Photo by Christian Weideger on Unsplash
July 2, 2024
Will a New Amazon Discount Section Compete With SHEIN and Temu?
A new Amazon discount section is set to be introduced in its online store. This new section will feature goods shipped directly from warehouses in China, according to a report from The Information that cited slides shown to Chinese sellers, marking a significant shift from Amazon’s current model where most products are shipped from U.S.-based warehouses.
Amazon has traditionally focused on providing fast delivery, a key selling point for many of its customers. However, there is a segment of shoppers who prioritize cost savings over quick shipping times. This is where Temu and SHEIN have found their niche, offering lower prices with the trade-off of longer delivery times. Amazon’s new discount section aims to cater to this price-sensitive demographic by providing items at competitive prices.
Shipping directly from China allows Amazon to potentially reduce the amount of unsold inventory, as products can be produced in response to customer orders rather than being pre-stocked in U.S. warehouses. This method minimizes the risk of inventory mismatches and helps streamline the supply chain.
Unlike Amazon Prime products that offer fast shipping, the new discount items will have a longer delivery time, ranging between 9 and 11 days due to overseas shipping. This aligns with the shipping times offered by competitors like Temu and SHEIN.
While Amazon is exploring this new approach, SHEIN is taking a different route by establishing U.S. warehouses to offer faster delivery times, a strategy reminiscent of Amazon’s traditional model. This dynamic illustrates the competitive landscape where both companies are adapting their operations to better meet the evolving preferences of consumers.
Amazon’s initiative marks a departure from its existing product lines, such as Amazon Basics. Instead of branded items, the new section will feature unbranded fashion, home goods, and daily necessities, offering budget-conscious consumers a wider range of affordable options.
The move is a direct response to the growing popularity of bargain seller websites and apps like Temu and SHEIN, which have gained significant traction in the United States by offering deeply discounted prices on items shipped directly from China. Temu, in particular, has become ubiquitous with its ads appearing across various platforms, including YouTube, daytime TV, and mobile games. Last year, Temu became the most downloaded iPhone app in the U.S., highlighting the growing demand for budget-friendly options. While SHEIN focuses primarily on clothing and accessories, Temu provides a broader range of products, posing a more direct competition to Amazon’s vast inventory.
In an effort to streamline this new venture, Amazon plans to introduce a dedicated section on its homepage for these bargain items, according to the report. Chinese sellers will have the autonomy to set prices and determine the products included in this section, allowing for a flexible and dynamic marketplace. This approach will enable sellers to test small batches of products before committing to larger-scale production, similar to SHEIN’s model of minimizing unsold inventory.
However, there are concerns about Amazon’s potential reliance on a U.S. trade provision that exempts packages worth less than $800 from customs duties. Both Temu and SHEIN currently benefit from this loophole. With increasing anti-China sentiment within the U.S. government, there is speculation that this tariff exemption could be closed, potentially impacting the operations of these discount platforms and influencing Amazon’s new strategy.
Amazon’s new discount section is expected to launch in the fall, with Chinese sellers being encouraged to sign up during the summer.
Discussion Questions
How might Amazon’s introduction of a discount section featuring goods shipped directly from China impact its competitive positioning against Temu and SHEIN, considering the potential trade-offs between price and delivery speed?
In what ways could Amazon’s reliance on the U.S. trade provision that exempts packages under $800 from customs duties affect its new strategy, especially in light of increasing anti-China sentiment and potential policy changes?
Given that Temu and SHEIN have successfully leveraged long delivery times in exchange for lower prices, what innovative approaches might Amazon take to balance cost savings with customer satisfaction, and how could this influence the broader retail landscape?
Poll
Loading …BrainTrust
Melissa Minkow
Director, Retail Strategy, CI&T
Trevor Sumner
Head of AI and Innovation, Raydiant
David Spear
President, Retail, OrderlyMeds
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It can compete. However, the bigger question is should Amazon be competing in this way?
I see this as risky. First, it could annoy existing sellers on Amazon, especially if their prices are undercut. Second, it could create even more clutter on the Amazon site – although this depends on how the new offer is integrated. Third, there is a risk of pulling sales from the main platform to the discount one, which could have an impact on productivity via fulfillment operations. Fourth, it opens the risk of Amazon being accused of the type of bad practice that plague Temu and Shein.
I think Amazon needs a strategy for dealing with the Chinese marketplaces – although they have not prevented Amazon from growing over recent years – but this seems like a ‘can’t beat them join them’ type play. Amazon plays best when it is the pioneer, not the follower.
Yes, upside for Amazon. But you’ve correctly pointed out several inherent risks they’ll need to contend with if they don’t want things to backfire. Will be interesting to see unfold.
One key element of both Temu and Shein is a seemingly endless array of new styles. While Amazon may be able to duplicate the form factor of cheap Chinese discounters, I have to wonder whether the DNA of these prolific style-sharers can be duplicated.
This new section will feature goods shipped directly from warehouses in China, And this is how they’re going to market it ?!? Probably not, but why market it at all? Indeed, why does it exist …at all?? One of the main advantages of online shopping is the ability to set parameters to whatever you want ; setting up a discount “store” strikes me as remarkably dated thinking.
Temu and SHEIN were wise jumping onto Amazon’s platform instead of going it alone. Better to land with them than taking a shot across the bow of the most successful online retailer.
But some of Amazon’s Selling partners will be vocal. They won’t want their offerings pressured or undercut by what looks less like good old-fashioned competition, but more like goods dumped into the US Market.
My questions, does Amazon really want to be joined at the hip with two controversial online product offerings? Good brand perception usually includes alliances and offerings where a company can say proudly “we are known by the company we keep”. The other being, given Amazon’s own flywheel requires constantly reducing costs and thus lowering prices, they didn’t want to instead own more of this opportunity themselves?
Amazon can certainly compete with Temu and SHEIN, especially allowing sellers in mainland China to set their own prices.
My concern is to what extent can Amazon separate this part of their business from their basic business model, and how will this impact Amazon’s mainline sellers? Db
Amazon as a follower. Wow, the worm has turned. The real question is, what is Walmart gonna do?
there’s a lot of anti-China sentiment among the customer Amazon is going after. And it’s competing with itself at levels that are unprecedented. I think it’s a fail and they’ll pull out in 6 months. Remind me I said this, when I’m wrong.
I actually think this is a smart play and parallels what Google just announced their doing by highlighting recent discounts/savings when consumers initiate a search. The reality is that shoppers are looking for deals absolutely everywhere. This dollar spot equivalent is smart, it just needs to not get in the way of frequent Amazon users’ ability to use the site how they’re so accustomed to doing.
This sounds like Amazon trying to play Temu’s and SHEIN’s game. Shipping direct from China with similar delivery times as Temu and SHEIN does provide a similar experience, but shipping alone doesn’t explain the terrific success these firms have had. Amazon may be able to match the shipping, and some of the same really cheap goods, but I don’t think that this move plays to Amazon’s strengths. That said, it’s clear that Amazon felt it needed to address the competitive threats that Temu and SHEIN represent. I would also be very concerned about the political tension between the US and China and how this might play out in future trade-wars.
Amazon’s new discount section, shipping directly from China, may harm its competitive edge. This shift could dilute Amazon’s brand reputation for reliability and speed, potentially driving loyal customers to competitors who offer a consistent experience, impacting Amazon’s overall market position negatively. Customers accustomed to Amazon’s fast delivery might be frustrated by slower shipping times, even with lower prices.
Amazon’s strategy could be disrupted if the U.S. closes the tariff exemption for packages under $800, especially amid rising anti-China sentiment, making their discount section less competitive and more costly.
What happened to embracing sustainability and “death to fast fashion”?
Oh those are the Monday, Wednesday values; as long as we only comment, rather than signal approval, we’ll be OK…right? /s
Hope so!
This development is somewhere between disappointing and disturbing. Discounted, or just cheap? Discounted based on what comparison price? Hmmmmmm…??? Cheap because bad quality or because they are skirting the de minimis rules? Or both? Amazon is so afraid of losing market share, they are choosing to play in this sandbox? Why not fight for fixing the de minimis rules? And they think shoppers won’t just trade down with a few simple clicks? Brands on Amazon should have their heads exploding, and yet they are on Amazon for the eyeballs. And now Amazon is serving up price cutting competition to those eyeballs. I’m sure Amazon has rationalized this as simply competing in the open market. But the market deserves to have a !@#$%^& level playing field…!!! How is it possible that Congress lets this siphoning of $$$ away to Asian factories continue to go on? We used to send first cost or LDP $$$ to Asia. Now we are sending retail $$$ offshore. Brilliant. Just brilliant.
Yes, Amazon will do whatever it can to both grow and be competitive. This should not be surprising to anyone. The OG marketplace wants to be the marketplace for anyone, from everywhere. Consumers want fast delivery where they can, and lowest prices for products when quality truly doesn’t matter.
For really cheap products, how will Amazon protect the consumer as well as stand behind the sellers? What kind of returns/credit policy will there be? Will Amazon hold the sellers of direct China deliveries to the same standards for packaging, sustainability, and labor compliance? Will consumers care?
The real question is, will the consumers care? If they did, Shein and Timu would not be an issue for Amazon.
Timu’s and Shien’s success is astounding. The shopper is showing how much they value price over fast delivery. Amazon is taking note. These companies are good at what they do and have been successful worldwide. If I were Amazon, I would have no choice but to try the trade-off.
I suspect Amazon already has the answer. This is not a thoughtless initiative. The operational logistics are much more challenging than local warehousing and delivery. Of note is that airfreight costs are rising in direct response to volume generation by Timu and Shien.
Wait, what? One of the greatest business model advantages that made Amazon what it is today is its one touch order that is received next day. Now it’s deciding to offer inexpensive items from China that include a 10-12 day shipping timeline? I have to say, is this a cheap fake in the making? If not, Amazon has lost its way. The DNA of this company has always been a leader, a real pioneer who rarely looks to copy from others. Amazon should get back to its roots and develop new partnerships, new business models that are trailblazing, not me too. Consider also the damage Amazon is inflicting on its current partners that will be in direct competition with these supposedly low-cost alternatives shipped direct from China. If I were one of these partners, I’d be livid.
Will that partner lose the sale to Timu and Shien in any case? In the history of business, the most common reason major companies fail after decades of success is they hold on to thier legacy business models for too long.
Is this even a segment worth chasing? Slow boat from China (pun intended, I know, groan) cheap stuff that is, well, cheap? Surely there must be some other items on the “ol five year plan” worth chasing???
It is useful to point out that Amazon always is involved with some sort of logistical experiment. This is no different. Temu is here to stay, assuming no tariff changes. I would not overreact to this latest distribution test by Amazon.
Amazon is on the defensive? Oh my, have the tables turned! On one hand, Amazon has no choice but to compete with these marketplaces who have proven there is a consumer that values price above all else, including speed of delivery. On the other hand, Amazon risks alienating sellers on their marketplace with whom this new area will directly compete with. What can they do? In traditional Amazonian fashion, they will experiment of course! And that means launching a “new” marketplace to directly compete with stein and Temu. If it works, Amazon will recover market share, if it doesn’t, they’ll shut it down in 6 months. Is this a departure from the typical Amazon way of doing business? I don’t think so – this is no different from Amazon opening multiple types of stores to understand how to sell in physical spaces vs online and later closing those doors. All in the spirit of experimentation. What we should be asking is – would Walmart do the same thing and should they?
Painfully accurate. I still find it impossible to believe that the tariff situation won’t be dealt with. But in the mean time, this competition is real and cannot be ignored. And even when the de minimis rules normalize, factory direct business might offer a very appealing path, so Amazon is positioning itself for a couple of different scenarios. But c’mon Congress…level the playing field and everybody will sort it out with product and execution. The current pricing advantage is ridiculous.
True, we are dealing with a model enabled by a loophole. Close the loophole and what happens? Amazon is hedging their bets here so that regardless of which direction that goes, they have a leg to stand on. I think this fits their experimentation approach. Try it – if it fails, it will be shut down. But yes, we really should be leveling the playing field instead of finding more loopholes to compete under!
A new discount section will make Amazon even more responsive to consumers’ needs and globally competitive.
Amazon can emphasize its strengths in brand trust, loyalty, quality, value for money, fast logistics and bold media campaigns to compete against ubiquitous Chinese rivals. Smooth returns policies, robust omnichannel touchpoints and friendly after-sales service also differentiate Amazon.
Shein and Temu and “on-demand” retail do present a significant threat to Amazon, and I think it’s wise to compete to slow their meteoric rise. Neil points out that an inexpensive alternative might pull sales from traditional Amazon purchases, but since Amazon so relentlessly competes on price (and convenience), they can’t ignore a direct attack on their core value proposition. The key will be how they package this long shipping option among its traditional interfaces. Amazon has become a hodgepodge of incongruent offerings (Amazon Fresh order minimums in a hybrid cart, countless shipping options, subscription vs 1 click, etc., and if not launched thoughtfully, it could be a big distraction for the user leading to frustration and disappointment.
Assuming the pricing of the products in Amazon’s new discount section are similar to those offered by Temu and SHEIN, then the products will definitely be competitive. If the discount section takes off, I could see Amazon creating a distribution center for the products to improve the shipping times. Another issue in offering low cost products from China is quality. How will Amazon protect its reputation from being dragged down by customer experiences with low quality product that are dissappointing?
I think that Amazon is a master at testing and learning. In short order, they will be able to assess if the lower price point, longer lead time is for them. Technically, they are already doing this through many of the vendors on Amazon’s marketplace. Those are the folks likely to lose rather than Shein or Temu.
For those willing to wait and meet the conditions, the “low-price deal” may be worth it. This is a way to purge inventory and compete with the discounters. But, as my Braintrust colleagues point out, there is risk to the Amazon Marketplace program. Those sellers are customers, too. We’ll see how this shakes out. Amazon is smart. They don’t make many mistakes.