Beyond low prices: Will Amazon and TEMU eventually become like each other?
In the recent cross-border e-commerce overseas circle, Black Friday and hot spots are flying together, and the business war is being carried out in the simplest way.
On November 8, Amazon's first innovation center in Asia Pacific opened at Shenzhen Qianhai International Talent Port. Just after 4 p.m., the crowds of people came out of the elevator and saw TEMU's sales staff randomly distributing flyers for fully managed categories downstairs. Passersby exclaimed, "What a simple business war" and "This wave of business war is really awesome."
Back to online, Amazon's low-price store Amazon haul, which has been in preparation for several months, was launched in the mobile app in mid-November. In June this year, after the news went viral, Amazon's move was once considered to be a countermeasure against TEMU. However, it was also recently that the news that TEMU was considering launching a third-party platform model came out, which immediately became the focus of the industry.
If the news is true, there is no doubt that Amazon and TEMU are beginning to follow each other's old path...
01: Amazon and TEMU attack each other
Before launching the third-party platform model, TEMU operated in a fully-hosted and semi-hosted mode. During the investment promotion process, many merchants were hesitant because they did not have the right to set their own prices. Lao Wu, the owner of a clothing factory, was one of them.
Lao Wu told Hugo Cross-border that merchants have no pricing power on TMEU. Having experienced price wars and internal competition, he saw the importance of profit, so he did not enter the market immediately when semi-hosting became popular. Lao Wu, who has more than 10 years of foreign trade experience, has seen many changes in the cross-border e-commerce circle in the past two years and believes that timing is very important, and there may be new options soon.
As expected, news soon came that Amazon was going to launch a low-price store. Lao Wu felt that the low-price store was similar to a full-hosting model, but provided sellers with greater autonomy. In the entire low-price ecosystem, it might still not be able to get rid of the internal circulation, but it was acceptable.
Is it possible that the sellers’ attitudes are forcing the platform to make changes to a certain extent?
Just like the opening of Amazon's low-price stores, which strengthened its penetration in the low-price market, the besieged TEMU, on the one hand, must seek transformation in its operating methods, and on the other hand, relax the requirements for merchants through the third-party platform model, find ways to introduce more merchants, and expand the variety and quantity of goods. It must not only win back a game in the low-price market, but also gain a greater advantage in market competitiveness.
Especially in the third-party platform model, through the method of independent pricing, TEMU may be able to win back a wave of merchants who are unwilling to accept the price.
Although a large home furnishing retailer in Hangzhou has been thriving on TEMU's semi-hosting model, it speculated a few months ago that TEMU might open a third-party platform model to improve consumers' shopping experience. For example, under the semi-hosting model, the platform will not have too many staff and energy to solve many problems of personalized experience.
Currently, Amazon's low-price store adopts an invitation-based system, with a small number of merchants, few types of goods, few products, and little competition. Lao Wu speculates that at least before TEMU opens the third-party seller model, the merchants in Amazon's low-price store have the right to independently set prices and manage inventory, and there is no corresponding clear penalty policy, so they have a greater chance of winning.
If TEMU's third-party platform model only charges commissions, warehouses will not have to bear too much pressure, consumers' shopping experience will be more complete, cross-border e-commerce sellers' sales opportunities will be greatly increased, and stores may also usher in huge traffic entrances. For details, please refer to the situation of TEMU's fully-hosted merchants after the semi-hosting is launched, but the requirements for factory-type sellers will be greater, such as facing issues such as operation management, logistics clearance, etc.
There are also industry rumors that Amazon's low-price store may open a registration channel for sellers early next year. When the TEMU third-party platform model is officially launched, the competition between Amazon and TEMU over new and old paths will just begin.
In fact, whether it is Amazon or TEMU, once a large number of sellers settle in, in order to compete for traffic and sales, Lao Wu believes that the platforms and merchants may still fall into a low-price internal competition trend, and profits will also be affected. What he can do is to settle in as early as possible and reap the first wave of dividends.
02: Competitiveness beyond low price
Amazon's fight back, to a certain extent, also proves the correctness of TEMU's low-price strategy overseas. The launch of the low-price store, in addition to giving sellers and consumers more choices, may also be another test of the obedience of overseas consumers, especially low-priced products from China.
In a survey, the Federal Reserve of St. Louis used 13,000 representative cheap imported products in 2023 as a data package. The results showed that 29% of these products came from China, more than any other country, once again highlighting the price competitiveness of Chinese-made products among US imports.
Figure: Proportion of U.S. low-priced product trading partners in 2023 Image source: Federal Reserve Bank of St. Louis
While facing overseas consumers' preference for low-priced products and the rise of TEMU, Amazon seems to have quietly adopted a low-price strategy in addition to its low-price stores, but its route is a little circuitous.
In the first half of 2024, Amazon announced several times in succession that it would significantly reduce sales commissions at sites in North America, Europe, and Japan, while lowering logistics rates, and directly targeting the clothing category. Amazon's move was called a focus on the sinking market in the industry.
Recently, Amazon announced that it will not increase sales commissions and logistics fees on the US site in 2025, nor will it introduce new types of fees. It will also reduce some fees and provide additional discounts to support the growth of new products.
The sales commissions and logistics costs have gone from rising continuously to starting to fall, and then to remaining the same without rising. This has undoubtedly given sellers more breathing room to reduce cost pressures, but it is also a means of pleasing sellers.
Even the logistics settings of low-price stores are that the goods are shipped directly from Amazon's China warehouse, with no storage capacity restrictions and no excess storage capacity fees. Although the delivery time is slightly longer, for sellers, it has already alleviated some of the pressure on the supply chain.
Looking at Amazon's requirements and rules on prices, traffic entrances, logistics, and after-sales service in its low-price stores, it has made many concessions and optimizations. Allowing low-price stores to exist as a site within a site is more about preventing the loss of its own traffic than attracting traffic from the outside.
The development of current events has also brought certain changes to the competition in the low-price market. Especially in the face of Trump's remarks that he would impose a 10% tariff on Chinese goods, will those products and platforms that use low prices as a selling point be affected?
In fact, if Trump continues to adopt a tough trade policy toward other countries, the global supply chain structure will also be affected, but the competitiveness of Chinese manufacturing will not necessarily disappear.
As the St. Louis Fed survey shows, being the lowest-price supplier does not necessarily mean that China exports at a lower price; on the contrary, it may also mean that China can provide lower-priced but better-quality goods in most product categories compared to suppliers in other countries .
Even with the imposition of tariffs, price increases are inevitable, but finding alternative suppliers that match the prices of Made in China is also a challenge. After all, giving up importing goods from China may also increase the cost of a considerable portion of US imports. Therefore, the competitiveness of Made in China and Chinese sellers on low-price platforms may be further maintained.