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Amazon Goes to China for New Budget-Friendly Marketplace

5 Jul 2024

Growing competition from Temu and Shein has the ecommerce giant launching a new section for directly sourced discount products

By Michella Chiu, Mars UnitedSM Commerce

Amazon is making a significant move to compete with rapidly growing Chinese ecommerce platforms Temu and Shein by introducing a new marketplace featuring discount products from Chinese sellers, according to a report from The Information. This strategic initiative represents Amazon’s most direct response yet to the growing global impact of its Chinese competitors.

How It Works

Similar to Temu and Shein, Amazon will source and ship products for the new marketplace directly from warehouses in China. This strategy will result in lower prices for consumers, although it will slow standard delivery times to a range of nine to 11 days.

Amazon’s discount marketplace will encompass a variety of products, including fashion, home goods, and everyday essentials. Merchants on the platform will have the freedom to choose their products and set their own pricing. Additionally, Amazon is adopting Shein’s strategy of allowing sellers to manufacture items in small batches to gauge demand and minimize waste.

Amazon plans to begin onboarding merchants this summer, with inventory acceptance slated for the fall.

The Path Forward

Amazon has faced challenges in countering the growing appeal of Shein and Temu, whose low prices and vast array of trendy products have resonated with budget-conscious shoppers. But while it has made previous attempts to compete on price (such as lowering seller fees for inexpensive apparel), Amazon has largely emphasized its faster delivery speeds and reliability to distinguish itself from the competitors, which are known to have longer shipping times and variable product quality.

This aggressive new strategy is a clear sign that Amazon is concerned about the progress its Chinese competitors are making. Particularly worrisome is the growing number of repeat customers flocking to these platforms. Despite its strong success with customer retention and sizable market share, Amazon is clearly feeling some pressure and prepared to take a more aggressive stance to maintain its ecommerce dominance.

Potential Implications:

1. Impact on Amazon Basics and Amazon Essentials: The effect on Amazon’s own-brand business will depend on the competitiveness of the new section. Here, Amazon won’t focus on pricing but its product quality and brand equity. A key factor will be Amazon’s ability to quality-assure its own products.

2. The Future of Drop-Shippers: Low-cost, China-made items might challenge some current drop-shippers, although the ones offering unique products and exceptional customer service could still thrive.

3. Advertising Opportunities: Amazon might prioritize advertising for categories less likely to be impacted by the discount section, such as food and beverage. This could boost visibility for sellers in these categories, although it might also lead to higher ad costs due to increased competition.

4. Logistical Considerations: Temu’s business model, which involves shipping low-value products to the U.S., may not be sustainable in the long term. Amazon is likely to leverage its own fulfillment system to ship products in bulk, utilizing at least part of the infrastructure built for the existing Amazon Global Logistics program. At present, this program gives third-party Amazon Marketplace sellers the ability to ship directly from China to Amazon fulfillment centers and warehousing/distribution facilities, at reduced costs and competitive rates.

Considerations for Brands

To stay competitive as the ecommerce landscape changes, brands should consider the following strategies:

1. Embrace Operational Efficiency: Adopt manufacturing practices that allow for small-batch production to quickly respond to market demand and reduce waste. Leverage efficient logistics solutions strategically across all products. This will require gaining intelligence on what those offerings are, and then diligently choosing the ones that best align with your business goals.

2. Strengthen Branding: Invest in strong branding and design to stand out in a crowded marketplace where inferior, low-cost items will be abundant.

3. Enhance Customer Experience: Focus on providing exceptional customer service and a seamless shopping experience to build loyalty and encourage repeat purchases.

4. Explore Advertising: Take advantage of Amazon’s advertising platform to increase your visibility, particularly in categories less likely to be impacted by the new discount marketplace. Always stay data-driven when making decisions on optimization.

By adopting these strategies, brands can better position themselves to thrive in an increasingly competitive ecommerce environment.

Mars UnitedSM Commerce has a dedicated, full-service team of more than 20 account managers, media strategists, content creators, DSP and search specialists, analysts, designers, and copywriters capable of supporting the end-to-end needs of clients looking to drive sustainable growth on Amazon.

For more information about how Mars United can help you build best-in-class Amazon strategies, contact Melissa Wightman at [email protected].

Michella Chiu, Director of Ecommerce Strategy at Mars United Commerce

About the Author
Michella Chiu is Director of Ecommerce Strategy at Mars United Commerce, where she uses her background in marketing and academic research to lead global ecommerce strategy, activation, and program management for clients such as Mars, Inc., Campbell Soup Company, and Crayola. Her core functions include catalog support, operations, content development & optimization, and analytics. She can be reached at [email protected].

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