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When Amazon began to "imitate" China's four little dragons of cross-border e-commerce.

Text | Ah You

Edited by Chen Meixi

The overseas war among the four domestic cross-border e-commerce giants has not yet been decided, but the foreign e-commerce giant Amazon has been dragged in first.

Since its establishment in 1994, Amazon has always been an undisputed leader in the global e-retail industry. Its flywheel theory has been borrowed, learned and iterated by domestic companies. Its fast delivery logistics capabilities and high-quality and convenient after-sales service have been the magic weapon that has enabled it to stand firm for 30 years.

However, in the past two years, changes in the external environment and the intensity of competition have accelerated. TikTok has entered the market with its traffic advantage, SHEIN has secretly accumulated strength to grow into a 100 billion unicorn, and Temu has seen a 300% increase in users in less than two years since entering the US market.

Amazon began to smell danger.

According to a previous report by the Wall Street Journal, Amazon executives have been considering how to respond to the two competitors, Temu and SHEIN. An Amazon spokesperson also said: "The company is always exploring new ways to work with its sales partners."

At the end of June, the mystery was revealed at a closed-door meeting held by Amazon in Shenzhen.

On the PPT picture leaked from the meeting, large white letters clearly read:“A new low-price store, shipped directly from China by Amazon: a store dedicated to providing customers with white-label low-priced fashion, home and lifestyle products; fulfilled by Amazon-operated warehouses in China, with an estimated delivery time of 9-11 days.”

For a long time, the cross-border e-commerce narrative centered on Amazon has begun to be rewritten.

This time, it is the turn of the former "giant" Amazon to "imitate" the path and model of domestic cross-border e-commerce platforms.

The Giant bows his head

“E-commerce in the West is being disrupted, just like retail was disrupted by e-commerce 15 years ago.”

“There has never been an American company trying to launch a large-scale cross-border project to ship goods directly from China to American consumers,” said Michael Zakkour, founder and chief strategist at New Digital, an American retail consulting firm.

According to research by e-commerce data company Marketplace Pulse, nearly 50% of third-party service providers on Amazon are Chinese sellers.In the past 20 years, there are two ways for Chinese sellers to sell goods to Amazon’s overseas users:

• FBA (Amazon Logistics): Sellers send goods in bulk to Amazon warehouses overseas. The platform will help sellers store the goods, and Amazon Logistics will complete the final delivery after the goods are sold.

• FBM (Fulfillment by Merchant): Sellers deliver goods to consumers through third-party logistics companies. Sellers can either ship goods to third-party overseas warehouses in advance and then complete the final delivery, or they can ship goods directly from China to overseas.

Due to shipping costs and delivery time issues, most Chinese Amazon sellers choose the FBA model to operate, but this adds FBA fees and inventory pressure to small and medium-sized sellers.

Today, Amazon is trying to break this "tradition" by "imitating" the "full-hosting model" proposed by China's cross-border e-commerce platforms to provide its customers with an exclusive channel to purchase low-priced goods.

It is reported that after the launch of the "low-price store", it will have a separate entrance on the Amazon website and share the backend with the main site. Backend merchants can sell goods in the "low-price channel" in the form of "store-in-store". The low-price store and the main store will be evaluated separately, and there is no follow-up selling mechanism.

In low-price stores, the price of the goods sold must be less than $20, the weight must be less than 1 pound, and the size must be within the range of 14*8*5 inches. At the same time, these goods must be sold in the form of white labels, and non-white label goods can only be put on the low-price store after the brand logo is hidden.

Sellers in low-price stores can select products and set prices on their own, and Amazon, as a platform, will be responsible for fulfillment and promotion. In terms of logistics and distribution, sellers in low-price stores no longer need to ship goods to overseas warehouses. Amazon will establish transit warehouses in China and ship goods directly from transit warehouses to the United States. The estimated delivery cycle is 9-11 days.

It is not difficult to see from the details that in the low-price store model launched by Amazon this time, sellers are only responsible for supply, and the platform is responsible for sales, logistics and follow-up services. This is very similar to the "full-hosting model" that domestic cross-border platforms have been deploying in succession in the past year.Even the main products sold are the same as those on domestic cross-border platforms, focusing on "low-priced goods".

You know, just a year ago, Amazon had publicly expressed its disdain for "low-priced goods." On June 13 last year, Amazon excluded Temu from its price search algorithm, which meant that Amazon at that time neither agreed with Temu's pricing nor wanted to participate in price comparisons with Temu.

But in just half a year, the balance in Amazon's mind has gradually tilted. In January this year, Amazon began to significantly reduce the fees for sellers of cheap clothing; in April, Amazon launched the low-cost e-commerce platform Bazaar in India, selling white-label fast fashion products and daily necessities priced no more than 600 rupees (about 52 yuan); in May, Amazon offered high discounts on commissions for low-priced clothing products in Europe, Japan, and Canada.

It seems that as early as the beginning of this year, Amazon has been deploying a low-price strategy in different sites one by one.

The recent news of the "low-price store" has further confirmed that Amazon, the former e-commerce giant, has been forced to lower its proud head and "learn" from the latecomers in the face of cross-border platforms from China.

Internal and external troubles

A cross-border e-commerce practitioner told Hedgehog Commune (ID: ciweigongshe):"Amazon is facing a severe traffic crisis."

The situation has been "deteriorating" since last year. According to data from Amazon traffic monitoring agency Momentum Commerce, Amazon's US site search traffic fell 2.4% year-on-year in July last year; in addition, according to data from mobile analysis company GWS, from April to July last year, Amazon's US site's daily active users dropped sharply from 54 million to 46 million, a drop of 14.8%.

Faced with the peak or even declining traffic, Amazon did not sit idly by. At the end of last year, Amazon reached a cooperation with Meta, allowing users to share their Facebook and Instagram accounts with Amazon accounts. In this way, after users click on the ads on the social platform, they can directly enter the Amazon page and click the "Buy with Amazon" button to complete the purchase.

However, even with the adoption of social traffic conversion, Amazon sellers still feel that "traffic is declining and sales are poor" this year. Looking up Momentum Commerce's Amazon traffic data for 2024, we can find thatAlthough search traffic has been recovering since November last year, the 15.3% growth rate in April suggests that Amazon's traffic growth is slowing again.

Amazon search traffic changes | Source: Momentum Commerce

On the one hand, this is related to the decrease in disposable income of European and American consumers in recent years. Affected by severe inflation and economic cycles, consumer purchasing power and consumer confidence are continuing to decline.

In August 2023, McKinsey conducted a survey of 4,000 consumers in the United States, of which 80% of the respondents said they were willing to try to find affordable alternatives to downgrade their consumption. Even the most popular Black Friday promotion overseas every year, "last year's hot-selling categories were all concentrated on low-priced goods." Industry insiders told Hedgehog Commune.

The situation this year has not improved significantly. According to data from the International Financial News in June 2024, the US consumer confidence index had fallen for three consecutive months before rising in May, but the future situation is still not optimistic.

On the other hand, Amazon, which was a little slow to capture changes on the consumer side, did not respond promptly to users' demand for low prices, which also left a window of opportunity for Temu and SHEIN to rise.Amazon only became anxious when it discovered that the low-cost traffic it had previously ignored had become a weapon for other platforms.

Industry insiders told Hedgehog Community that although Amazon is still the largest e-commerce portal in the United States, with the rise of platforms such as TikTok, Temu, and SHEIN, each platform is trying hard to seize the market. Under this competitive situation, the diversion of orders and traffic has become an inevitable trend.

Global Data's retail analysts also said:“The Chinese market is not a huge threat to Amazon right now, but they are growing rapidly and are eating into Amazon’s market share.”

As of January 2024, Temu has more than 50 million active users in the United States, a year-on-year increase of 300%, and the number of app downloads has exceeded 123 million. Market research firm eMarketer predicts that Amazon will earn $360 billion in revenue from online sales in 2025, a 10% increase from 2024. Temu's expected growth is even more terrifying. According to eMarketer's estimates, Temu's sales are expected to increase by nearly 60%, exceeding $30 billion.

Another cross-border e-commerce platform, SHEIN, has become the largest fast fashion consumer brand in the United States with a 40% market share. Its global sales exceeded US$45 billion last year.

Even foreign media joked about Amazon: "China's cross-border e-commerce platforms have replaced Walmart and Target to become Amazon's core competitive focus."

At this point, the importance of building a "low-cost traffic pool" for Amazon is self-evident.

A new battlefield

The “low-price store” has brought new traffic growth opportunities to Amazon, but what does the new model mean for the sellers in it?

In 2023, a survey by Gartner, a well-known industry research company, showed that last year 99% of Amazon's small and medium-sized sellers planned to open stores on other platforms.From this perspective, Amazon's launch of the "low-price store" seems to have also played a role in winning over small and medium-sized sellers.

The advantage of the full-hosting model is that after the platform takes on sales, logistics, after-sales and other aspects, as long as there are goods with low enough prices, sellers can make money on the platform with lower costs and energy.

In terms of logistics, after Amazon builds warehouses in China, sellers can sell on the platform in smaller quantities without having to ship goods to overseas warehouses and bear the high inventory costs of overseas warehouses. In addition, sellers can also enjoy the US preferential policy of "tax exemption for orders over $800". It is reported that Amazon's low-price stores can save more than 45% of costs in the end-to-end fulfillment process.

An industry insider told Hedgehog Community: "In the short term, low-price stores are good for small and medium-sized businesses."

Any new model will have a certain bonus period when it is first launched. In the past, Amazon's main site adopted an advertising bidding model. The more sellers in the same category, the more demand there is for traffic promotion, and the higher the advertising fee Amazon charges. Therefore, for low-priced products that already have meager profits, in extreme cases, the "cost per click" may exceed 20% of the list price. If the conversion rate is average, it will be difficult for sellers to make a profit.

An industry insider explained: "After the launch of the low-price store, firstly, Amazon will definitely provide traffic at the beginning of the project, and sellers will still make money after the order volume increases; secondly, after the number of orders increases, sellers will have more room for bargaining when facing factories."

But in the long run, the real beneficiaries of low-price stores are factories and manufacturers.

This is because, without a strong supply chain system to support it, Amazon will definitely not be able to compete with domestic cross-border platforms by simply "lowering prices". Therefore, Amazon must not only imitate the Chinese e-commerce model superficially, but more importantly, copy the supply chain advantages. As we all know, China has the most efficient supply chain system in the world, so it is easy to understand why Amazon wants to build warehouses in China and create full-service hosting.

As long as it is a fully managed model, the ultimate goal of the platform is nothing more than "finding the supplier with the lowest price in the same category." Obviously, only the source factories and manufacturers can do this.

"The smart thing about the platforms is that they attract more than just small sellers. What the platforms ultimately want to attract are people who can provide the platforms with lower-priced goods, which is why many cross-border platforms now support factories and industrial belts," said an industry insider.

Of course, this also means that if the platform wants to make money from all aspects, it will have to bear greater risks. Whether it is warehouse management or logistics distribution, the full trusteeship model is extremely challenging for the platform's resource integration capabilities and economic capabilities: "After the platform completes the entire chain of cross-border e-commerce, it will have to bear the financial pressure that may be brought about by high inventory age and slow sales."

At the same time, what Amazon needs to think more about than other platforms is how to balance the traffic distribution between low-price stores and main stores when the low-price store model matures.

Currently, Amazon's low-price store is only open in the United States and is still in the internal invitation stage. It is expected to open project registration this summer and start accepting goods for warehousing in the fall. It may be opened in other countries and regions in the future.

With Amazon joining the full-hosting model, a new battlefield for cross-border e-commerce platforms has officially opened up. Who will have the last laugh in the new round of fighting will depend on their own abilities.

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