E-commerce battlefield under consumption downgrade: Can Amazon withstand the impact of “price-performance kings” such as Temu and SHEIN?
Since the beginning of this year, the keyword “low price” has occupied an unprecedented high frequency position in Amazon’s official statements and financial discussions, becoming the focus of market attention. In August, with the release of the second quarter 2024 financial report, Amazon CFO Brian Olsavsky’s speech in the earnings conference call deeply revealed the current situation and challenges facing the company. He pointed out that the revenue growth in North America failed to meet the optimistic expectations set internally. The core driving force of this deviation lies in the significant changes in consumer behavior – they are increasingly inclined to choose “more economical” shopping options, and this trend directly lowered Amazon’s overall average selling price.
Then, Amazon’s helmsman, President and CEO Andy Jassy further elaborated on this point, revealing a deep insight into industry dynamics in his words: “The change in consumer preferences is not only a higher pursuit of cost-effectiveness, but also a direct reflection of the trend of consumption downgrade in the current economic environment. This means that the average selling price of goods on our platform has to be adjusted down to meet market demand.” As early as a few months ago in the fourth quarter 2023 earnings call, Jassy had foresightedly mentioned: “The implementation of the price reduction strategy is not complicated. The real challenge is how to maintain the profitability and market competitiveness of the company while reducing prices.”
Amazon, the former overlord in the e-commerce field, is now standing at a crossroads, and its revenue growth is suffering from the severe test of the wave of “consumption downgrade”. This phenomenon is not only the inevitable result of the change in consumer behavior patterns in the new global economic cycle, but also a direct reflection of the fierce industry competition caused by emerging cross-border e-commerce platforms such as Temu and SHEIN, which have extreme cost-effectiveness as their core competitiveness. With flexible market strategies, efficient supply chain management and strong digital marketing capabilities, these platforms have quickly accumulated a large number of loyal users around the world, exacerbating the market’s “involution”.
“Against the backdrop of a general decline in global purchasing power, ‘low-price’ competition has become an irreversible trend in the industry, and even industry giants like Amazon can hardly stay out of it.” A senior seller lamented, revealing his helplessness and deep thoughts about the current market environment.
For a long time, Amazon has been known as the “cheapest e-commerce platform in the United States” for its wide selection of goods, convenient shopping experience and relatively low prices. The monitoring data of Profitero, a third-party authoritative data analysis agency, for seven consecutive years has provided strong evidence for its “price advantage”, showing that its average price is about 16 percentage points lower than that of its competitors. However, with the passage of time, this dominant position is being strongly impacted by the new forces of China’s cross-border e-commerce.
According to the latest “2024 Mobile Market Report” released by data analysis agency data.ai, SHEIN, Temu, TikTok Shop and AliExpress, the leading cross-border e-commerce platforms in China, have shown amazing growth momentum in the past year, and their global downloads have surged, successfully occupying the top four places in the global shopping app download growth rankings in 2023. This achievement not only highlights the extensive influence of these platforms in the global market, but also indicates that the cross-border e-commerce field is undergoing unprecedented changes and reshaping.
Faced with such a severe market situation, whether Amazon should “fight back” and how to “fight back” effectively have become topics widely discussed inside and outside the industry. On the one hand, Amazon needs to continue to deepen its supply chain management and optimize its cost structure to ensure profitability while maintaining price competitiveness. On the other hand, strengthening technological innovation, improving user experience, and exploring new growth points are also the key to its response to challenges and consolidating its market position. In this era full of variables, every decision made by Amazon will profoundly affect its future direction in the global e-commerce field.
Opening the shopping interface of different cross-border e-commerce platforms, you can see that the price difference between Amazon and Temu and SHEIN can reach up to twice the price of some daily necessities. An obvious trend is that with the strong rise of the “Four Little Dragons Going Overseas”, Amazon’s price advantage in some light and small items is disappearing.
In June last year, Amazon excluded Temu from the price search algorithm of the Amazon platform on the grou
nds that “Temu’s products are too low and do not meet the qualification requirements of the platform’s fair pricing policy.” But since this year, facing the increasingly fierce low-price trend, Amazon is no longer standing idly by.
The first measure is to ensure the competitiveness of low-priced products by reducing sales commissions.
After lowering the sales commission of low-priced clothing products in the US site in January this year (Note: for products priced below US$15, the sales commission was reduced from 17% to 5%; for products priced between US$15 and US$20, the sales commission was reduced from 17% to 10%), in May, it announced a reduction in the sales commission of low-priced clothing products in 11 sites around the world (including Europe, Canada, and Japan) to further expand the support for merchants and improve the competitiveness of low-priced products on the platform.
In addition to lowering the sales commission for clothing products, Amazon Japan has lowered the sales commission for products with a unit price of less than 750 yen (about 35 yuan) (excluding books, music, videos, DVDs, software and video games) to 5% since June 1. At the same time, for products with a unit price of less than 1,000 yen, the delivery fee is reduced by 66 yen compared to the standard rate.
As Jassy said in the second quarter 2024 earnings conference call, although the reduction in seller fees may have a certain impact on Amazon’s revenue, Amazon is satisfied with the trend, “reducing clothing commissions has stimulated a significant year-on-year increase in clothing sales.”
The second important move is to extend the promotion cycle.
Compared with the “long-term” promotion of domestic e-commerce Double 11, which often takes half a month, overseas e-commerce shopping festivals often appear to be more “straightforward”. For example, Amazon’s most important annual promotion event, Prime Day, usually lasts for 2 days, and “Black Friday” plus “Cyber Monday” usually only lasts for 4 days.
But since last year, the Black Friday promotion of cross-border e-commerce platforms has been extended under the impetus of the four major e-commerce companies overseas in China – Temu lasted 25 days, SHEIN US lasted 15 days, TikTok Shop lasted 35 days, and AliExpress lasted 10 days. Amazon also extended the Black Friday event to 11 days for the first time, including the US and European sites from November 17 to November 27.
This year, Amazon announced in early August that the Black Friday online promotion would be scheduled from November 21 to December 2, that is, the event was extended to 12 days.
The longer promotion time undoubtedly makes the overall “price power” of the platform more obvious. For example, last year Temu’s super-long Black Friday promotion gained “huge traffic”. According to data from SimilarWeb, its visits during the event increased by 74 times year-on-year.
What is even more shocking to the industry is that Amazon is reported to be promoting a new “low-price store” project.
The project focuses on white-label and low-priced products, and will have an entrance on the homepage of the Amazon website and an independent search result display. Sellers have the right to select products, set prices and participate in activities. They only need to send the products to Amazon’s domestic warehouse, and then Amazon will send small packages from China to overseas consumers; Amazon is responsible for on-site advertising and off-site promotion, and charges sellers commissions. From the perspective of recruiting products, it mainly targets light and small items such as fashion, home furnishings and daily necessities, and products priced under US$20.
In the words of an industry insider, the project achieves the price competitiveness of the platform from two aspects: first, reducing costs at the fulfillment level. In the past, sellers used FBA to ship goods, which could guarantee a better service experience, but the high delivery costs led to high terminal pricing for merchants. Low-priced stores greatly reduced sellers’ fulfillment costs through domestic direct delivery, thereby achieving price reductions; second, increasing efficiency at the traffic distribution level. Low-priced stores have the right to promote by the platform, so they can allocate traffic to products based on “price” and “ratings”, weaken the unit price of items, increase the average customer price, and thus increase the ROI on the site.
This also seems to mean that Amazon’s direct competition with China’s cross-border e-commerce industry has begun.