Source | BohuFN

Recently, Amazon held a closed-door meeting in Shenzhen, where it revealed its upcoming new project, the "Low-Price Store," for the second half of the year.

Upon its launch, this low-price store quickly garnered widespread attention from the industry and received high praise. In the eyes of insiders, Amazon's "Low-Price Store" is about to unleash a storm of low prices in the American market.

According to material information shared by sellers, Amazon emphasizes that the "brand-new Low-Price Store" will be shipped directly from China by Amazon. By Amazon's definition, this is a store dedicated to providing customers with white-label low-priced fashion, home, and daily necessities items. Fulfillment and delivery will be handled by Amazon's warehouses operated in China, with estimated delivery times of 9-11 days directly to customers.

To some extent, the "Low-Price Store" resembles a fully managed model. Sellers only need to ship products to Amazon's warehouses in China, and Amazon's Chinese warehouses will handle fulfillment and delivery after customers place orders.

However, there are also opinions suggesting that sellers have pricing power within a maximum limit of $20, making it more like a "semi-managed" model.

Traffic is another attractive point of the low-price store. Amazon describes the Low-Price Store as an exclusive store that directly reaches hundreds of millions of Amazon customers. It also mentions focusing on selected categories to increase the exposure of low-priced products; Amazon will invest in promoting and driving traffic to this project, such as collaborating with overseas influencers and placing advertisements.

Furthermore, Amazon officially promises that existing FBA products will not appear in search results for the Low-Price Store, providing a fairer competitive environment for sellers on the Low-Price Store.

01 Amazon: Join the Competition It Couldn't Beat

In September 2022, Temu entered the American market. A month later, Temu's GMV exceeded $1.5 million.

$1.5 million was not enough to directly compete with Amazon. A set of data may help illustrate the gap: Amazon's net sales for the first quarter of fiscal year 2024 were $143.313 billion.

Temu truly gained attention in February 2023. At that time, Temu invested $14 million in Super Bowl advertisements, buying two 30-second spots during the NFL championship game. It is estimated that 100 million Americans saw Temu as a result.

This marketing campaign led to a 45% surge in Temu's downloads overnight, a 20% increase in daily active users, and coverage by mainstream American media.

Since then, Temu and Amazon have found themselves on a collision course.

In its competition with Temu, Amazon has gradually been described as "a middle-aged person with slowed metabolism," while Temu is seen as a "teenager growing rapidly."

As of December 2023, Temu's unique visitor count reached 467 million, second only to Amazon, making it the world's second-largest shopping platform. This data indicates Temu's rapid rise within a short period, attracting a significant number of unique visitors.

According to e-commerce data platform Lanhaiyiguan, in the most recent quarter, Temu's unique visitor growth rate soared to 49.06%, while Amazon's growth rate was only 3.09%.

Behind this disparity in growth rates, sellers have felt the fluctuations in Amazon's traffic.

According to feedback from some sellers, traffic for many low-priced items, especially home products priced between $10 and $15, has declined by 20% recently.

Regarding the impact of Temu, Amazon has actually taken countermeasures. For example, it previously reduced shipping fees for products priced below $10 and reduced commissions on low-priced clothing to retain its share of the low-price market. However, judging from its development, these measures have not yielded significant results.

The launch of the "Low-Price Store" is also interpreted as Amazon directly "throwing down the gauntlet."

In the eyes of sellers, Amazon has learned from the lesson of domestic e-commerce being overshadowed by Pinduoduo, and has preemptively deployed its strategy to avoid being outmaneuvered by Pinduoduo's super cost-effectiveness due to stubborn adherence to its own business philosophy.

Clearly, Amazon has genuinely felt the threat from Temu and has drawn the blueprint for the "Low-Price Store" based on Temu's model.

02 Some Cheer, Some Worry

The discussion around Amazon's newly launched Low-Price Store is heated, with differing viewpoints. Sellers in different situations have different considerations.

Externally, Amazon may bring some counterbalancing force in the low-price battle ignited by Temu; however, for Amazon's internal merchants, especially low-price merchants, this may not be good news.

From a model perspective, Temu's fully managed model covers all categories, with merchants only responsible for supplying goods without pricing power, relying on platform traffic for small profits but high volumes. In contrast, Amazon merchants have pricing power and can control their profits. This is a significant reason why sellers prefer Amazon's Low-Price Store.

Additionally, logistics is a crucial link in the cross-border e-commerce value chain. Amazon's ambitions in logistics are well-known.

From AGL (Amazon Global Logistics), the Dragon Boat Program, AWD (Amazon Warehouse Delivery), to MCD (Multi-Channel Fulfillment), we can see Amazon's interest and aspirations in logistics.

In the third quarter of last year, Amazon announced the launch of Amazon Supply Chain Solutions, covering factory pickup, cross-border first-mile transportation, customs clearance and duty processing, bulk storage inventory, management of replenishment for sellers' other channels, and delivery to end customers.

Based on Amazon's existing system capabilities, this Amazon version of fully managed services is also seen as "a brilliant business counterattack." Some sellers believe that this counterattack is commercially brilliant, and if Amazon executes it with sufficient force, it may prevent other platforms from successfully implementing fully managed services in the future.

However, at the same time, this seller also believes that from the perspective of the cross-border e-commerce industry's development, this is a typical historical regression of bad money driving out good. Amazon's degradation from its 20-year-old brand + FBA system to the white-label era of price wars can only be described as hurting the enemy by a thousand and hurting itself by eight hundred, with sellers ultimately footing the bill regardless.

In fact, many sellers have expressed such concerns.

On the one hand, some sellers are concerned that in the model of the Low-Price Store, sellers do not have promotion rights, which may lead to a development trend of "pushing traffic to whoever has the lower price." "It's like doing charity again," one seller joked on social media.

On the other hand, Amazon's push for low-price stores will escalate internal competition and even trigger "civil wars."

A cross-border e-commerce practitioner, A Si, told BohuFN that her store currently focuses on low-priced products. The low-price environment on Amazon is already "extremely competitive." In her view, the main direction of the Low-Price Store may be "large volume with lower profits."

It is foreseeable that for original low-price sellers, the Low-Price Store will only further intensify internal competition.

In articles discussing the Low-Price Store, a highly upvoted comment reads: "I don't expect Amazon's fully managed service to succeed. Amazon's use of its existing FBA advantages will surely harm sellers in the current system. If it doesn't leverage existing FBA advantages, it will not be cost-effective or systematically advantageous."

We will wait and see what changes the Low-Price Store will bring to cross-border e-commerce in the future.

References:

1. Lanhaiyiguan: Amazon's "Fully Managed" Will Disrupt a Group of Freight Forwarders

2. iEn: Amazon Launches Fully Managed Services! Many Sellers Seek to Join

3. LatePost: From the Super Bowl to the Euro Cup, Chinese Companies Aspire to Reach the Global Stage

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