Walmart’s Marketplace boom: How lax vetting came with identity theft and fakes

When Mary May started buying from third-party sellers on Walmart‘s online marketplace, she said she assumed the products she was purchasing were the same as the ones she’d long bought in stores. 

So in late March when she said she saw a “ridiculous sale” on her favorite Neuriva brain supplements on Walmart’s marketplace, she bought eight bottles for her and her sister.

But when some of the once-daily oral supplements arrived from a seller calling itself Lifeworks-ACS, the 59-year-old mother of three noticed there were misspellings on the bottle and the packaging looked different than it usually did. Weeks later, CNBC confirmed the supplements were counterfeit – and the seller had taken the identity of another business to sign up for the marketplace.

“Walmart betrayed me. …They let me purchase something that could have harmed me, my family,” May, who was refunded by Walmart for the fake products, told CNBC in an interview from her home in Pleasant Shade, Tennessee. “As a customer, I expect them to care about my well-being when I purchase something from them. Whether it’s from a third-party seller or not, it’s on Walmart’s website.” 

May and other shoppers both loyal and new have turned to Walmart.com for better prices and a wider selection than they often get in stores, powering a new wave of sales for the largest U.S. retailer as it races to catch up with Amazon’s marketplace. Those customers helped Walmart’s U.S. digital business turn profitable this spring after years of losing money, an important milestone for a company that has said e-commerce is the key to increasing its future earnings.

But Walmart’s digital boom came as it made it easier for third-party sellers to join and sell on its marketplace, a strategy that has come with a cost, a CNBC investigation uncovered. 

Shoppers going to Walmart.com for deals on top brands are sometimes receiving counterfeit, potentially dangerous products instead, CNBC found. Third-party sellers on Walmart’s platform in certain cases aren’t who they say they are, as CNBC found at least 43 vendors who used the identity of another business to set up their account. Over time, Walmart made its seller and product vetting more lax than Amazon’s policies in a bid to woo sellers away from its rival, according to nine marketplace sellers and four current and former Walmart employees. 

“It’s very disturbing,” said Elaine Damo, the owner of Lifeworks-ACS, which provides services for children and adults with developmental disabilities.

“It’s a domino effect, and it trickles and affects everyone,” said Damo, who told CNBC she was sent returns from more than a dozen customers — including May — who had purchased counterfeits from the third-party seller that was impersonating her business. 

Reckitt, the maker of Neuriva, said it “immediately opened an investigation” after learning about the counterfeit supplements May bought and said “the health and safety of consumers is our top priority.” It said anyone who believes they may have bought a fake item should stop using it and contact the company’s customer care team.

Over the last five years, the number of sellers and items for sale on Walmart’s marketplace has exploded. The platform’s U.S. revenue grew 45% and 37%, respectively, in fiscal 2024 and fiscal 2025, Walmart has said. That expansion has fueled Walmart’s U.S. e-commerce business, which is second only to Amazon in online sales dollars, according to research from financial firm Mizuho. It’s nearing $100 billion in annual revenue and is on pace to represent 10% of all domestic online sales by 2026, Mizuho said. 

But that meteoric rise came partly from Walmart’s decision to accept some risks in the interest of growth, current and former employees said. 

Tammie Jones, who worked on Walmart’s seller vetting team from September 2023 to April 2024, said she was pressured to approve seller applications, even when she had concerns about the applicant’s credentials or documentation.

“It got to a point where they were just like, ‘You know what? Just go ahead and approve everybody,'” Jones said of her managers’ directives. “They wanted that business, so they were willing to take a chance on it.”

In a statement, Walmart said “trust and safety are non-negotiable for us.” 

“We’re unwavering in our commitment to delivering everyday low prices, a broad assortment, and innovative shopping experiences. Counterfeiters are bad actors who target retail marketplaces across the world, and we are aggressive in our efforts to prevent and combat their deceptive behavior,” Walmart said. “We enforce a zero-tolerance policy for prohibited or noncompliant products and continue to invest in new tools and technologies to help ensure only trusted, legitimate items reach our customers.” 

Counterfeits and fraud are endemic to third-party marketplaces. Amazon, among others, had trouble policing counterfeits as they grew. But Amazon has since tightened its vetting, according to interviews with sellers and e-commerce consultants. Meanwhile, it became easier for bad actors to join and sell on Walmart’s marketplace, CNBC’s investigation found. 

Walmart has required less documentation and vetting to sign up for its marketplace and had imposed fewer restrictions on the types of products people could sell than its main e-commerce rival, according to a review of Walmart’s and Amazon’s seller applications and interviews with sellers, former employees and e-commerce consultants.

“If you look at Walmart, they look more like a flea market than a trusted marketplace. It’s like the Wild West on their platform,” said Bob Barchiesi, the president of the International Anti-Counterfeiting Coalition, a non-profit that fights counterfeits and warns fake goods can pose serious health and safety risks. “You can’t try to sell trust from aisle five and then let counterfeiters in” online.

As part of its reporting, CNBC tested the authenticity of 20 items offered by third-party sellers that had stolen the identity of a real business. All of the products were determined to be counterfeit.

Beyond the tests, CNBC reviewed hundreds of product listings and seller pages on the platform and reviewed hundreds of securities filings, earnings call transcripts and internal documents for its investigation. CNBC also interviewed more than 90 people, including third-party sellers on Walmart and Amazon, marketplace consultants, professors, members of law enforcement, and more than a dozen current and former Walmart employees. Some of those current and former staffers declined to be named because they said they could face termination or because they signed confidentiality agreements. 

CNBC also spoke with Walmart shoppers about their experiences. While some consumers know the risks of buying health and beauty products on online marketplaces, some said Walmart’s brand brings a different level of legitimacy than traditional platforms because it is a trusted brick-and-mortar retailer. Other shoppers told CNBC they weren’t even aware they were buying from third-party sellers when shopping on Walmart.com.

“I trust Walmart, I thought I was buying it from them,” said Aurora Aguilar, who bought skin-care products from a seller impersonating a legitimate business. “It’s their website.”

CNBC purchased and tested six items for its investigation, all of them highly rated, deeply discounted beauty products offered by sellers that were impersonating legitimate businesses. It also tested 14 more items that were purchased by Walmart shoppers and returned to Lifeworks-ACS, which sent them to CNBC. 

In most cases, brands authenticated the products for CNBC. In other instances, lab testing conducted by scientists at St. John’s University determined whether products were fake by comparing them to an authentic product. 

These items are just a sample of the hundreds of millions of goods sold on the platform.

CNBC centered its investigation on beauty products and health supplements because they’re some of the most dangerous counterfeits on the market, often made with harmful ingredients that can make people sick, counterfeit experts said. The fact that consumers ingest them or rub them into their skin increases the safety risk, the experts said. 

Typically, marketplaces aren’t liable for the products their sellers offer. But legal experts said the argument that certain platforms could be held responsible for the sale of harmful products is gaining momentum.

In July, weeks after CNBC shared its reporting with Walmart, the company tightened vetting for some third-party sellers who list health and beauty products on its marketplace, according to emails sent to sellers that were reviewed by CNBC.

The fraudulent sellers uncovered by CNBC took credentials from a wide range of companies. Some purported to be large, publicly traded businesses, such as Thermo Fisher Scientific and Rockwell Medical. Others were smaller companies, including a California juice shop, Chicago pizza chain Dimo’s Pizza and the New York City grocery chain D’Agostino. 

Most of the sellers were offering high-end beauty products at as much as 91% off the typical retail price listed by the brand or one of its authorized partners. 

Representatives or owners of the companies that were being impersonated by sellers on Walmart.com all told CNBC they did not have marketplace accounts. They said details like names and addresses listed on publicly available documents were used without their consent. All of the accounts were eventually taken down. 

Dimitri Syrkin-Nikolau is the owner and founder of Dimo’s Pizza. He said he felt “powerless” as he waited for Walmart to take down the fraudulent page and was concerned about damage to his business’s reputation. 

“We spent 16-plus years building the reputation here in Chicago,” said Syrkin-Nikolau, adding it took weeks for the page to be removed. “To know that somebody could just take our name and sell whatever they would like on Walmart’s website where we have no control doesn’t feel good.” 

Walmart, headquartered in Bentonville, Arkansas, has become a core part of tens of millions of Americans’ lives since its founding more than six decades ago. In its most recent fiscal year, it posted a staggering $681 billion in revenue. The discounter has more than 4,600 U.S. locations, and about 90% of the country’s population lives within 10 miles of a store. 

Still, even the largest U.S. retailer has to grow somewhere. At Walmart, that expansion is happening online. 

Through Walmart’s third-party marketplace, which fuels novel business like its Amazon Prime rival Walmart+ and its advertising platform Walmart Connect, the retailer can grow profit faster than sales, Walmart executives and Wall Street analysts have said. 

The platform also allows Walmart to increase its range of merchandise, which means more customers buying from its website.

“The more sellers that you have selling product, the more customers are going to come and take advantage of that marketplace,” CFO John David Rainey said at a conference in June. 

As Walmart scaled its marketplace, it positioned the platform as more seller-friendly than Amazon, the place to go to avoid its rival’s restrictions and policy changes, sellers and former Walmart employees said. 

Between 2019 and 2024, the number of sellers on Walmart’s marketplace grew more than 900%, according to estimates from Marketplace Pulse, which collects data on leading e-commerce platforms. The increase came as the company made the marketplace a core piece of its strategy, but also overlapped with a period when Amazon ramped up security controls on its platform, banned many sellers and became known as one of the strictest marketplaces to sell on, according to interviews with sellers and e-commerce consultants. 

As a result, some sellers sought refuge on Walmart.com during that period, telling CNBC there was less vetting and looser restrictions on the types of goods they could sell. Walmart rarely, if ever, asked them to provide details on how they sourced their goods, the sellers added. 

Some sellers, industry experts and former employees said the relatively lax controls made it easier for bad actors to join the platform and sell fake, stolen or dangerous products. 

“Walmart has evolved into kind of a dumping ground for all the banned Amazon sellers,” said Chris McCabe, who used to be a member of Amazon’s seller performance team and now runs the consultancy firm ecommerceChris, helping Amazon sellers reinstate suspended accounts. “Walmart doesn’t seem to have as robust a system of enforcement.”

Walmart didn’t comment specifically on McCabe’s remarks. An Amazon spokesperson, when asked if the company has made its platform more strict for sellers, told CNBC that “we are proud of the progress we have made in preventing counterfeits within the Amazon store.” 

“This has required significant innovation and perseverance, and it would not be possible without the partnerships we have been able to build with brands, associations, policymakers, law enforcement, and others,” the Amazon spokesperson said.

Marketplace Pulse estimates Amazon had 21 times the number of sellers that Walmart had at the end of 2024. Given that scale, some brand owners have had more issues with fakes on Amazon’s platform than on Walmart’s, according to interviews with brand protection firms, e-commerce consultants and counterfeit experts. But Amazon has shown more of a willingness to address some of its problems, said Barchiesi, the president of the IACC.

When the IACC reached out to Walmart in November 2024 inviting the company to join its Marketplace Advisory Council, the retailer stopped responding and didn’t ultimately join the initiative, Barchiesi said. The program, which officially launched in May, brings together brands, payment processors and e-commerce platforms like Amazon, eBay and Alibaba to develop best practices and work to get fakes off of online marketplaces.

In response, Walmart said it has a relationship with the IACC and has attended many of its conferences since 2019, where the retailer discussed marketplace safety with the organization and industry partners.

About a week after CNBC shared its reporting with Walmart and asked for a response, including to Barchiesi’s comments, the company reached out to the IACC to set up a meeting and later agreed to join the advisory council, the group said. 

Barchiesi later said the meeting, and the steps Walmart recently took to tighten vetting for some third-party sellers, are a “critical step forward.”

In the early days of Walmart’s marketplace, it had a stricter approach to combating counterfeits and a higher bar for approving sellers, former employees told CNBC. 

Seller vetting was considered more stringent than Amazon’s, and was so strict that ubiquitous computer maker Dell didn’t make the cut when it first applied, said Steve Grigory, who worked on the platform’s business development team between 2016 and 2019.  

“The trust and safety team rejected them because they weren’t good enough and I’m like, ‘What the hell are you talking about?'” said Grigory, who eventually got Dell onto the platform.

But then the Covid-19 pandemic hit the U.S. and Walmart’s online business surged. It soon became clear that the marketplace was Walmart’s next frontier.

In February 2020, Walmart’s then-CEO of U.S. e-commerce, Marc Lore, said the platform was growing, but there was still more work to do, including making “selling easier” for its vendors. 

The following year, it opened its door to Chinese sellers for the first time, according to Marketplace Pulse. By the end of 2021, overall vendors grew nearly 58% from the prior year.

“The biggest goal was just, let’s bring on a lot of sellers… [and] get as many products live as we could … to grow the platform and really compete with Amazon,” recalled one former employee who was involved with bringing sellers onto the marketplace at the time.  

To woo sellers away from Amazon, Walmart tried to be more “accommodating” than its rival, including by letting sellers list “certain higher-profile brands,” the former employee said. 

At the time, the only third-party seller allowed to offer Nike products was sports merchandise company Fanatics. Limiting Nike products to one seller reduced the risk of stolen, counterfeit or gray market items, or legitimate products sold outside of official channels. 

But early in the pandemic, senior Walmart staff realized Nike products were only bringing in a few hundred thousand dollars in revenue per year, the former employee said. If Walmart allowed a wider range of third-party sellers to list the brand’s items, staff reasoned it could generate millions and make the marketplace more competitive, according to the former employee. 

Some argued allowing more third parties to sell Nike products would increase the risk of counterfeits, but management ultimately decided it was a manageable risk relative to the “size of the prize,” the former employee recalled. 

“There’s a lot of money to be made in the gray market,” the former employee said of management’s sentiment. “If we’re going to make [millions] in sales on these Nike products, the percentage of counterfeit from that is probably small enough that it’s net worth us doing this, even if we have to play whack-a-mole or refund some customers.” 

As Walmart’s marketplace grew, adding sellers became a bigger priority and the company began to loosen its vetting and onboarding process, some former employees said.

By the time Jones joined Walmart’s seller vetting team in September 2023, she said she had a clear objective from management: “approve, approve, approve.”

The 54-year-old from Savannah, Georgia, had been with the company since November 2021. When Jones later joined the seller vetting team, she said she reviewed seller applications that didn’t pass the initial, automated process.

At first, she said she was required to examine the seller’s inventory, call the vendor to make sure they were who they said they were and ensure the business had been open for a certain period of time, among other checks.

“But then things changed,” she said in an interview with CNBC. If Jones could verify the seller’s phone number, business address and employer identification number, or EIN, she was told to approve the application, regardless of the inventory the person wanted to offer. 

Then, her managers stopped requiring her to call applicants, and she was told to ignore internal guidelines on how long the business had been open and other potential red flags, Jones said. 

By that point, Jones said she felt like she was approving an application that should’ve been denied most of the time.

“It was a red flag for me,” she said. “I wasn’t sure if something that I’m approving to be pushed through was going to be a product that could potentially harm someone, or if it was a product that was fake.”

Another person who worked in the department at the same time as Jones told CNBC that the team was told to stop doing inventory checks, but said they still felt like they were approving legitimate sellers most of the time.

Jones, who left Walmart in April 2024 for personal reasons including personal health issues and family matters, said she believes the lax approach she experienced is why CNBC found so many seller accounts that had used another business’ identity. 

In many cases, CNBC identified vendors who weren’t who they said they were through a Google search and phone call, which sometimes took just a few minutes.

When CNBC notified the companies that their identities had been stolen, some said they had received mysterious packages at their homes or businesses that they later realized were customer returns.

“I got packages showing up at my shop, perfumes and stuff. I was like, ‘Why am I getting these things?'” said Ed Stuart, whose Cambridge, Massachusetts, business European Country Antiques was used to set up a fraudulent marketplace account. “I tossed them all because there was no one to send them back to.”

Once the business owners identified by CNBC learned their information had been stolen, many of them contacted Walmart customer support to have the pages taken down. In some cases, product listings from those fraudulent sellers were removed soon after they were reported. But in others, products were still available weeks later. Even in cases where item listings were removed, many of the seller pages were still live for weeks or months after they were reported.

Nichole Magill, the owner of Florida-based Pint Sized Ice Creams, said her home address, which she used in her corporate registration documents, and her business name were stolen to set up a Walmart marketplace account.

Magill said that when she called Walmart to report it, she was transferred four times and then told she needed to send a “legal letter” to an office in California for it to be taken down. The page was eventually removed, but it’s unclear when. 

Syrkin-Nikolau, the owner of Dimo’s Pizza, said Walmart’s fraud department “seemed incredibly receptive” when he reached out in mid-March to notify them about the scam account. But around three weeks later, CNBC reviewed the seller page and found the account was still advertising luxury beauty products at more than 90% off their typical retail price and still using Dimo’s business information. It was eventually taken down.

“Who’d be buying an Estee Lauder skin cream from Dimo’s Pizza?” said Syrkin-Nikolau. “It’s absolutely a fake account.” 

When CNBC shared information about the scam businesses with Barchiesi from the IACC, he said the sellers would be “automatic red flags” in any marketplace “that has minimal standards of knowing their customer,” referencing a term platforms use when vetting third-party sellers.  

“It’s easier to keep people off the marketplace if you do the proper vetting,” said Barchiesi. “Once they get into the system, it’s much more difficult, right? Because now the consumer’s exposed.” 

CNBC sent Walmart more than a dozen questions about its vetting processes, but the company declined to answer many of them. A spokesperson told CNBC the company would provide additional information about its seller and product vetting processes on the condition that CNBC not report it publicly, citing concerns that it could compromise its trust and safety systems. CNBC declined to accept information it could not report. 

Walmart provided a general statement to CNBC about its commitment to trust and safety. It also issued a news release the day before CNBC’s reporting deadline titled: “Building Trust, Powering Progress: Walmart’s Vision for a Safer Marketplace.”

In the release, the company said it operates a “multi-layered enforcement system” that includes seller vetting, restrictions on who can sell in certain categories and the use of artificial intelligence to help monitor product listings for policy compliance and intellectual property infringement. It said it proactively takes down listings that violate policies, removes sellers from the platform “when necessary” and enables “rapid response capabilities” that enable its trust and safety team to “investigate and address violations quickly.” It said it also has brand protection tools for intellectual property owners.

“While counterfeits are estimated to represent a tiny minority of the products sold on marketplaces, it is an issue that plagues all retail marketplaces,” Walmart said in its release. “These fraudulent sellers — who grow savvier, faking credentials and dodging enforcement — erode trust, not just in the companies who run these marketplaces, but in the thousands of large and small sellers who act with integrity and seek only to bring value and assortment to those who shop with us.”

When Paul joined Walmart’s marketplace to resell toys, supplements, and other health and household items, he was relieved to find how “lenient” it was, he told CNBC in an interview before the July changes. A longtime Amazon seller, Paul spoke on the condition of anonymity and was identified by a pseudonym because he was concerned he would suffer reprisal from Amazon or Walmart, such as additional scrutiny. He told CNBC he had become disillusioned with Amazon after seeing how difficult it had become to resell popular products. 

For example, when he tried to get approval to sell products on Amazon from brands like Lululemon or Nike, he said he needed an official invoice from an authorized distributor that showed he’d purchased 10 or, sometimes, as many as 100 units. 

Meanwhile, at Walmart, he said he only needed to provide documentation showing he’d purchased one. Paul acknowledged to CNBC that he often buys one item directly from the company to ensure he gets approval, then sources the rest of his inventory through other channels. When asked for further details, Paul declined to share.

“It’s more of a Wild West compared to Amazon,” said Paul. “So it’s a breath of fresh air for somebody like me.”

CNBC spoke with eight people who have resold goods from household brands on Walmart’s marketplace. Most said they’d never been asked to provide invoices proving how they sourced their products in order to list them for sale. Some of the sellers who said they were asked to submit documentation said they often only needed to show an invoice for one unit and occasionally, answer a few questions about their supplier.

Providing an invoice that only shows one unit, compared with 10 or 100, makes it easier for people to resell stolen or counterfeit goods, experts said. They would only need to buy one item directly from the brand to get permission to sell it on Walmart, which is cheaper and easier to do than having to buy multiple items. It’s unclear if Walmart’s policy on invoices changed after it tightened vetting for some third-party sellers in July. 

All of the sellers who spoke to CNBC, who were interviewed before the July changes, said there were fewer restrictions at Walmart than on Amazon for most of the popular consumer goods they tried to sell. 

Chris Grant, who’s been an Amazon vendor for around 12 years and creates courses on how to sell on the platform, said sellers viewed Walmart as “the place to take things you can’t sell on Amazon.” He called it a “shiny object” and “the promised land” for disillusioned Amazon sellers. 

Given Amazon’s size and its success in getting brands to sell directly on the platform, it’s gotten harder for third-party vendors to offer certain branded goods, sellers and e-commerce consultants said. 

In response, Amazon said third-party sellers are “thriving” on its platform and more than 60% of sales are from independent sellers, which are primarily small and medium-sized businesses.

Beyond product verification, there are clear differences in the ways that Amazon, Walmart and fellow legacy retailer Target currently vet and onboard marketplace sellers on their respective platforms.

On Amazon, sellers have to provide documents to prove their address, such as a bank or credit card statement, according to its application. Applicants must then either take a photo of their face and government-issued ID or conduct a video interview with an Amazon employee where they’re required to hold up their ID, show their proof of address and answer questions about their business, according to its application, sellers and e-commerce consultants. 

On Target’s marketplace, sellers can only join by invitation. To be considered, applicants must be able to provide a U.S. business address, a W-9, an EIN and answer a wide range of questions about their assortment, according to its online application.

In March, Target Chief Guest Experience Officer Cara Sylvester said the company’s strict approach is the “right strategy” and added it hasn’t prevented growth. 

“We believe the trust consumers have for the Target brand is a real competitive advantage and that trust should extend to our marketplace offerings, too,” she said.

In the past, seller applicants for Walmart’s marketplace were required to provide their EIN and upload both a W-9 and EIN form, key business verification documents that experts say are an extra layer of security, according to a video of Walmart’s application uploaded in February 2022 by Helium 10, a software company for marketplace sellers. 

As recently as late March, applicants still needed to provide their EIN, but they were no longer required to upload their W-9 and EIN form that shows the number, according to a video of Walmart’s seller application posted to YouTube on March 31 by an independent seller advisor. 

At the time, the only document U.S. sellers were required to upload as part of the business verification process was a copy of their driver’s license or passport, according to the video. 

Applicants could include additional IRS documents to improve their wait time and chances of being verified, but it was listed as “optional,” the video shows. 

In July, after CNBC shared its reporting with Walmart, the company said U.S.-based sellers are “required to upload” EIN documents, not just the number itself. When pressed on CNBC’s reporting that found the forms were optional, and asked when it started requiring them, Walmart said it initially verifies EINs through government and third-party systems to ensure they match the business listing.

“If the initial checks aren’t successful, sellers are asked to submit additional documentation… for further verification,” the company said. “Sellers who can’t provide the required documentation aren’t permitted to sell on Walmart Marketplace.”

A video interview is not listed as a requirement to join Walmart’s marketplace. 

As the number of sellers on Walmart’s marketplace grew, so did the range of products it offered. 

Last summer, Walmart announced it would add premium beauty products and expand its range of collectibles and preowned items to its marketplace to boost its assortment and draw more customers. Three months later, when Walmart reported earnings, it said the number of items on the platform had exploded – growing to nearly 700 million, a 67% increase from May.

Walmart’s marketplace now offers a wide range of products that shoppers wouldn’t typically associate with the discounter. Customers shopping for Great Value toilet paper or baking powder can also purchase preowned Rolexes or Louis Vuitton bags for thousands of dollars.

They can also buy thousands of skin-care products, cosmetics and perfumes from popular premium brands including Clinique, Lancome, Estee Lauder and Shiseido.

Many of those products have been offered at steep discounts, which experts say is a common red flag associated with counterfeits. 

At first glance, many of the premium beauty products are highly rated, which can assure consumers the item is safe to buy. But a closer look shows some of the reviews are worse than they seem.

In February, CNBC analyzed reviews from some popular skincare products, including Sol de Janeiro’s Brazilian Bum Bum Cream, which has become popular with tweens. 

At the time, the product listing, which displays reviews for all sellers that have offered the item, had 4.6 out of five stars resulting from 2,526 ratings and 1,552 reviews. However, only 246 reviews came from customers who Walmart had verified purchased the item from its platform. Among those, 118, or 48%, were one star.

An analysis of the one-star reviews showed 90% alleged the product was not genuine.

“FAKE! Don’t waste your money,” one person wrote in March. “This is not an authentic product and Walmart should be ashamed for selling counterfeit products on their site.” 

CNBC analyzed ratings for eight other beauty products and found a similar trend. 

“My daughter bought these at Sephora before. We ran out and saw these were a good price and decided to purchase,” one person wrote in a review for Glow Recipe’s Watermelon Glow Niacinamide Dew Drops. “She broke out in hives each time she used the drops.”

In response to questions about negative feedback on product listings, Walmart said complaints from consumers are flagged and reviewed and the company takes action “as appropriate.” 

The company added if a customer isn’t satisfied with a purchase “for any reason,” they can use Walmart’s return policy, which is designed to correct the issue “quickly and easily.” 

About three weeks after CNBC shared its reporting with Walmart, the company made major changes to its marketplace vetting policies for beauty and personal-care products. It sent an email to some sellers announcing new restrictions for the category and said it would start requiring certain sellers to participate in an “enhanced vetting program” for those kinds of items, according to emails sent to sellers that were reviewed by CNBC. The changes would address some of the issues raised in CNBC’s reporting. 

As part of the new program, some sellers would have to provide documentation for each personal-care or beauty item in their assortment. The documents include an invoice that demonstrates the product was sourced directly from a brand owner or manufacturer, or a letter of authorization from the brand owner that stated the seller was allowed to offer the product. It was unclear from the email which sellers would be required to participate in the enhanced vetting program. Walmart declined to provide additional detail about the changes and the factors that drove them. 

“We continually enhance our marketplace policies and regularly remove items that violate our policies,” it said in response. “If we discover that a seller’s items have been removed in error, we proactively work with the seller to quickly restore their listings.”

Numerous beauty and personal-care listings were taken down from the platform after the change, some sellers said. 

The nature of online marketplaces makes it difficult to eradicate counterfeit goods. In the last two years, 50% of counterfeit items were bought from sellers on U.S.-based marketplaces, according to a study conducted by market research firm OnePoll and brand protection platform Red Points.

Part of the issue is a lack of regulation. 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. That’s largely because of a 2010 court ruling that arose after Tiffany sued eBay over counterfeit products on the platform. 

The court decided that eBay wasn’t liable, even if it had general knowledge that fake Tiffany products were being sold on its site, primarily because it had promptly removed infringing listings that Tiffany had reported to the platform.

Kari Kammel, the director of the Center for Anti-Counterfeiting and Product Protection at Michigan State University, said the ruling made it so marketplaces are “essentially immunized” from being held responsible for bad actors selling on their platforms. 

“They are not required to proactively vet products that are going up or to proactively screen all of their postings and all of their listings, or to even take consumer complaints about counterfeits,” said Kammel.

Ever since, the ruling has put the onus on retailers and brands to police online marketplaces themselves, conduct test buys to find counterfeit products and submit requests to have the items taken down. It’s a long and costly process that can lead to a game of whack-a-mole, where as soon as companies remove one infringing listing, another crops up, starting the process all over again. 

Some critics of the ruling say it might have made sense in 2010, but the precedent doesn’t take into account how modern marketplaces have developed and the technology they now have at their disposal. 

Proponents of the ruling say that without it, marketplaces could be forced to police every listing, making it harder for them to run their platforms, which could limit consumer options for online shopping. 

The first major piece of legislation to regulate online marketplaces, the Inform Consumers Act, took effect in June 2023 and requires online platforms to collect, verify and disclose certain information about some third-party sellers. The statute is relatively new, so it’s unclear to what extent platforms could be held liable for gaps in vetting and verifying their sellers. 

The Shop Safe Act, a bipartisan federal bill that aims to curb the sale of fakes on online marketplaces, takes the Inform Act a step further. It’s designed to address some of the issues posed by the Tiffany vs. eBay ruling by incentivizing platforms to better vet sellers and the products they’re offering. When platforms comply with certain anti-counterfeiting measures, they could be shielded from liability if a seller offers a fake product. 

Brands widely supported the legislation, but it has so far failed to pass at least three times, most recently in the last Congress. That’s partially because Walmart and other online marketplaces like Amazon, Etsy and eBay have lobbied against aspects of it, two U.S. Senate aides, who spoke on the condition of anonymity because the discussions were private, told CNBC. 

“They generally would just rather not have to do any of these things, right? Like the status quo is pretty good for them,” one aide said. 

The aides cautioned that the platforms aren’t outright against the bill and have been engaging with congressional staff on it. The legislation is expected to be reintroduced in the current Congress, they said.

Walmart and Amazon did not respond to CNBC’s questions about their lobbying activities around the bill. They also didn’t share their positions on the legislation.

As brands and consumers await more concrete policy changes, legal experts said the argument that certain platforms could be held responsible for the sale of harmful products like counterfeit body lotion or faulty fire alarms is gaining momentum, even if they were technically sold by a third party. 

In the early days of online marketplaces, the courts routinely agreed that when a consumer was harmed by something they bought from a third-party seller, that vendor was liable, not the platform, because it was simply a conduit connecting buyers and sellers and it didn’t actually own the product. However, that’s started to change over the last few years after Amazon lost a number of cases involving harmful products sold by third-party sellers on its platform, legal experts told CNBC. 

In those cases, the courts considered the control Amazon has over the sale process, and the tendency for consumers to be confused over who’s responsible if they receive a harmful product. For those reasons, it’s become harder for the company to argue that it isn’t liable when something goes awry, said Aaron Twerski and Edward Janger, professors at Brooklyn Law School who’ve studied online marketplaces.

That same confusion can arise for Walmart.com because shoppers know and trust its physical stores, Twerski and Janger said. Consumers could be confused when shopping on its website, unsure if they’re buying from America’s trusted retail behemoth or an anonymous third-party seller.

“If Amazon should be liable, Walmart should be liable,” said Twerski. “Walmart is a stronger case for them being a seller than even Amazon, and Amazon is an extremely strong case for them being a seller.”

For that reason, taking a more lax approach to seller and product vetting could actually help Walmart’s argument that it’s not liable, said Mark Geistfeld, an expert in product liability and tort law and a professor of law at New York University. 

“If they want to avoid getting into the Amazon space of liability, then maybe they should take a more hands-off approach,” Geistfeld said. “They’re trying to maximize profit, so you have to assume that their decisions are directed along those lines. What’s the way we can make the most amount of money at the least amount of cost?”