Will they give Amazon Haul lotta love?
An in-depth look at Amazon’s ‘low price zone’ and challenges and expectations
Contents
Things that caught our attention
On December 9th, Tech Buzz China editor Ed Sander was interviewed about Temu, Shein and other webshops at an event organised by Vereniging Nederland-China (Netherlands-China Association). The audio recording can be played here.
Lianshang wrote an article about the state of JD’s Hema-clone 7Fresh. Ed summarized it on LinkedIn.
We wrote about Lightning Warehouses' instant retail concept in 2023. Ed shared a visit to one of these warehouses on LinkedIn.
Now that we have mentioned instant retail, Ed posted a 10-minute clip on LinkedIn summarizing the three business models of this booming e-commerce sector.
Earlier this year, we wrote two reports on how Alibaba's New Retail strategy had largely failed. Alibaba is now shedding off its unsuccessful investments and selling Intime (Yintai) with a $1.3 billion loss. (source)
Introduction
In June this year, Amazon gathered a group of merchants in a meeting about a new project that, at the time, was referred to as Amazon’s ‘low-price zone’. Attendees were kindly requested not to take pictures and share them online. Of course, this is just what happened, and before long, the internet was a-buzz with discussions about ‘Amazon’s answer to Temu’.
The project eventually launched just before Black Friday under the ‘Amazon Haul’ moniker. At Tech Buzz China, we analysed interviews with various experts close to Amazon to gain more insights into this new initiative. Are those close to Amazon bullish or bearish about Haul? And what challenges lie ahead?
The first two chapters of this report are available to all subscribers. To access the rest of the report in which we dissect Amazon Haul and look at its challenges and outlook, please consider supporting our work and becoming a paid subscriber.
We wish you all a wonderful festive season. In January, we will return with a special on our predictions for 2025.
Cheers,
Ed Sander – Research Editor
When Temu made Amazon uneasy
Opinions on the impact of new platforms like TikTok Shop and Temu on Amazon have always differed. Some experts say that the effect is not as significant as one might expect. However, new platforms would substantially impact local platforms like those in the fragmented European market. They claim that due to the differences in product pricing strategies between the two companies, sales and visits to Amazon's existing products have not been significantly reduced due to the emergence of Temu.
Furthermore, Amazon's execution capabilities are generally considered to be better than Temu's. Amazon excels in user operations, especially logistics and warehouse management. Meanwhile, Temu's operations appear more chaotic, relying mainly on lowering prices to obtain goods. They claim the impact is still limited, and shaking Amazon’s position in the next 5-10 years will be challenging.
However, our recent Temu Watch 4 report showed that Temu is working hard to improve product quality. The platform’s semi-managed model speeds up delivery and expands its assortment to include more bulky products. Temu has already started selling everything from e-bikes to furniture from local warehouses, becoming more like Amazon.
Research shows that Temu has a market share of about 6-7% in the US, especially in low-priced products. The impact of Temu and other emerging e-commerce platforms is mainly reflected in traffic. Amazon's traffic has decreased by 5%, which has significantly affected the company and the overall growth rate of GMV.
According to some forecasts, by 2027, Temu may account for 20% of Amazon's share in the US market. This significant growth will undoubtedly impact Amazon's market position and may lead to a decline of its US market share.
Amazon and Temu compared
Amazon and Temu have significantly different market strategies and product qualities, directly affecting their competitive positions in the global e-commerce market.
The overlap in merchants between Temu and Amazon has been said to be low, at only 5%- 8%. Most of Temu’s semi-managed model merchants come from various sources, including independent website operators and operators who have opened physical stores in the United States. However, Temu has been aggressively recruiting merchants already selling on Amazon, especially after launching its semi-managed model.
Amazon and Temu compete differently in different product categories. In the apparel sector, there is less overlap, as Amazon mainly sells goods over $15, while Temu's products are mostly no more than $20. However, the two companies significantly overlap in goods such as wireless headphones and electronics.
The overlap of products between Amazon and Temu is about 30%. After Temu adopted the semi-managed model, this duplication rate increased to 40%, mainly because many products had previously been sold on the Amazon platform.
Amazon's leading customer group consists of people with an annual income of over $50,000, while Temu focuses on serving lower-income consumers. This differentiated positioning enables Amazon and Temu to play their respective advantages in different price segments and consumer groups. Although the overall market structure is not expected to change fundamentally, competition in the low-price market will intensify.
In May 2024, Amazon sent people to investigate more than a dozen top merchants who had access to Temu and found that they were currently only using Temu as a channel to clear their inventory. And as Temu's sales scale expanded and it pursued stricter compliance, it was beginning to attract more and more Amazon sellers. [1] Also, Amazon noticed that Temu was gradually introducing brands, a trend it needed to pay attention to and respond to.
More worrying for Amazon is that research shows that the launch of Temu attracted some Generation Z consumers, whom Amazon targets as their future leading customer group, especially young people who have just entered the workplace. It is difficult to change once consumers develop a particular shopping habit. This situation prompted Amazon to rethink its market strategy.
Amazon’s initial responses
The rise of Shein and Temu has put significant pressure on Amazon's clothing category. In response to this challenge, Amazon adjusted its overall strategy from mid-2023.
Like Temu, Amazon also uses a price comparison system. If it finds that the price of a product is higher than other platforms, it may ask a merchant for a price reduction or suspend sales. Since June 2023, Temu has been excluded from this price comparison mechanism due to its hefty price fluctuations. Including Temu in the tool would put unreasonable pressure on merchants selling on Amazon. Some experts claim that to maintain Amazon's brand image and avoid falling into pure price competition, Amazon is unlikely to compare prices with Temu in the future. However, as Temu decreases subsidies on prices and aims to have them at 85% of those on Amazon, it should not be ruled out that Temu will be included in Amazon’s price comparison again.
Amazon has traditionally focused on standardized products but is relatively weak in non-standardized products. Clothing is classified as a non-standardized product, so the rapid development of Shein and Temu has forced Amazon to pay more attention to expanding this category. Specifically, Amazon has increased its resource investment in this category, providing support for small and medium-sized brands and stores. Based on the macro environment analysis and exchanges within the industry, Amazon's support policy for the clothing category is expected to last about two years.
In response to the popularity of Shein, Amazon cut the commission of the clothing category under $15 from 17% to 5%. For products priced between $15 and $20, it decreased fees from 17% to 10%. This is remarkable since Amazon had previously raised the commission in this category from 15% to 17% in 2018. [2] Amazon has also been catering to merchants in other ways. It has made FBA more attractive by lowering the commission to 8-10% and making FBA fees almost free for invitation-only items. These measures significantly reduce a merchant’s operating costs and improve their profitability.
In the fourth quarter of 2023, Amazon implemented official subsidies to price some products lower than Temu. However, this strategy was less effective than expected and failed to last long. Subsidies are difficult to sustain for several reasons: the platform believes they will consume marketing budgets, they have failed to bring economies of scale in the short term, and user perception is not high.
This year, Amazon has implemented various promotional strategies and external marketing to maintain user traffic and market share. These include increasing the discount range and extending the promotion time. Amazon even reduced the price of some well-known brands of goods to 60% of the original price by providing subsidies to attract consumers. Although these strategies may affect short-term profits, Amazon expects these measures to help achieve triple-digit sales growth this year.
Overall, Amazon needed to do more to regain its low-price positioning and retain users after losing substantial traffic to Temu. This ‘small hole in the dam’ could become bigger and result in a dam burst in the future. [3]
Amazon ‘does a Temu’
Amazon's overall sales growth slowed this year. The company took a series of measures, including reducing commissions and logistics costs for some products, but the effect was not ideal. So, the company launched a new plan to further enhance its market competitiveness. On June 16th 2024, Amazon gathered more than 300 merchants in a closed-door meeting and announced it would open a low-price store on its platform. [1]
Photo taken by a merchant at the Amazon briefing. [3]
Amazon shared the following information during the meeting: [3]
The low-price store would have a separate entrance in the app and independent search results display but use the same technological framework and a slightly different back end.
The browsing interface and presentation of low-price stores would differ from those of the main site or app. The design would be dominated by warm colours, lively and unrestrained, the opposite of Amazon’s main site.
Product categories: fashion, home, and lifestyle, clearly chosen to compete with Temu.
Selection criteria: low price (under $20), low weight (less than 1 pound and within the size of 14 x 8 x 5 inches), safety (non-spreadable and non-edible), non-branded (white label). Merchants can join by invitation only.
Responsibilities: Merchants ship to Amazon warehouses in China instead of Amazon warehouses in the US. Amazon would be responsible for further logistics (with delivery times of 9 to 11 days) and for on-site and off-site promotion. Unlike Temu, merchants can manage prices and inventory and participate in promotions.
Commissions would be identical to those on the main Amazon site.
Refunds only, no return shipments.
On October 22nd, more rules were shared with merchants. In addition to those above, the details below were published by Marketplace Pulse. [4]
Invite-only for sellers based on program eligibility criteria and capacity.
Amazon fulfils all orders from inventory stored in an Amazon-operated fulfilment centre in Dongguan, Guangdong province, China (home to 47% of Chinese sellers on Amazon). Seller fulfilment is not available.
It is unclear whether the program is limited to Chinese sellers or whether U.S. sellers with manufacturing facilities in China can participate.
Sellers must list all products with a brand name of “Generic.”
Items are not part of the regular Amazon search and must be accessed as a separate storefront via the Amazon app.
Items must not contain batteries, must not be ingestible (for example, food), or intended to go on the skin topically. No items that require additional documentation for cross-border compliance, like baby, children’s, or pet products.
Items have maximum eligible price points at the product-type level (nearly 700 types). For example, $14 shorts, $12 hair trimmers, $10 necklaces, $8 calculators, and $7 toothbrush holders. The most expensive categories are at $20. Listings above those price points will get deactivated.
Listings can only be created using the spreadsheet upload tool. Creating or editing listings using the List Your Products tool or Listing APIs is not supported.
Fulfilment fees are $0.50 for products 4 oz or less and under $3, $0.99 for apparel, and $0.88 for non-apparel for 4 oz or less and above $3. Products above 4 ounces start at $2.05 for apparel and $1.77 for non-apparel and increase based on weight. Plus, there is a $0.40 per cubic foot per month storage fee.
The return window is 15 days from the date of item delivery. Products priced at $3 or less won’t be eligible for buyer returns.
Returned items will be liquidated and not sent back to the seller. Inventory will be sent for donation or disposal if liquidation is not possible.
Until November, the new Amazon strategy was referred to as ‘low-prize zone’ or ‘low-price channel’. It eventually was launched under the name ‘Amazon Haul’ on November 13th, in time for Black Friday. [5]
Amazon Haul is only available within the Amazon app. Image source: Amazon
As seen from the information above, Haul adopts a fully managed model like Temu did at its launch in 2022. Merchants ship goods to Amazon’s warehouses in China, and Amazon handles further logistics. Merchants can select products, arrange listings, and determine pricing. Unlike Temu, Amazon will not intervene in the prices of fully managed goods.
Merchants can participate in promotional activities but do not have the option to advertise. Amazon's main source of income is commissions, and its rates are similar to those on its main site. Amazon is responsible for advertising, including cooperation with off-site influencers and recommendations from the Amazon A9 algorithm on the site, among which low prices are an important consideration. If the sales of goods are insufficient, Amazon will reduce their traffic exposure.
Amazon's goal in setting up Haul is to attract consumer groups more sensitive to prices, thereby enhancing the entire platform's competitiveness. The introduction of the store-in-store model is supposed to regain the traffic snatched away by other platforms such as Temu and Shein. Haul aims to weaken competitors' market share and enhance the platform's user stickiness.
As Momentum Works reported last summer, many merchants seemed sceptical about Amazon’s plan. They wondered if Amazon HQ would delegate enough authority to the staff in China. Would Amazon be determined enough, considering previous failed attempts with unbranded goods? If the low-price store would get significant traffic in the app, would it cannibalise more profitable goods? And would Amazon’s business development staff be as aggressive as Temu’s? [6]
Let’s look at the various aspects of Haul in more detail and try to answer some of these questions.
The rest of this article is available to paid subscribers only.