Amazon's low-cost e-commerce VS. Pinduoduo TEMU expert interpretation
Business Overview:
Amazon plans to launch a new business called "Amazon Discount Store," similar to Temu, mainly targeting low-priced small items.
The business will set up front warehouses in China, with all logistics handled by Amazon, including first-mile and last-mile transportation. Merchants only need to provide products, and Amazon will handle the rest.
Merchants on this platform have three main permissions: product selection, listing, and pricing. Amazon uses an AI system to allocate traffic based on product sales performance and sets price ceilings. For example, if the system determines that the reasonable price for a product is $19, pricing above $20 will result in reduced exposure.
Merchant Participation and Pricing:
Merchants can freely choose products, list them, and set prices, while Amazon does not directly intervene in pricing but indirectly controls it by setting price ceilings.
It is recommended that merchants focus on branded products, as generic products can easily lead to price wars, while proprietary products are more competitive.
The pricing strategy focuses on low-priced items, typically ranging from $3.99 to $19.99, mainly targeting products under $20.
The commission for Amazon's new business is consistent with its existing platform, at approximately 15%.
Attractiveness to Merchants:
Amazon's advantages lie in its globally recognized brand trust, fast logistics services, and high-quality comprehensive product index.
Compared to Temu, Amazon's system is more robust and does not frequently penalize merchants with fines or other penalties like Temu does.
Merchants are inclined to participate in Amazon's Discount Store because Amazon's overall SOP structure and profit settlement methods are more transparent and predictable.
Temu vs. Amazon: Competitive Comparison
Temu's Advantages:
Temu has a clear price advantage, especially in logistics fees and zero commissions, giving it strong competitiveness in the market.
Temu's consumer base primarily consists of price-sensitive low-end or ultra-low-end consumers, particularly popular among young people.
Amazon's Competitiveness:
Amazon's platform has high brand trust, and its membership system fosters greater consumer loyalty.
Amazon has a vast pool of merchants, especially large merchants with existing operational experience on Amazon, who can quickly adapt to and participate in the new Discount Store business.
Through the Discount Store model, Amazon can effectively capture some of Temu's merchants and consumers, mainly those already experienced in selling on Amazon.
Market Impact and Predictions:
Temu's rapid growth is attributed to its social marketing and low-price strategy, but it also faces challenges of declining merchant trust in its platform.
Although Amazon's new business may impact Temu to some extent, particularly in inventory clearance, Temu is still expected to achieve its global GMV target of $60 billion in 2024, with the U.S. market accounting for 60%.
Amazon's Discount Store is expected to attract some merchants originally on Temu, potentially slowing Temu's inventory clearance speed but not significantly affecting its overall growth trend.
Impact on Other Platforms
Impact on Shein and TikTokShop:
Amazon's new business is also expected to affect other platforms like Shein and TikTokShop. While Amazon does not explicitly target any single platform, its intent is to attract more consumers and merchants by offering a more comprehensive low-price product service.
Global GMV Distribution:
Temu is projected to achieve a global GMV of $60 billion in 2024, with the U.S. market accounting for 50-55%, Europe 30%, and Japan-Korea and Southeast Asia markets each accounting for 5-10%.
Profit and UE Analysis:
Temu's overall profit margin remains low, with an expected annual loss margin of 2% to 4% in 2024. Q1 and Q2 losses are mainly concentrated in mid- and last-mile logistics fees and small-scale activities, but losses have narrowed as customer acquisition costs decline.
Amazon's Discount Store is expected to have a net gross margin of about 7%, comparable to Temu's fully managed model.
Logistics and Regulation:
Recently, Temu and other platforms have faced strict inspections at U.S. ports, affecting customs clearance speed, but the overall cost impact on merchants is limited.
Such inspections are expected to increase in the future but are unlikely to have a long-term impact on most merchants, as logistics costs and penalties will be absorbed within the supply chain.
$PDD(PDD.US) $Amazon(AMZN.US)
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