(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)