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Text｜Yiwen

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The e-commerce low-price war has spread overseas.

On June 26, Amazon announced its "low-price store" plan at a closed-door, invitation-only meeting.

Amazon, which once strongly condemned the vicious price competition, has also joined the low-price competition. This is Amazon's biggest move in recent years and the biggest news in the cross-border e-commerce industry.

How is Amazon doing now, even though it once disdained to make money from "poor people"?

1. Launch a low-price mall

Amazon’s strategy for price war is to let Chinese sellers compete with Chinese sellers.

"Brand new low price store, shipped directly from China by Amazon!"

It is revealed that the low-price mall focuses on selling unbranded goods and mainly recruits investors in categories such as fashion, home furnishings and daily necessities.

Currently, Amazon's low-price mall project adopts an invitation system and is expected to send invitations to eligible sellers in the next 2-3 months.

The store will exist as a sub-mall of the Amazon main site, with an independent entrance and search result display. It will also share the backend system with the main site and be managed through the site switching function.

In addition, the project also stipulates that merchants have the right to independently set prices for white-label fashion, home furnishings, and daily necessities priced under US$20.

In addition to logistics, Amazon is also responsible for promotion and traffic. Of course, sellers can still independently advertise, price and promote their products to maintain the individuality and independence of their brands.

However, many sellers are worried that in the low-price store model, sellers do not have the right to promote, which may lead to a development trend of "driving traffic to whoever has the lowest price", thus triggering vicious price competition.

In other aspects, after-sales regulations stipulate that there is no return for refunds for goods below $3, and you can choose to only refund for goods above $3. The commission is the same as the main store, charging a 15% commission.

In terms of operating model, Amazon adopts a "full-hosting model". Sellers need to ship goods to Amazon China warehouse. After buyers place an order, Amazon China warehouse will fulfill and deliver the goods. It is expected that the goods will reach customers in 9-11 days.

You should know that in the past, Amazon's Chinese merchants needed to first send their products to Amazon's logistics warehouse in the United States, and then the warehouse would arrange delivery. Merchants often could not enjoy policy benefits and also increased inventory risks.

"Full custody" means that, under the premise that the ownership of the goods still belongs to the seller, the platform will personally take charge of the entire process "from sales, fulfillment to after-sales" for the seller on the platform. After the fulfillment is completed, the platform will settle with the seller according to the agreed price.

Amazon’s traditional sales models include FBA and FBM.

The FBM (Fulfilled by Merchant) model means that the seller is responsible for the storage, packaging, and distribution of the goods, and delivers the goods directly to consumers.

The FBA (Fulfilled by Amazon) model means that sellers store their products in Amazon’s warehouses, and Amazon is responsible for the storage, packaging, delivery, and returns of the products.

Amazon officials said that the shipping costs from domestic warehouses will be lower than traditional FBA (Fulfillment by Amazon) fees, similar to domestic air parcel services, which will undoubtedly significantly reduce sellers' logistics costs.

Pinduoduo's overseas brand Temu pioneered the fully managed model for cross-border e-commerce and has thrived overseas with it.

In Temu's fully managed model, merchants are only responsible for supplying goods and do not have pricing power. Amazon merchants, on the other hand, have pricing power within the $20 range and can control profits.

Therefore, some people believe that Amazon's model is more like "semi-hosting".

In any case, from the adjustments in operating rights to logistics, combined with the Bazaar low-price e-commerce platform launched by Amazon last year, all these changes show that Amazon is determined to enter the low-price market.

2. Temu and SHEIN attack from both sides

Many people may not have an intuitive understanding of Amazon’s positioning in the e-commerce industry.

For example, Apple suddenly launched products similar to the "Redmi" series to cope with the low-end market.

Amazon has been focusing on the high-end market for many years, not wanting to earn money from the "poor", and ignoring the huge potential of low-end consumers. Even in the United States, there is no e-commerce platform that specifically serves the middle- and low-income groups.

The reason why such a big change is made now is simply that some people are doing well in the low-end market and Amazon is getting anxious.

The trend of e-commerce involution has reached the United States. The challengers are not American e-commerce companies, but cross-border e-commerce platforms Temu and SHEIN.

Temu is a cross-border e-commerce platform under Pinduoduo, and was officially launched overseas in September 2022.

With strong momentum, in less than two years, Temu has opened 70 sites and has become the world's second largest shopping platform.

Data from April this year showed that Temu's number of users in the United States has exceeded 100 million, with 467 million unique visitors, second only to Amazon.

In April 2024, TEMU took 17% of the US retail market share. Although its size cannot be compared with Amazon's market share of about 40%, its strong growth momentum has made Amazon panic.

Marketplace Pulse data shows that in October 2022, Temu topped the U.S. iOS App Store shopping app download list, surpassing Amazon and surpassing three major retailers: Amazon, Target and Walmart.

Just as Pinduoduo is making great progress in China, Temu also dealt a heavy blow to Amazon in the United States with its low-price strategy, making Amazon realize that "e-commerce can be played this way."

Temu's core strategy is "low price".

Temu is named after the concept of "Team Up, Price Down" and introduces a bidding mechanism to encourage merchants to compete to offer the lowest price. At the same time, it attracts consumers to buy by setting up coupons and cross-store joint marketing.

The support behind the low price is the domestic supply chain. Temu pioneered the "full trusteeship model" of cross-border e-commerce, bringing Chinese merchants abroad, entering the market at low prices, and grabbing a certain market share.

One and a half years after the full hosting model was launched, Temu began to focus on the semi-hosting model to compete with Amazon for local merchants.

The so-called semi-trusteeship means that the pricing and operating rights still belong to Temu, but sellers do not need to supply goods to warehouses domestically. Instead, they can use their inventory in overseas local warehouses (even Amazon FBA warehouses) and directly put them on Temu for sale.

This also means that sellers of large items and Amazon sellers who want to clear their stock attracted by the semi-hosted model will greatly expand Temu's SKUs and enrich Temu's in-site ecology.

It seems that the second phase of Temu is no longer a simple copy of Pinduoduo, but a Pinduoduo PLUS version with low prices, categories and brands.

In response to Temu, Amazon has taken actions such as removing Temu from the price comparison system, reducing commissions, and reducing logistics rates, allowing sellers to "compete at low prices" with ease.

But Pinduoduo's ambitions are growing, and Amazon needs to make bigger adjustments to cope with the impact.

In addition to Pinduoduo, SHEIN should not be underestimated.

SHEIN is a fast fashion cross-border clothing company, which has been called "PDD of the clothing industry" and "Chinese version of ZARA" by the media.

SHEIN's growth momentum is also strong.

According to data from third-party platforms, in the fashion retail industry, SHEIN has surpassed traditional US retailers Macy's and Nike, and is second only to Amazon and Walmart.

SHEIN has overturned the traditional clothing industry's large-scale production and long-cycle sales model through its innovative "small order, fast response" model. That is, SHEIN starts with a small batch of 100-200 pieces, and quickly replenishes orders or stops losses in time according to sales conditions.

This not only reduces inventory costs, but also lowers product prices, allowing SHEIN to surpass traditional fashion giants in efficiency, fashion and cost-effectiveness.

In terms of brand building, SHEIN has a large number of self-branded products, integrating the entire chain of work from product design, planning, fabric procurement, manufacturing, sales, marketing, and sales, and has established cooperative relationships with fashion bloggers in different countries around the world, creating an innovative marketing strategy with "Internet celebrity recommendations" as the core.

3. Amazon’s mid-life dilemma

Under the common low-price strategy, Temu uses quantity and SHEIN uses quality to encircle Amazon from both sides. How should Amazon respond?

From the establishment of a small e-commerce online bookstore in 1994 to the development into a consumer and technology giant integrating e-commerce, cloud computing, artificial intelligence, and offline physical stores, Amazon's development history is actually a history of e-commerce's subversion of traditional e-commerce.

But now, 30 years later, Amazon seems to have joined the ranks of "traditional" e-commerce and is being disrupted by new types of e-commerce.

Amazon’s current situation is very similar to Taobao’s. Both are leaders in the early development of e-commerce, and both are facing the dilemma of being trapped both internally and externally and being unable to turn around.

On the one hand, the wind direction of the e-commerce "red ocean" has changed.

In the early stages of development, e-commerce brands entered the market recklessly to reap traffic and users. However, now that e-commerce has entered the second half, user growth has peaked, social consumption has downgraded, and low prices and high-quality services have become the core of the competition for users.

Throughout its 30-year history, Amazon has been committed to deepening its brand and high-quality services, that is, the high-end market.

However, in the context of a sluggish industry, it has become a general trend to lower your head and compete for the sinking market.

Amazon is being forced to do something it's not good at.

Similar to how Taobao encountered multiple blockades from Pinduoduo, JD.com, and Douyin on its way to lower-tier markets, Amazon is also facing the impact of rivals such as Temu, SHEIN, and TikTok.

In addition to Temu and SHEIN mentioned above, TikTok's (Douyin's overseas platform) cross-border e-commerce business has also grown rapidly, just like the impact of domestic Douyin e-commerce on Taobao, JD.com, and Pinduoduo's old e-commerce platforms.

According to the latest U.S. summer promotion report released by TikTok Shop, TikTok Shop’s U.S. site broke three records during this period: single-day GMV, platform short video single-day GMV, and platform single-day live broadcast GMV, with overall GMV increasing by 129%.

TikTok plans to expand the size of its TikTok Shop U.S. business 10 times to $17.5 billion this year.

It seems that Amazon's external enemies will only become stronger.

On the other hand, Amazon's e-commerce platform is also facing difficulties such as slowing growth and the exodus of small and medium-sized businesses.

Amazon's performance hit a low point in 2022. Throughout 2022, Amazon's net sales were $514 billion, a year-on-year increase of 9%; its net loss was $2.7 billion, the worst performance in Amazon's history.

Although Amazon actively carried out self-rescue in 2023, its performance has recovered. But this was achieved at the cost of heavy layoffs and the closure of multiple sub-businesses such as Kindle.

Now let’s look at merchants. Amazon used to rely on the FBA model to lock merchants firmly within the site, but the new one-stop service represented by Temu and SHEIN provides merchants with more worry-free and convenient options.

In addition, Amazon has been conducting a large-scale merchant ban campaign since last year, which has accelerated the exit of many small and medium-sized commodity sellers from Amazon.

Faced with internal and external difficulties such as user and merchant loss, Amazon opened a low-price mall, adopted a full-hosting model, and cooperated with the social media Meta... actively transforming to cope with the siege of Temu, SHEIN, and TikTok.

But is it really effective to copy the strategies of domestic e-commerce and apply them to Amazon?