Will Amazon's New Storefront Take Down Temu and Shein?
In the latest Fast Five Short sponsored by the A&M Consumer and Retail Group, Avalara, Mirakl, Ownit AI, and Ocampo Capital Chris Walton and Anne Mezzenga discuss how Amazon is taking aggressive measures to compete with Shein and Temu by imposing strict price caps on its new low-cost storefront, with limits set at $8 for jewelry, $13 for guitars, and astonishingly low prices for larger items like sofas. This strategic move aims to reclaim market share as these competitors have been encroaching on Amazon's e-commerce dominance. The discussion delves into whether Amazon can effectively win this pricing war, given the entrenched loyalty consumers have towards Shein and Temu. Both speakers explore the implications of Amazon's strategy, particularly regarding its ability to leverage its existing relationships with manufacturers in China. The episode highlights the challenges Amazon faces in adapting to a new e-commerce model while also addressing consumer preferences and brand perceptions among younger shoppers.
Amazon's strategic pivot in the e-commerce landscape has set the stage for a fierce pricing battle with emerging competitors like Shein and Temu. The company's move to impose strict price caps on products in a new low-cost storefront signifies a response to the growing market share of these rivals, particularly among younger consumers. The podcast details specific price limits that Amazon has set, such as $8 for jewelry and $20 for sofas—a move that raises eyebrows about the feasibility of such pricing for quality goods. This aggressive strategy aims not only to reclaim market dominance but also to appeal to a demographic increasingly drawn to low-cost alternatives. The discussion delves into the implications of this pricing war, questioning whether Amazon can successfully penetrate a market where competitors have already established strong consumer loyalty.
The conversation shifts towards the dynamics of Amazon's fulfillment strategies, revealing plans for direct shipping from Guangdong, China, which could streamline operations but also raises questions about quality control and consumer trust. As the hosts analyze the potential outcomes of this pricing war, they emphasize the importance of user experience and brand reputation in e-commerce. While Amazon has a well-known reputation for low prices, the podcast highlights the challenges it faces in replicating the engaging shopping experiences provided by platforms like Temu, known for their unique gamification strategies. The hosts ponder whether Amazon can adapt to this new market reality or if it risks losing its longstanding status as the go-to online retailer.
Takeaways:
- Amazon is significantly lowering price caps on products to compete with Shein and Temu.
- The aggressive pricing strategy includes limits such as $20 for sofas and $8 for jewelry.
- Amazon plans to directly ship orders to US customers from Guangdong, China to reduce costs.
- Experts believe Amazon is facing challenges to regain market share lost to Temu and Shein.
- Despite aggressive pricing, Amazon may struggle to change entrenched consumer habits favoring competitors.
- The user experience and seller ratings on Amazon will play crucial roles in this pricing war.
Companies mentioned in this episode:
- Amazon
- Shein
- Temu
For the full episode head here: https://youtu.be/xJqW3cfOfRM
This podcast uses the following third-party services for analysis:
Podcorn - https://podcorn.com/privacy
Transcript
Amazon appears to be going aggressively after Shein and Temu on price.
Speaker A:According to Reuters, by way of the information, Amazon is imposing severe price caps on what merchants can charge for their products on a new low cost storefront that the E commerce giant is preparing to launch.
Speaker A:The company's price limits include $8 for jewelry, $13 for guitars, and this one blows my mind, $20 for sofas.
Speaker A:Not sure what that sofa is made out of.
Speaker B:That's a great point.
Speaker A:The croissant lamp sofa that we were talking about a few weeks ago on the lightning round.
Speaker A:Okay, but anyway, according to the information's report, which cited messages from Amazon to merchants and included a list of 700 items, Amazon plans to ship orders to US customers directly from a facility in Guangdong, China.
Speaker A:Did I say that right?
Speaker A:Guangdong?
Speaker B:Yeah, you did.
Speaker B:You nailed it.
Speaker A:Okay, all right.
Speaker B:Good enough is what I'd say.
Speaker A:All right.
Speaker A:Adding that it was also planning to charge sellers lower fulfillment fees for items sold through the new storefront.
Speaker A:Chris, why do you think Amazon is getting so aggressive on price against Temu and Shein?
Speaker B:Ooh, starting off hot and all right.
Speaker A:I am, I think, yeah, I think.
Speaker B:Because they're eating, I think they're eating into Amazon's business.
Speaker B:They, I mean, they have to be.
Speaker B:You've seen the, all the recent numbers bear that out.
Speaker B:You see the number of app downloads in the US like, the number of them is insane.
Speaker B:Amazon's online store sales rose just 5% in the last quarter, which slowed down from a 7% increase in the previous quarter.
Speaker B:So in the first quarter of this year.
Speaker B:So.
Speaker B:But you know, more importantly, I think the other piece of this is it's actually a strategic assault on Amazon's E commerce turf.
Speaker B:Like Amazon has been, has been known as the low price leader.
Speaker B:And like we've talked about on the show, consumers gravitate to the, to the offering that gives them the lowest price, which Temu and Sheen are now effectively doing.
Speaker B:So then I have to ask the question for me is are the implications of this.
Speaker B:The question I have to ask then, Anne, is can they actually win this pricing war in this way?
Speaker B:I don't know that they can at this point because she and Timu are pretty entrenched with consumers.
Speaker B:Amazon's just trying to start up this new, you know, kind of format in this vein or this storefront in this vein.
Speaker B:So I don't know that they're going to make, make a lot of inroads here.
Speaker B:I think, I think that this part of the business might be lost forever, especially until we know how regulation is going to continue to impact this, this direct to factory way of doing E commerce as well.
Speaker B:But what do you think?
Speaker A:Well Chris, but I guess my question too is like I assume we're talking the same manufacturers.
Speaker A:I mean from my experience ordering, I would assume she and like yeah, are that are, is Amazon asking these manufacturers to make further concessions for Amazon than they are for Temu and Shein or is this like this is just standard across the board?
Speaker A:Like they're already doing this so it's going to be fine.
Speaker A:Like that, that to me doesn't make sense.
Speaker A:Like they've already, these factories already have these longstanding relationships with Sheen and Temu and who, you know, just because Amazon comes in, do they have the same clout that they might have in the US Market when we're talking about, you know, what their relationships are over in China.
Speaker A:But I disagree with you a little bit and I'm curious what you think about this.
Speaker B:Let's get it going.
Speaker A:So I think this could be a massive opportunity for Amazon.
Speaker A:Like he huge because I think if you look at the brands, I was even shocked by this.
Speaker A:But if you look at the brands that are most beloved by Gen Z again the generation that's holding the most buying power that any of any generation at this con existing age, Amazon is consistently ranked among their favorites and in some cases even in the top 10 of their favorite brands.
Speaker A:So I have to ask you Chris.
Speaker B:If you're ordering another question, I do.
Speaker A:I have to ask you this question.
Speaker A:So if you're going to order, let's talk, let's say like shoe organizers for your closet or something, something like that.
Speaker A:Are you more comfortable ordering that from Amazon as a US consumer?
Speaker A:Are you more comfortable ordering that from Amazon or from Temu?
Speaker B:It's a good question.
Speaker B:Yeah, it's a, it's a really good question.
Speaker B:So I, that's what's tough for me on this.
Speaker B:It's, it depends on the user experience.
Speaker B:Cause I talked to the folks at temu for like 30, 45 minutes one day.
Speaker A:Yeah.
Speaker B:And they say while the direct to factory model is part of it, it's also the gamification and the user interface is also part of this.
Speaker A:True.
Speaker B:So the Amazon experience as you're des describing it, operates and behaves differently.
Speaker B:But with that said, like could I as a young consumer be browsing Amazon and looking for storage organization solutions that are cheap?
Speaker B:Yes, I could.
Speaker B:So maybe they get some of this business, you know, that they've been losing to Temu and shein but, but I don't know that they can ever get the total amount.
Speaker B:I don't know that they can ever just like shut them out of the market at this point.
Speaker B:I think that that's the point I'm trying to make here is like, yeah, true.
Speaker B:They, they.
Speaker B:It just seems like this is a hard game for Amazon to stand up and play entirely new because it, it's a different way of doing E commerce.
Speaker B:I don't know.
Speaker A:It totally is.
Speaker A:But, but I, but answer the question.
Speaker A:Who would you rather order from, Amazon or team?
Speaker A:As a US consumer, probably Amazon.
Speaker B:Yeah, I think, I think that I would concede to you, I would agree.
Speaker A:If, if all things are equal, like price is comparable.
Speaker A:You, I mean everything else, the quality of the product, it looks the same, the images are the same.
Speaker A:I would also go with Amazon and my hunch is there's a lot of people in the US that would also go to Amazon before ordering something from Temu or from Shein if it's the same thing.
Speaker A:So you make a great point.
Speaker A:I think about making sure that the gamification and the shopping experience is there, but I think if they can do it, there's a huge opportunity in the US for them.
Speaker B:Yeah.
Speaker B:The other part about this though you got me think about is seller ratings are also really important on Amazon and so Amazon's always very transparent of that.
Speaker B:So like, if customers start to get dissatisfied with that, Amazon's going to probably showcase that a little bit more too.
Speaker B:So, so yeah, this is a really great conversation.
Speaker B:I have no idea which way it's going to play, but you can tell that Amazon is definitely, definitely focused on trying to figure this out.
