Amazon in a ‘Chinese involution’: TikTok, Shein, Temu on the brink of collapse The day when “giants” bow their heads.

Since its establishment in 1994, Amazon has spent two decades growing into an e-commerce giant, but with the changes in the external environment and the intensification of competition, Amazon seems to have hit the “ceiling”. TikTok’s strong entry with its traffic advantage, followed by Temu’s reshaping of consumers’ minds with its low price, and the recent news of SHEIN’s opening up to third-party sellers, the “three mountains” are pressing on the shoulders, and the flywheel theory that Amazon has always promoted is also a bit spinning.
In the past, Amazon’s Prime Day, an annual shopping day that provides Prime members with shopping discounts, was once an important node for the platform to boost sales and influence for brands. But ahead of this year’s Amazon Prime Day (July 12), a Coresight survey statistic raised eyebrows: ‘Only 72.5% of respondents said they could participate in this year’s Prime Day’. This is the first time since 2018 that the figure has fallen below 75%, which means that Amazon has lost a lot of members so far this year.
In fact, Amazon has been having a rough time of it since it lost $2.7 billion for the whole of last year, and in addition to the loss of member subscribers, Amazon is also facing an exodus of sellers. According to a survey by Capterra, a division of Gartner, 99% of small and medium-sized Amazon sellers plan to open stores and sell on other e-commerce platforms in 2023. There is no doubt that Amazon will not sit on its hands, but once the balance between the platform, users, and sellers is broken, it will be even more difficult to establish a new balance in the market environment of increased competition. From the point of view of Amazon’s actions so far this year, the former hegemony does not seem to have found the chapter and verse.

1. moves frequently, direct low prices
As inflation and rising interest rates hurt consumer confidence, spending remains sluggish and more consumers are focusing on finding bargains. As early as before last year’s sale, Amazon’s CEO Andy Jassy had publicly expressed his concern about the changing purchasing power of consumers, a concern that was amplified by the fact that Temu quickly surpassed Amazon and Walmart to become the No. 1 ranked company in the Google App Store after entering the U.S. market.

What is clear to everyone is that the future of the U.S. e-commerce market is inevitably going to be a price war, and the head U.S. retailer, Target, has stated outright that it will be steadfastly pushing forward with its low-price strategy in 2023, with plans to offer more goods at lower prices.

The pride of being number one for many years has prevented Amazon from shouting low-price slogans without fear like Target. On the bright side, Amazon announced on June 13 of this year that it was excluding Temu from its price search algorithm. The algorithm exists to ensure that prices for similar items on the market aren’t too far off from Amazon’s pricing, so this statement from Amazon seems to imply that it won’t be engaging in a low-price contest with Temu.

But some of the moves Amazon has made so far this year have exposed its heart and mouth. in March, some sellers found that the home page of their U.S. stores on Amazon began to display sales data for the last month or week, which, although it seems like a small change, can have a critical impact on click-throughs on their products. Imagine having a similar product in front of you that sells 10,000+ per month or 100+ per month, which would you choose? Isn’t it true that stores with high sales volume seem to be more trustworthy? In this way, according to the Matthew effect, the original high sales store sales will be higher and higher, while the original average sales store will be unattended.

Therefore, Amazon’s move means that the sales volume has become an important indicator that affects the click rate of goods, how can you quickly improve your sales index in the competition of similar goods? The easiest way is to lower the price, and in early June, some sellers found that “without prompting, there was a 20% discount under the link to their own store,” not just for third-party sellers, but also in Amazon’s own stores. Sellers are dissatisfied that this discount was not notified in advance, and some sellers tried to update the link in their own background but also failed to cancel the discount.

In this regard, the official explanation given is that this is a new discount program launched by Amazon to subsidize buyers, which is currently subsidized by Amazon out of its own pocket to subsidize consumers, so it does not affect the income of sellers. “Platform subsidies”, and “large discounts”, Amazon’s move is intended to be needless to say.

At the end of June, Amazon also made adjustments to the page display, some categories on the page appeared on the search button called “more like this”, the user clicks on the system will display a large number of similar styles in the same page of similar products, very similar to Taobao’s “look for the same model” function. This change will be the same category of goods for the aggregation and integration, more convenient for users in the shopping process for selection and price comparison, in this case, you guess how sellers can stand out in the same category of goods? The easiest way is of course to reduce prices. In addition to making changes on the platform, on the last day of June, Amazon announced that its logistics policy would also be increased. In the announcement, Amazon said that it would be eliminating the ‘Light Small Goods Program’ at the end of August this year, and in lieu of that, it would be ‘lowering the standard Amazon logistics rate for all low-priced items (priced below $10).

Sellers who used to participate in the Lite Merchandise Program will have to pay $0.30 more per item, but lower-priced items will be delivered faster. The standard pricing for sellers to participate in the Small and Light Program was less than $12, so in the past many sellers would price their items around $12. According to the new logistics policy, the most affected products are those priced between $10 and $12. Within this price range, merchants who previously participated in the Light Goods Program will inevitably choose to lower their prices in order not to pay the full rate, and merchants who did not participate in the Light Goods Program because of their concern for the speed of delivery will most likely choose to lower their prices to less than $10. Therefore, in the industry’s view, this adjustment also reveals Amazon’s encouragement of sellers to reduce prices. In a word, amazon stakes do not mention low prices, stakes but straight to low prices.

2. Either roll or go
Combined with the increasingly fierce competitive environment between e-commerce platforms, one of the important purposes of Amazon’s frequent actions is to let sellers spontaneously reduce prices, thereby enhancing its competitiveness against other platforms. But the key question is, can sellers still hold out?

Recently, Juozas Kaziukenas, founder of Marketplace Pulse, a market research organization, expressed his sympathy for small and medium-sized sellers on the Amazon platform: “It’s getting harder and harder for small businesses to make a profit because they are spending more and more on Amazon fees.”

The organization recently released a report based on Amazon’s drawbacks in recent years, which showed that “starting in 2016, Amazon sellers have been paying the platform a higher percentage of their sales year after year for six consecutive years, and for the first time in 2022, this percentage will exceed 50 percent.” Even more worrying, in the opinion of Juozas Kaziukenas, is the fact that “Amazon may not be able to resist continuing to raise its fees, because Amazon is having a hard time, too.”

The decline in orders and profits has added to the already poor small and medium-sized sellers. Since March this year, more and more sellers have begun to complain that their orders have become less, and some sellers’ orders even directly dropped 30%, while at the same time, ACOS (advertising input-output ratio) is soaring. Have not waited for sellers to come back to God, the same month Amazon began to show sales on the commodity home page, double pressure, sellers can only open the “volume”. It is understood that many previous years did not open discounts and spike head sellers, March this year, but increased the intensity of the offer; part of the seller’s new products directly to 50% off, the degree of competition beyond imagination. In the early incremental era of e-commerce development, many sellers have relied on low-priced discounts to make new orders soaring, in order to seize market share. But in today’s stock era, with the U.S. market’s consumer downgrade, the price of involution mode is obviously invalid, the price of a drop again and again may not be able to exchange sales and income, but may become a stab to their own “dagger”.

Fully used to be a big seller on Amazon, specializing in ergonomic office furniture, and created a variety of explosive products on Amazon. In April this year, its parent company, the American home furnishing giant MillerKnoll, showed in its financial report that the company’s consolidated net sales fell by 4.4% compared to the same period last year, and in order to reduce costs and improve operational efficiency, it had to shut down the operation of its brand Fully. in June, similar news broke again, and the head of Amazon’s top seller, Instant Brands, filed for Chapter 11 bankruptcy protection in the United States. The company was founded in 2019. The company, which was founded in 2019, had set a sales record of 300,000 pressure cookers sold out on Amazon on Member’s Day, but so far this year, Instant Brands has failed to resist the decline in sales, with sales dropping by about 22% year-on-year, and has to head for bankruptcy after being unable to pay its debts.

Sellers have to face higher and higher commissions on the one hand and are forced to get involved in price wars on the other. When asked what they think of Amazon’s new regulations this year, the most common word mentioned by sellers is “in-volume”, followed by the second most popular word: “if you can’t get through the volume, you’ll have to choose cooler categories to differentiate yourself from the competition”.

But there are also a lot of completely disheartened sellers who choose to reduce their dependence on Amazon, and try to go out to other platforms. Gartner’s Capterra survey shows that in 2023, 99% of small and medium-sized Amazon sellers plan to open stores in other e-commerce platforms, such as Walmart, Google Shopping, eBay Facebook Marketplace, and so on. Marketplace, etc. The “price war” does not lead to long-term, beyond the seller’s ability to bear the rules will sooner or later push the seller farther away, this is why even the low-priced pioneer Pinduoduo and Temu has not been able to solve the problem, so far, many sellers for the evaluation of Pinduoduo and Temu is still a mixed reputation. In addition, it should not be ignored that in the past, when Amazon dominated the overseas e-commerce market, sellers rarely had better choices; now, with the rise of several Chinese e-commerce platforms overseas, sellers, especially Chinese sellers, have more choices.

3. A Giant in the Crossfire
During Amazon’s golden age from 2012 to 2015, Chinese sellers flocked to the ‘lying down and making money’ e-commerce platform. According to data disclosed by Amazon in 2015, the number of Chinese sellers who opened stores on Amazon in just three years doubled 13 times. But now, ten years later, for sellers who have experienced store closures and squeezed profits, Temu, TikTok, and Shein are three promising up-and-comers that have become more attractive.

Let’s start with Temu, the rise of Temu can’t be separated from the blocked Amazon sellers to a certain extent. In 2018 and 2021, Amazon broke out in two waves of blocked stores, and it was reported that more than 50,000 Chinese sellers were blocked, and the industry’s losses exceeded 100 billion yuan. Small and medium-sized sellers have a weak ability to resist risks, and once they are closed, they will easily fall into the dangerous situation of merchandise backlog and capital chain breakage. Coincidentally, Temu launched the “DuoDuo overseas support program” at the beginning of the line, and plans to invest 10 billion level resource package, for overseas manufacturing enterprises, the platform promises to take a long-term 0 margin stationing, 0 commission preferential policies.
This undoubtedly provides new opportunities for desperate sellers. As for TikTok and SHEIN, this year are also trying to absorb Amazon sellers to join their camp. Recently, there has been news that TikTok Shop’s U.S. cross-border store will soon be open to Chinese sellers, and it is worth noting that in the official conditions for entry, “if you are an Amazon seller, your annual sales in the U.S. site need to reach more than $2 million,” as a threshold to measure the strength of the seller’s competitiveness. SHEIN, which officially promoted the SHEIN Marketplace platform model to the market only in May this year, has also put forward similar measurement standards as TikTok, although the action is a bit late.

According to Hugo Cross Border, which has long been concerned about cross-border e-commerce, “The threshold for SHEIN’s third-party platform (not a fully managed business) is also $2 million in water flow on Amazon’s U.S. site.” According to reports, there are already many Amazon sellers who have received the invitation of SHEIN, and the conditions given by SHEIN are also very moving: free flow support in the early stage, and the commission ratio is lower than that of Amazon. The former “giant” is in a dilemma. We can understand that Amazon wants to retain the lost users and sales through the “low price”, but the current situation is that it is also likely to push the seller to their competitors, if you do not grasp the balance, it is likely that “people and money”.

For a long time in the past, Amazon pursued the flywheel theory, namely: to create a quality service experience for the user as the goal, through the selection of products and convenience to achieve the growth of the platform traffic, the growth of the platform traffic will naturally attract more suppliers to join, so as to enrich the categories on the platform, reduce the price, and ultimately further enhance the user’s experience, so that the cycle is repeated.

Each gear in the flywheel is closely interlocked, indispensable, but this also means that once a link has a problem, the balance of the entire flywheel will be broken. Taken apart, the root cause of Amazon’s ecological imbalance may be that the flywheel is still the same flywheel, but every link in the chain now has a platform to do more extreme than Amazon. For example, TikTok, which entered the overseas market with short videos, carries a large amount of raw traffic, which gives it a natural advantage in the competition of e-commerce platforms;

Temu, on the other hand, has maximized “low price”, and by doing so has quickly gained a large number of users overseas and become the No. 1 downloaded e-commerce platform; Shein’s third-party platform is still in the process of preparation, but its original experience in building the DTC brand will undoubtedly help it better understand the psychology of consumers, so as to optimize its services.

“Panic” Amazon decided to start from the “low price” dimension to reshape the balance, but in the absence of other aspects of the case, it is easy to lead to a new balance that has not yet been established, the whole system collapsed, the pressure of the Amazon is indeed a little in and out of control. Entering July, Amazon opened the third year after leaving Bezos. A foreign expert analysis said, “Amazon has changed from a high-growth mode to a cost-optimization mode.

In essence, Amazon will have to readjust its expectations from the days of its historic rapid rise, so as to adapt to a more mature, but also more challenging market.” As it stands, Amazon is not ready to face the threat of nascent platforms. Price cuts and in-rolls are not the way out, but what are the other ways it can break out right now? This question is too difficult, Amazon needs more time to think.

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