legal Landscape

In response to CNBC’s reporting, Walmart changed some of its marketplace vetting policies for beauty and personal-care products in late July. The company announced new restrictions for the category and will require certain sellers to participate in an “enhanced vetting program” for these items. This program will require sellers to provide documentation for each product, such as an invoice demonstrating that the product was sourced directly from a brand owner or manufacturer.

The sale of counterfeit goods on online marketplaces is a complex issue, with a lack of regulation making it difficult to eradicate the problem entirely. While selling counterfeit goods is a crime, platforms face almost no liability for facilitating their sale, as long as they take down listings for fake goods after brands bring them to their attention. The Shop Safe Act, a bipartisan federal bill, aims to curb the sale of counterfeit goods online by incentivizing platforms to better vet sellers and their products. However, the legislation has faced opposition from online marketplaces, including Walmart and Amazon, and has failed to pass on multiple occasions.

Conclusion

The issue of counterfeit products on Walmart’s online marketplace highlights the need for stricter vetting processes and greater accountability from online retailers. While Walmart has taken steps to address the problem, more needs to be done to prevent the sale of hazardous and fake products. As the online retail landscape continues to evolve, it is essential for companies to prioritize consumer safety and take proactive measures to prevent counterfeit goods from being sold on their platforms.