Faced with the relentless pursuit of China’s four cross-border e-commerce “dragons” (Alibaba’s AliExpress, Shein, PDD’s Temu, and ByteDance’s TikTok Shop), Amazon, after a long period of silence, has finally launched a counterattack.
According to multiple media sources cited by 36Kr, Amazon held a closed-door meeting in Shenzhen on June 26 to unveil a new discount store project to select sellers. The meeting was by invitation only, limited to sellers and suppliers invited by Amazon.
The presentation revealed that the store concept will revolve around offering white-label fashion, home, and lifestyle products. These items will be fulfilled from Amazon’s warehouses in China, with an expected delivery time of 9–11 days.
Notably, up to now, Chinese cross-border goods sold to Amazon’s US customers have typically been shipped via transshipment.
Amazon’s new approach of combining affordable white-label products with direct mailing of small packages shows that it is no longer cautiously testing the waters in response to emerging cross-border e-commerce platforms like Temu. Instead, Amazon is directly confronting and reclaiming the white-label merchants it had previously disregarded or even intended to purge.
Amazon holds around 40% of the US e-commerce market, which would generally prevent such anxiety. However, various actions suggest that Amazon is feeling the heat from the aggressive advances of Temu and Shein.
Starting this year, Temu and Shein have focused on promoting semi-managed services, seeking cross-border partners with overseas warehousing capabilities. During cross-border e-commerce events attended by 36Kr, representatives from Temu and Shein openly invited Amazon brand sellers to join their semi-managed services.
The competition for American consumers is also becoming more direct. Research firm Apptopia reported that, in 2023, American consumers spent nearly twice as much time on Temu as on competing platforms like Amazon. Younger users spent an average of 19 minutes daily on Temu. The report shows that time spent on Temu continues to increase, reaching about 22 minutes in October, widening the gap with Amazon, Walmart, and Target.
After breaking into the low-end market, Temu and Shein are anticipated to move into the high-priced market, threatening Amazon’s foundation. The pressure is mounting, prompting Amazon to strike back immediately.
Making steady progress
Amazon’s launch of the discount store may appear sudden, but the guidelines revealed so far indicate that Amazon is maintaining its pace and platform positioning.
Various sources told 36Kr that the discount store will adopt a “store-within-a-store” model, appearing as an independent section on the main site’s homepage. The underlying technology framework will be shared with the main site, but the page presentation will differ. Supplier backend management will be consistent with the main site.
The discount store will require items to be lightweight and priced under USD 20. These goods will be promoted by Amazon both internally and externally, and sellers will be charged a commission consistent with the main site. Currently, the store is open only for fashion, home, and lifestyle categories, which overlap with Temu’s popular categories. Unlike Temu, however, sellers will have the autonomy to select products, set prices, and participate in promotions.
Zhou Xiang, a long-term cross-border e-commerce practitioner, told 36Kr that the categories targeted with this new project are those that Amazon was previously weaker in. As a seller, Zhou said he is more concerned about whether products that couldn’t be sold under the original model can now be sold via small postal packages.
Meanwhile, participation in this new project will be by invitation only, with registration opening this summer and product warehousing starting in the fall of 2024.
The invitation-only approach implies that, while Amazon welcomes white-label sellers, it intends to maintain control by remaining selective. Amazon prefers to use its accumulated resources to choose suitable and reliable sellers, avoiding “bad apples” that could disrupt the platform’s ecosystem.
Fall is typically the peak season for cross-border e-commerce sales, and Black Friday is a crucial shopping festival in the US market. Last year, Temu and Shein’s extensive advertising campaigns in the US market began in the fall, reaping substantial gains during Black Friday.
Amazon’s decision to officially launch the discount store in the fall signals its intent to reclaim the low-price customer base snatched by Temu and Shein.
Interestingly, less than half a month before Amazon’s Prime Day, the company chose this time to launch the discount store. Historically, Prime Day, an annual major shopping event offering discounts to Prime members, has been a critical period for boosting sales and brand influence on the platform.
The project missed this timeframe, indicating either Prime members are not its target audience, or Amazon’s counteraction to competitors has been delayed.
Taking things step by step
According to a LatePost report from last year, a source close to Amazon said that, since Temu’s launch, Amazon’s discussions about Temu have been limited, with no specific competitive strategy introduced.
Reviewing Amazon’s strategy last year, there was interest in low-priced products, but actions taken appeared conservative, and the company was reluctant to change its stance.
On June 13 last year, Amazon announced it would exclude Temu from its price comparison algorithm, designed to ensure the prices of similar products in the market were not much different from Amazon’s. This statement implied it would not engage in a price war with Temu.
However, in the same month, Amazon launched platform subsidies and significant discounts, subsidizing some of these promotions. In August, it reformed its shipping fees, introducing lower logistics fees for products priced under USD 10 and offering faster delivery times. This policy was seen as encouraging the sale of low-priced products. In December, Amazon reduced commissions for the clothing category, implying a push for lower product prices.
Additionally, late last year, Amazon introduced a new supply chain solution, “Supply Chain by Amazon.” Similar to the semi-managed model, this solution allows sellers to retain autonomy in product selection, pricing, and strategies while delegating logistics to the platform.
In March this year, media reports emerged stating that Temu and Shein had replaced Walmart and Target as the focus of internal discussions at Amazon. Insiders said employees were working to increase the number of same-day delivery items in categories like electronics, and the company was exploring promotions emphasizing reliability and delivery speed.
In a media interview, an Amazon spokesperson said the company is “always exploring new ways to work with [its] selling partners to delight [its] customers with more selection, lower prices, and greater convenience.”
Amazon’s flywheel model, which aims to create an excellent service experience for users by driving platform traffic through product selection and convenience, thereby attracting more suppliers to enrich the platform, lower prices, and ultimately enhance user experience, continues to function as intended. However, aggressive entrants Temu and Shein are now disrupting this cycle, with the balance increasingly disturbed.
Amazon’s Prime membership system has always been crucial, with Coresight’s survey last year finding that only 72.5% of respondents planned to participate in Prime Day before it started, marking the first time this figure fell below 75% since 2018.
According to Adobe, Amazon’s two-day Prime Day event last year reached a total sales volume of USD 12.7 billion, setting a new record. This represented a 6.1% increase from 2022’s USD 11.9 billion, although it fell short of Adobe’s forecasted 9.5% growth rate.
Prime members still actively participate in discount events, but the growth of Amazon’s e-commerce business has been slowing. US inflation and falling interest rates make low-priced products highly attractive to consumers.
For sellers, Gartner subsidiary Capterra found via a survey it conducted that 99% of small and medium-sized Amazon sellers plan to sell on other e-commerce platforms in 2023.
It is noteworthy that Temu and Shein are not just trying to sweep the US market. Amazon may be able to leverage its vast warehousing network and millions of Prime users to fortify its foothold in the US However, it lacks such a deep moat in overseas markets.
Accordingly, Amazon’s current promotion of low-priced products can be characterized as both a direct confrontation and a passive defense.
Zhou said he believes Amazon’s latest push to recruit merchants will likely succeed. He’s even contemplating listing some products to gather data. Yet, he questions whether Amazon can manage the cost and efficiency of fulfilling small postal packages without the support of “Fulfillment by Amazon” (FBA).
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Leslie Zhang for 36Kr.