Amazon finally started to fight back after SHEIN and TEMU were so popular

In the empire of e-commerce giant Amazon, the low-price market has always been regarded as an unconquered wilderness. However, with the rapid rise of low-price platforms such as SHEIN and TEMU, Amazon finally decided not to sit idly by. This article will take you to find out how Amazon carefully planned and launched the "low-price store" to meet the challenges of emerging competitors. Through the inside information of closed-door meetings, we reveal Amazon's strategic adjustments and market layout, and how it is preparing to confront its opponents head-on in this price war. This is not only a contest of business strategies, but also a redefinition of market rules.

Amazon finally couldn't help it.

On June 26, Amazon held a closed-door meeting in Shenzhen. Participating merchants were all invited internally. The meeting was low-key enough and photography was not allowed. However, some content still leaked.

The core meaning is that Amazon is preparing to launch a "low-price store" with a special entrance on its main website, offering fashion and daily necessities for less than $20 and weighing less than one pound.

The products will be sold in the form of white labels, and the leaked PPT includes SKUs such as mobile phone cases and facial scraping massagers. Merchants are also allowed to make small orders for measurement products.

Fulfillment and delivery will be carried out by Amazon's warehouses in China, and the goods are expected to be delivered directly to users within 9 to 11 days.

In short, the business scope of low-price stores overlaps highly with that of Temu and Shein, which may mean that Amazon is ready to go all-in and compete head-on with low-price platforms.

The last time Amazon made a major policy change for low-price merchants was in January this year, when it lowered its commission to between 5% and 10% for merchants selling goods for less than $20. Now, nearly six months later, Amazon has chosen to directly divest a low-price market and compete with Temu in the same pool.

Pictures provided by merchants show that Amazon has gradually begun signing up sellers and will accept goods into its warehouse this fall, but it is not yet known when it will officially go online.

There are a few key points to note about Amazon’s low-price discount store:

① Amazon’s “Low Price Store” merchants will have the right to set their own prices, but Amazon has set price caps for different categories, and the merchants’ pricing power is limited to a certain range.

Therefore, although the categories and prices are similar and more oriented towards factory stores, Amazon's low-price business cannot be completely equated with Temu's full-hosting business. Compared with Temu's "collective purchasing and bidding" model, which was derived from Pinduoduo's main site, Amazon still adopts a commission-based model. Merchants have more room for operation.

② Taking into account the low-priced products and the pioneering efforts of friendly competitors, the return and exchange policy of Amazon's low-price stores is roughly consistent with the "refund only" policy that is popular in China.

③ In terms of traffic competition, low-price store merchants do not need to pay traffic promotion fees for the time being. Amazon is responsible for on-site and off-site promotion. The amount of traffic exposure promotion is determined by the product ranking and weight.

Since low-price stores rely on the main website, this may lead to a new problem, such as how to balance the traffic distribution between low-price stores and merchants on the site, especially FBA merchants? (Amazon has two logistics distribution methods, one is FBA and the other is FBM. The former is that the goods are sent to Amazon's operation center and Amazon completes the warehousing and distribution. The latter is that the merchant is responsible for the storage, packaging and transportation of the product.)

In other words, is the new business grabbing its own traffic or external incremental traffic from Temu, Shein, etc.?

If there was not much overlap between Amazon and Temu when it was first launched, then with continued high inflation in the United States, its core users will become price-sensitive users, and the overlap between the two users will inevitably begin to increase.

Although Amazon still has enough scale, some data from research firm Apptopia shows the madness of latecomers: in the second quarter of 2023, American shoppers spent almost twice as much time on Temu as major competitors such as Amazon. Even with the factor that low-price audiences will spend more time making purchasing decisions, in the Internet age, there are unlimited possibilities for attracting users' time.

Amazon’s low-price store, on the one hand, aims to attract users with lower incomes who are looking for cost-effectiveness, while on the other hand, it also has to consider whether existing customers will be shaken.

Amazon has always been careful to separate its platform from "low prices". During Prime Day 2022, for example, the average customer order value of FBA's best-selling products was $49.25, while the average customer order value of FBM was as high as $166. Setting up a low-price store with products under $20 in the hope of consumer stratification may face the scrutiny of core users.

What may happen is that users really stop buying expensive items, and the consumption habits and mindsets of Amazon's core users are actively "cultivated" into a price-sensitive group.

How low the price of goods can be is also a question. The underlying logic behind the fact that merchants can set their own prices is that this is cost-effective and proactive enough for merchants, but after all, the back-end fulfillment must be completed through Amazon. Once Amazon itself does not make enough concessions, the competitive advantage of the "low-price store" will be greatly weakened, and it will become a "showpiece" for telling stories in the capital market after being passively involved in the price war.

On the other hand, low-price stores will change Amazon's revenue structure. Advertising commissions will become zero, logistics will be subsidized, and profit margins will inevitably decrease. Now that the gap has been opened, it depends on how Amazon chooses.

There is also another uncertainty for the entire industry: whether low-priced goods will be eligible for trade provisions that exempt individual packages below $800 from U.S. tariffs.

Recently, the US customs clearance policy has shown signs of tightening. Several customs clearance agencies have been suspended from T86 small package customs clearance qualifications by the US Customs and Border Trade Bureau, including large international freight forwarders such as SEKO Logistics. Low-value goods from China are the focus of inspection. The problems faced by Temu and Shein will also exist in Amazon's low-price stores.

What is most worth looking forward to is that after entering the ranks of low-price competition, can Amazon guide the industry in terms of compliance, innovate some new models, and avoid the repeated occurrence of bad money driving out good money?

After all, if Amazon simply joins this low-price black hole and allows it to continue to expand, it does not seem to be a good thing for merchants and the platform ecosystem.