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.
Amazon Haul Dissected
Merchant recruitment
Amazon faces several significant challenges in developing the low-price market, the most prominent of which are attracting merchants and solving logistics problems. To cope with these challenges, the company currently uses a targeted invitation method to attract merchants, and most invitees have shown strong interest.
Amazon Haul is currently only open to some merchants in specific categories by invitation and has not yet been fully opened to all merchants. It is primarily designed for large sellers with more than $10 million in annual revenue and focuses on clothing, household goods, and small electronic accessories.
To attract more merchants to participate, Amazon held a series of promotional activities in Shenzhen and Yiwu, especially for local merchants who focus on low-priced goods. Amazon selected these pilot cities with the intention of integrating the local small commodity supply chain to improve the speed of new product listing and selection efficiency. These regions have a high proportion of foreign trade, but the penetration rate of cross-border e-commerce is low. The pilot program would help gradually improve cross-border e-commerce business. For example, in the clothing industry, the integration of the supply chain can speed up the release and pre-sale of new products and increase the speed of market response, which is not unlike Shein’s approach.
Amazon helps small and medium-sized sellers by lowering the entry threshold and simplifying the operation process. However, due to the high threshold of the platform itself, including product selection, intellectual property protection, and complex advertising operation models, small and medium-sized sellers still face some challenges. Some prefer platforms with simpler operations, such as Temu or other competitors.
Some sellers do not understand the process thoroughly enough and mistakenly believe they can be selected after quoting. In fact, they still need to go through further screening. Merchants must complete product listings and cost accounting during the recruitment process. The challenges Haul faces include the complexity of the process, the investment of resources, and how to communicate effectively and screen merchants. The whole process requires a lot of resources and is still in the exploratory stage.
Meanwhile, experienced sellers usually have rich operational experience and resource integration capabilities and can make full use of the platform advantages provided by Amazon to achieve higher benefits.
If sales after the November launch are good, Amazon may consider switching to open merchant recruitment. However, this may also lead to issues with supply chain competition. Although Amazon has a world-class supply chain system, its logistics costs are still higher than some Chinese companies.
As the platform gradually opens up, more brands and categories are expected to join Amazon Haul, increasing the diversity of goods and enhancing overall competitiveness. By continuously improving supply chain and logistics support and maintaining a flexible pricing strategy, Amazon Haul hopes to attract more high-quality cross-border e-commerce brands to join.
Haul provides new opportunities for certain types of sellers but also brings challenges to others, which may reshape the status and advantages of different players in the market. Sellers of lower-priced goods may be hit hard, but sellers of high-priced and uniquely designed products will be less affected. Haul is mainly suitable for traditional low-priced standard products and has a limited impact on unique and high-priced products.
Most major sellers do not believe Haul will significantly impact their sales in the main Amazon channel. If they maintain high quality and excellent service, they can continue to grow despite new competitors without overreliance on one channel or falling into price competition. The consumer groups of light and small items also differ from those of mid-to-high-end products that rely on their brand value, uniqueness and excellent quality. Such products will continue to be sold on Amazon’s main platform.
Haul will serve as an independent traffic source, attracting consumers with limited budgets and forming a positioning similar to that of a cheap store. The delivery time of this platform is 9 to 11 days. These characteristics and positioning will undoubtedly impact the market competition landscape. Sellers who integrate production and sales have shown a positive attitude towards Haul, while pure traders face challenges in terms of price (as on Temu).
For established merchants invited to participate, the newly launched low-price store project may not affect their existing business but could create new sales opportunities. However, merchants who are not invited due to poor sales performance, unreasonable pricing, or weight or safety issues with the goods may not be able to enjoy preferential policies.
Products and returns
Amazon divides products into multiple price ranges determined through market research and compares them to Pinduoduo and Temu to ensure competitiveness while also giving merchants a certain degree of pricing autonomy.
Amazon Haul products are mainly small items such as fashion, beauty, life and home products. These products are typically priced below $20, weigh no more than one pound, and are within 14 × 8 × 5 inches in size. Products cannot display brand information and can only appear in the form of white labels.
Merchants usually follow a specific priority order when choosing a clearance channel to offload surplus inventory. Previously, goods that could not be sold on Amazon would be directly transferred to Temu for clearance. Amazon now encourages merchants to handle such inventory on Haul instead of transferring goods to other sales channels.
Indeed, Amazon is working hard to build a complete ecosystem that surpasses Temu. Merchants will first try to clear the inventory on the Amazon platform, and if they still cannot sell it, they will consider Amazon Haul. Only when these two options fail will merchants consider transferring the goods to Temu. In other words, Amazon's strategy is partially designed to allow merchants to prioritise handling inventory on its platform, thereby reducing Temu's supply of goods.
Amazon Haul’s product presentation method is different. In Haul, the products are usually unbranded, and specific shooting angles distinguish them from the main site products. These low-priced products often lack brand protection and after-sales service to prevent return arbitrage.
Although clothing may appear similar, its cost may vary significantly due to different materials, and merchants can sell at various price ranges. As we’ve seen with Temu, some merchants reduce production costs by changing the quality of raw materials to create products that look the same but are actually different. This strategy gives sellers an advantage over the competition and maintains profitability.
After delivery, products priced below $3 cannot be refunded or returned. Products above $3 can be refunded but do not need to be returned. Experience has shown that when consumers buy goods below $15, they have low expectations of product quality. When the quality is poor, many won’t make an effort to complain or ask for a return. Even if unsatisfied with the goods, they will not comment or return them but directly discard them. About 90% of American consumers show similar behaviour when buying goods priced around $10.
However, Chinese merchants have previously had mixed feelings about the ‘Returnless Resolutions’ program for goods under $75 launched by FBA. On the positive side, merchants can save disposal fees when the goods cannot be resold due to quality issues, and Amazon will not charge refund commissions to merchants. As a result, they would only lose faulty goods and incur logistics fees. However, many merchants are worried about consumers abusing the policy. [7] Judging how this was a reason for Taobao and TikTok to (partially) roll back such policies after implementing them in early 2024, these worries do not seem groundless.
Pricing and Merchant Margins
Amazon has taken a position in the market competition through flexible pricing strategies and traffic support. Specifically, Amazon allows sellers to set their prices and provides logistics subsidies and commission discounts, with the commission rate after the discount ranging from 5% to 7.5%. To attract low-priced commodity suppliers, Amazon only invites some sellers with excellent performance to settle in and provides them with more traffic support. According to Amazon, this strategy offers a new option for merchants who are also selling on Temu or Shein, helping them reduce the pressure on other platforms.
Unlike Temu, Amazon will not directly intervene in prices but will set a price cap. While merchant can set their own prices, Amazon will conduct audits to ensure competitiveness, primarily aiming to be lower than Temu's prices. Product selection and pricing are crucial, and Amazon combines artificial intelligence and manual audits to check key images and prices. Overall, Amazon Haul's product prices are supposed to be about 10% cheaper than Temu, and there is about a 10% overlap between the two platforms.
When a product is released, the system automatically calculates its maximum acceptable selling price. If the price of a product is higher than the upper limit set by the platform, it will not be displayed. This method actually has the effect of adjusting prices while retaining a certain degree of flexibility. The platform's system will limit the price of goods, and products exceeding $19 will find it difficult to get a chance to be displayed. This method allows Amazon to control prices, but its enforcement will not be too strict.
Amazon mentioned in a press release: “All items are priced $20 or less with the majority priced $10 and under, and some items as low as $1. Customers can enjoy even more savings when they add more items to a single order, with 5% off orders $50 and over and 10% off orders $75 or more.” [5]
The price distribution of goods is as follows: half of the goods are priced below $10 (especially daily necessities below $5), 30% of the goods are priced between $10 and $15, and the remaining 20% of goods are priced between $15 and $20.
In 2024, the prices of goods on the Temu platform rose by about 50%, especially for ferrous metal products. Goods initially priced at $1 to $2 have generally become more expensive. Although Temu continues to use discount strategies to attract customers, price increases make it challenging to maintain its position in the low-price market. At the same time, due to the emergence of Amazon Haul, Temu has reduced the frequency of product price adjustments to retain merchants.
Commissions are comparable to the main Amazon site (8%-15%). The fee for most products is 15%, and the handling fee for small items is about 10%. Typically, Amazon merchants have a net profit margin of about 15%. Although some products may lose money in the Amazon Haul model, the average net profit margin can reach 7% to 8% through bundling sales. In comparison, platforms such as Temu have a profit margin of only about 3% because sellers cannot control pricing. Haul may change the market competition landscape between Amazon and competitors such as Temu, bringing new opportunities and challenges to sellers and consumers.
The fees for using FBA (Fulfillment by Amazon) services typically include promotion fees, international transportation fees (covering starting and terminal fees), and warehousing fees, which account for about 35% of the total sales price. In contrast, Amazon Haul merchants only need to pay domestic logistics fees, which account for less than one-third of the total logistics costs. Amazon subsidises the main transportation and terminal delivery costs, reducing overall costs.
However, Amazon Haul currently only provides logistics subsidies for new merchants for the first three months. When the logistics subsidies are cancelled, merchants need to include the shipping costs in the price of goods, resulting in an overall price increase. Without subsidies, it is difficult to maintain a lower price than Temu. These differences will undoubtedly affect merchants' pricing strategies and consumers' shopping experiences.
Logistics
Amazon Haul follows a logistics process similar to Temu’s fully managed model. After the goods are delivered to Amazon’s China warehouse (in Shenzhen), Amazon takes care of delivery to the consumer. Amazon is also setting up additional facilities in China (e.g. Dongguan), similar to Temu's warehouses in Guangzhou and Dongguan.
Whether operating on Amazon or Temu, factories must have strong supply chain management capabilities. It is necessary to ensure that the goods can be delivered to the warehouse in time to meet the platform's requirements for logistics timeliness. For example, Amazon promises to deliver goods to customers within 9 to 11 days. If the order fulfilment rate does not meet the standard, the store will face the risk of being closed. Due to the lack of direct production capacity, middlemen need extra time to purchase from factories, which increases the uncertainty of logistics timeliness and makes it more difficult for them to adapt to the strict requirements of these platforms.
At present, Amazon Haul mainly serves China's cross-border small package business. However, from a long-term perspective, the channel will not only be limited to the Chinese market but also plans to integrate factory resources in other countries and regions such as Vietnam. This strategic goal is to better cope with market competition and optimise the allocation of global supply chain resources.
Amazon Haul’s logistics will rely on the AGL (Amazon Global Logistics) system. Amazon uses air transport and processes packages through its Fulfilment by Amazon (FBA) warehouses.
Amazon's logistics system has undergone significant changes recently. The previous Dragon Boat Plan, a global delivery network controlling the flow of goods from factories in China and India to customers’ doorsteps, has been transformed into a worldwide AGL fulfilment and distribution system. Standard operating procedures cover multiple links, from domestic warehousing and sea freight arrangements to merchant delivery.
Amazon has performed well in logistics speed, with the time from receipt to delivery within the United States not exceeding 9 days, much faster than the 23-day or 30-day commitment of most merchants in the same industry. AGL's operations mainly rely on partners in its internal system and integrate overseas warehousing networks. It has pioneered the introduction of artificial intelligence technology in its logistics system, and once it takes over the goods, sellers do not need to worry about insufficient inventory.
Artificial intelligence has played a positive role in the global e-commerce sector, performing tasks such as review, supervision, and verification. Amazon has improved the intelligence level of warehousing by applying artificial intelligence technology. Combined with the AGL logistics system, it has shortened the delivery cycle from 23 to about 10 days.
Organisation
Amazon has formed a dedicated team responsible for Haul. This team is composed of account managers who were previously responsible for small sellers. By July this year, Amazon's internal project in China was led by a team of over 20 people who have already sent invitations to 3,000 merchants. This project is not open to the public, and the workload is quite heavy, including price calculation, price negotiation, and discussing delivery time and product details with merchants. The initial screening was expected to be completed by the end of September at the earliest.
The Haul team reports directly to the head of the China region and the US headquarters. Amazon's decision-making process involves collaboration at multiple levels and departments. For major projects like Haul, the senior management team has reached a consensus and is in close contact with the global team. Senior executives in China will pass on feedback from local sellers to the global team, and the global team will make policies and decisions based on this feedback. These decisions are not made by a single person or department; the board of directors determines them after a comprehensive data analysis from multiple dimensions such as algorithms, logistics, and advertising.
Traffic and algorithm
One of Amazon's usual sources of income is advertising. Merchants can improve keyword rankings by increasing advertising spending, resulting in higher click-through and conversion rates. However, due to the meagre profits, merchants usually do not invest in advertising for low-priced white-label products. That’s probably why there are no advertising fees on Amazon Haul at the moment.
Amazon manages on-site and off-site advertising; sellers do not need to operate their own advertising. Amazon's algorithm allocates traffic based on sales performance and inventory turnover. Merchants who can offer lower prices can attract more traffic and sales opportunities. In November, the new calculation method was being simulated and would take at least two months to test.
Amazon's recommendation system evaluates and ranks products using multiple dimensions. The main factors include product ranking, keyword weight, and sales volume. Product rankings are usually determined based on sales data within 90 days, price competitiveness, competition, and user reviews. When evaluating and ranking a product, Amazon's system considers its relevance to the search term and its competitive advantages. This multi-faceted evaluation ensures that the recommendation system can provide users with the most relevant and valuable product choices.
There are significant differences in consumer shopping behaviour between high-end brand webshops and low-price webshops. On high-end brand shopping platforms, users usually have a deep understanding of the brand and will directly search for products of a specific brand, such as "Nike women's shoes" or "Apple mobile phones". Brand image is vital in consumer choices in these high-end shopping malls. In contrast, low-price shops mainly sell unbranded or white-label goods, and consumers pay more attention to price comparison and product functionality. On lower-priced shopping platforms, the key to attracting customers lies in optimising search terms and improving the cost-effectiveness of goods rather than relying on existing brand image.
Take the Amazon platform as an example. Its search algorithm mainly sorts white-label products based on product characteristics without considering brand factors. The weight of keywords affects the ranking of products in the search results, and a high click-to-purchase rate increases the weight of keywords, making it easier for products to obtain a higher ranking.
Image source: Amazon
How Amazon Haul differs from Temu
While Amazon Haul might seem like a Temu clone at first glance, the two also significantly differ in the sales and logistics of low-priced goods. Amazon and Pinduoduo each have unique advantages in this market but differ in their operating methods.
As discussed, Amazon has highly efficient self-operated logistics (AGL). In contrast, Temu relies on intermediaries to manage its transportation services to achieve fast packaging and delivery. Temu is working hard to develop its own logistics network to speed up delivery, but currently still relies mainly on third-party partners. It may take Temu several years to build a complete self-owned logistics network.
Amazon must balance the relationship between its low-priced goods and main site products while maintaining its brand image. Unlike Temu, Amazon Haul takes a shop-in-shop approach; users must go to a specific app section.
Regarding merchant autonomy, Amazon gives merchants greater freedom to select products, list them, set prices, and participate in promotions. In contrast, Temu only allows merchants to select, list and declare products. Temu is responsible for setting product prices, advertising, and promoting the external market. Conversely, Amazon promotes through external influencers and internal advertising that relies on the Amazon A9 algorithm.
Amazon's model gives merchants more autonomy, which may help them adjust their strategies flexibly according to their circumstances. Temu's centralised management model may offer consumers a more unified shopping experience but may limit merchants' flexibility.
Regarding merchant price strategy, Amazon does not directly set the product's price; the seller decides, and Amazon charges a commission. Amazon may, however, allocate more traffic to sellers who can provide low-priced goods. Temu takes a different approach. It will refer to the prices of other competing platforms, such as Alibaba’s wholesale platform 1688, and usually set the price it pays the merchants at 20% or 25% lower. Temu will then set the consumer price (and subsidies), determining its own margin.
There are also significant differences between Amazon and Temu regarding commission collection. Temu currently charges a commission of only 0.5%, including customer service costs. Amazon's commission is higher than Temu’s and comparable to the main platform.
Regarding product ranking and traffic allocation, Amazon mainly considers sales volume and price advantages, while Temu relies more on price factors. On the Temu platform, the lower the product's price, the more traffic it will get.
Amazon and Temu have also adopted different strategies when handling return policies. For items priced below $20, the two companies usually adopt a policy of refunding but do not require the return of the goods. This practice helps to reduce operating costs while also improving customer satisfaction. In cases where return costs are high, Amazon tends to adopt a "refund but not require return" strategy, which can effectively balance cost control and customer experience. Amazon shared in a press release: “For any item a customer chooses not to keep, we offer free returns on all Amazon Haul purchases over $3.00 within 15 days of delivery, and provide customers with convenient and hassle-free returns at more than 8,000 drop-off locations across the U.S. including Amazon Fresh, Whole Foods Markets, UPS, Kohl's, and Staples.” [5]
Unlike Amazon, Temu requires customers to return and refund certain higher-priced products in the fully managed model, which may impact customer experience.
Merchants on Temu have been facing severe penalties (see Temu Watch #2), mainly due to complaints about delivery time and product quality. The fines are relatively high. In contrast, Amazon's penalties are more lenient and have not yet been fully implemented for Haul.
Challenges
Besides those we already mentioned (recruitment, process complexity, etc.), there are more challenges that Amazon Haul needs to face in its competition with Temu, which will impact the choices of both merchants and consumers.
From the perspective of individual merchants, Amazon's low-price strategy brings two significant challenges. The first is the issue of price competitiveness. If merchants place orders through a pricing model and the platform allocates traffic, it may not be easy to compete with Temu regarding price. The second is the issue of delivery efficiency. Temu uses a semi-managed model to increase delivery speed, while Amazon Haul has a low price but a long logistics time. Prices of goods delivered through FBA will mostly be higher than those through Temu’s semi-managed model (as we discussed in Temu Watch 3, Temu aims to have prices at 85% of those on Amazon for goods shipped from local warehouses).
These challenges also affect consumer choices. When comparing prices and delivery times, consumers may find that Amazon's price advantage is not apparent, but the delivery time is longer, resulting in a poor shopping experience.
Technical Challenges
Amazon already encountered some significant technical challenges in advancing Amazon Haul. First, the algorithm was flawed and incompatible with the existing system, directly affecting the project's launch progress. Although the company's strategy of adopting a unified management platform has advantages, it also increases the system's complexity and may cause delays in algorithm deployment.
In mid-November, 3,000 items were ready for storage, but the construction of an internal project management system had become a significant obstacle. Introducing a new logistics model based on the existing framework is complex, and the system needs to be transformed on a large scale, including a new design of backend functions and front-end interfaces.
Even more challenging is that algorithm conflicts may occur between modules, such as in sales, flash sales, products, and advertising. The complexity and degree of time-consumingness of this system transformation exceed those of developing a system from scratch.
Amazon's new sales model allowed merchants to use existing stores, simplifying the operation process but making it challenging to identify the traffic source. In contrast, Amazon's competitors have adopted separate semi-managed and fully managed models, requiring merchants to register independent accounts.
Out of stocks
In early December, Marketplace Pulse reported [8] how Amazon held an aggressive 50% storewide promotion on Haul. Amazon subsidised the discounts to jumpstart Haul, and hundreds of merchants sold thousands of different products. However, a few days later, on Cyber Monday, the number of SKUs drastically decreased, and the number of ‘Amazon best-sellers’ on Black Friday dropped from 2,700 to about half that number.
Image source: Amazon
Amazon and/or merchants underestimated demand, and the warehouses in China did not have enough inventory.
According to Marketplace Pulse, the banner above has disappeared from Amazon's main screen since the shopping festival, and so has the demand.
Outlook
Opinions of the chances of Amazon Haul's success differ among industry experts.
The launch of Amazon Haul echoes developments in the Chinese market a few years ago. Alibaba’s Taobao launched Taobao Special (Taote), and JD launched Jingxi, both attempts to try and compete with Pinduoduo in the domestic market. The effect has been limited.
Still, Amazon Haul might be different. Amazon has an advantage in the US market, and its extensive network of overseas warehouses and local warehouses could make delivery time more competitive, even for a fully managed model. In addition, it isn't easy to open new warehouses in the United States, which could limit the options for Chinese platforms.
Amazon Haul’s success will depend on a mature and complete supply chain. About 80% to 90% of the supply chain manufacturing for products sold on Amazon is located in China. So, Like Temu with the work Pinduoduo had cut out for it, Amazon is not starting from zero. Still, according to a former Temu employee, it could take Amazon Haul 3-6 months to see a result, while Temu can quickly develop a new product category in three months.
Amazon has formulated a three-year plan. The first year's goal is to avoid losses, and profitability must be achieved in the second year. Without profitability in the second year, the third year will become a critical observation period. Even if there is no loss in the third year, the company may abandon the project if there is no growth.
Amazon Haul is really just a ‘special event channel’ on Amazon's main site, not an independent platform. Amazon hopes to allocate more search and display weights to these low-priced products, allowing them to share traffic with the main site. However, this strategy could also have its downsides. If the scale of low-price stores continues to expand, it may hurt the traffic and user experience of the main site. With the further expansion of low-priced stores, Amazon may face conflicts with its shopping habits, positioning, and traffic allocation at the main site. These issues need to be seriously considered and adequately resolved by Amazon.
According to a Senior Account Manager at Amazon China, Haul may indeed hurt the company's existing traffic and sales. Although it is claimed that it will not affect existing traffic, the internal algorithm is different. The new algorithm may affect the existing traffic distribution without increasing the number of users. If only the internal traffic distribution is adjusted without attracting new users, overall sales may decrease. This is because the order amounts on Haul are smaller, which may lead to a decrease in total sales revenue.
Impact on Temu and Shein
The industry has different opinions on whether Amazon can successfully challenge Temu's market position.
Amazon's new market strategy may impact Temu's consumer groups and merchants. Market analysis shows that this strategy may attract some price-sensitive consumers who initially tend to shop on Temu. However, the extent of this impact is currently uncertain. If Amazon cannot effectively manage its inventory of low-priced goods, like during Black Friday, consumers may still prefer to choose the lower-priced Temu platform.
Historically, Amazon and Temu have each had advantages and disadvantages. Amazon's advantage lies in its vast variety of goods and global logistics network, which allows users to purchase conveniently. In addition, Amazon's Prime membership service provides fast delivery and other value-added services, enhancing the user experience. However, Amazon's shortcoming is that the prices of goods on its platform are relatively high.
In contrast, Temu's strength is its relatively affordable prices, which attract many consumers who value cost-effectiveness. However, its disadvantage is its relatively small logistics network, and its delivery speed and coverage are not as good as Amazon's. In addition, Temu's product variety and quality control need to be improved.
From the merchant's perspective, some Temu merchants who have never operated on the Amazon platform may be attracted by Amazon's new strategy. This may cause some merchants to switch to the Amazon platform or operate on both platforms simultaneously (although some experts claim this effect may be limited compared to the Amazon sellers that have started selling on Temu). While Temu's total transaction volume is expected to continue to rise, the growth rate may decrease due to Amazon's competitive strategy, which could slow Temu's market expansion and affect its ability to acquire new customers.
In the first half of 2024, Temu 's growth rate reached 67%. However, with Amazon entering the market in the second half of the year, Temu 's growth rate is expected to drop to 58%- 62%. If there is a 20% overlap in products, half of customers may switch to shopping on Amazon.
Another challenge for Temu is the slow expansion of the semi-managed model. If 40% of Amazon China sellers or merchants in China turn to Temu, Temu would easily achieve its goals. However, by mid-2024, less than 10% of Chinese sellers had transferred to the Temu platform, and most continued to operate on Amazon.
Whether Amazon can effectively compete with Temu remains an unknown. Temu has a clear competitive advantage in terms of pricing strategy. Since it does not charge a commission, it is difficult for Amazon to compete even if it lowers its prices. In addition, Temu's shipping costs are very low, much lower than those of other platforms and fulfilment service providers. Considering these factors, Temu's competitiveness in terms of price exceeds that of all other platforms.
The outcome of the competition between the two companies will largely depend on their respective marketing strategies and precise recommendation capabilities. In the current market environment, platforms that can more efficiently display products to target customers will have an advantage in the short term. Therefore, comparing the two companies' strengths and weaknesses and evaluating their respective algorithms' accuracy are crucial to identifying existing customers and achieving short-term goals.
Amazon Haul is expected to have little impact on Shein's main business, as Shein focuses mainly on women's clothing and features fast design and production. However, Shein's third-party seller platform may encounter some difficulties, and this business is already progressing slowly. On Shein's platform, merchants can set their prices, and Shein will charge a 10% commission. Amazon Haul is similar to Shein's third-party platform, but Amazon may attract more merchants due to Shein's smaller scale. The two companies have advantages and challenges in the third-party seller platform market, but Amazon's scale and brand recognition may give it more advantages.
According to one industry expert, the probability of success of Amazon's low-price channel is more than 60%. The company has strong execution and plans that are not easily changed. Amazon intends not to defeat Temu and Shein but to divide the market through a differentiation strategy. In the future, the company may adjust merchant recruitment and logistics according to market reactions to better adapt to the needs of the low-price market.
There is another reason why Amazon might have chosen to set up Haul. In China, Pinduoduo was initially about white-label, unbranded goods and agricultural products. Later, it implemented the ‘RMB 10 billion subsidies’ program to get branded goods on its platform. It has been very successful, with more than 2 million iPhones sold to consumers in 2019 through the program. [3] As they said in China at the time, ‘you go to Pinduoduo for cheap apples’.
Temu will likely replicate that strategy outside China. This would significantly threaten Amazon’s main site, where branded goods are essential. Before Temu becomes more like Amazon, Amazon will try to become more like Temu to protect itself.
Tariffs
The United States is expected to further increase tariffs from January 2025. If the US government increases tariffs by 10%, the tax rate may reach 50%, increasing uncertainty and directly affecting product costs. Currently, cross-border e-commerce enjoys a tax-free (de minimus) allowance of $800. If this policy is cancelled, the small package business will lose (some of) its price advantage and commodity prices will rise significantly.
Increased tariffs will affect all cross-border platforms selling (directly or indirectly) from China, including Temu and Amazon. Amazon sellers can respond to tariff increases by adjusting prices themselves, but this may impact sales. In contrast, under Temu's semi-hosting model, sellers cannot control prices and may suffer losses when tariff increases occur. Therefore, sellers on the Temu platform face more significant difficulties than those on Amazon.
Temu plans to complete its comprehensive upgrade within two to three years and has adjusted its warehousing and logistics strategies, mainly to adapt to relevant tax policy changes. Meanwhile, as Temu has done, Amazon Global Logistics (AGL) plans to set up subsidiaries in Vietnam and Mexico to cope with possible changes in trade preferential policies. If Trump cancels trade preferential policies, packages weighing no more than 8 kilograms may be subject to tariffs. Certain taxes can be circumvented by taking advantage of preferential policies in Vietnam or Mexico.
Is the jury still out?
Marketplace Pulse has a strong opinion on Amazon Haul. It wrote: “On the surface, Amazon Haul looks like Temu, but in reality, it is a scaled-down version of Temu in terms of its number of sellers, catalogue size, and category coverage. Marketplace Pulse research shows it has hundreds to Temu’s 500,000 sellers. (..) Temu spends billions of dollars a year to create demand. It’s unclear how Amazon will match this — the blip on Black Friday was not enough to kickstart a flywheel — but it has started running ads on Facebook and Instagram this week.” [8]
Slide from Marketplace Pulse Year in Review. [9]
Marketplace Pulse has also pointed out that Amazon has many experiences like Haul hidden inside its app: Amazon Handmade, its Etsy competitor; Amazon Luxury Stores, which sells expensive fashion and beauty items; and even Amazon Inspire, a TikTok competitor. However, Amazon has historically lacked the aggression to push these new experiences to shoppers. [10]
Amazon usually spends three months to test a new business model. Usually, the US market needs to conduct pilots and improve relevant processes before gradually expanding to regions such as Europe, the Middle East and Japan. However, according to the existing information, it is unlikely that Amazon will promote Haul to Europe in the short term. Amazon said in a press release: “It’s early days for this experience, and we’ll continue to listen to customers as we refine and expand it in the weeks and months to come.” [5]
I guess we will soon be able to tell how serious Amazon is about Haul.
Sources
This article has been compiled from an analysis of exclusive expert interviews of the Six Degrees Intelligence network, augmented with the articles below.
[1] Latepost 2024-07-15 [2] Marketplace Pulse 2023-12-06 [3] 白鲸出海 2024-06-27 [4] Marketplace Pulse 2024-10-22 [5] Amazon 2024-11-13 [6] Momentum Works 2024-07-01 [7] Yicai Global 2024-08-29 [8] Marketplace Pulse 2024-12-04 [9] Marketplace Pulse Year in Review 2024 [10] Marketplace Pulse 2024-11-13
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