Amazon Against Temu: Chinese Products Delivered to the US Directly from China
Amazon just announced that they are going to compete directly against Temu with a brand new low-cost option of unbranded goods shipped direct from China and Amazon FBA sellers are going to be screwed. Basically, Amazon's going to offer the exact same service that Temu does, selling cheap generic Chinese products that take about 7 to 11 days to be delivered to the US directly from China.
Amazon's New Competition: Direct Challenge to Temu
So in this video, I'm going to give you my take on exactly what is going on, the implications on the third-party Amazon seller community, and what you must do right now to prepare yourself as an e-commerce seller. But I'll say this upfront: right now it's not looking good.
Implications for Third-Party Amazon Sellers
So first off, what exactly is happening and what are the details of what's going on? Well, for the past two decades, Amazon has focused on the speed of delivery by selling cheap stuff that arrives quickly. Amazon has built the most expansive and optimized fulfillment network in the United States, capable of delivering almost any product imaginable to consumers within 2 days. There are roughly 180 million Americans who are Amazon Prime subscribers, which is at an all-time high as of this year.
Understanding the Shift in Consumer Preferences
But we're in a recession and right now Americans care more about saving money than the speed of delivery. That's where sites like Temu and Shein have been destroying Amazon's market share. Now, in a prior video, I reported that Amazon's revenue from apparel is down 30% year-over-year and tens of millions of Americans have started shopping on Shein and Teemu instead.
Temu and Shein: The Rising Threats
If you aren't familiar with these two PL platforms, Teemu and Shein are Chinese-owned e-commerce platforms that ship products directly from China with no middleman. The shipping takes longer, but the prices are lower. For example, this floor mat here on Temu is $16, but an identical floor mat on Amazon is being sold for $40. Now, is getting a product in 2 days versus 11 days worth paying 40x for the product? Well, Americans are speaking with their wallets and saying no. They're willing to wait a week to get their stuff if they can save money.
Temu's core strengths are household items and electronics, whereas Shein specializes in women's clothing and accessories. Together, these two Chinese companies are decimating Amazon sales.
Amazon's Strategic Response
But last week, Amazon declared war on these two Chinese platforms by opening a new online store for low-cost products shipped directly from China. According to their announcement, the rollout is going to occur in stages. To start, Amazon is going to first focus on branded clothing and household items priced less than $20 and weighing less than a pound. As we speak, Amazon is rounding up and encouraging Chinese factories to sign up for this program where Amazon will ship the orders directly from China and arrive in 9 to 11 days.
Compared to 1 to 2-day Prime shipping, 9 to 11 days feels like forever. But like I said already, Americans are speaking with their wallets and care less about delivery speed. According to Statista, Temu was the most downloaded e-commerce app in 2023, surpassing Amazon with over 120 million downloads.
Economic Factors and Market Dynamics
Meanwhile, according to GWS Magnify, Temu had 82.4 million active shoppers on its app in September of 2023, up from only 4.6 million the prior year. By comparison, eBay only drew 40 million online shoppers that month, while Temu ran neck and neck with Walmart, which had 85.5 million online users. While Amazon was still number one with 142 million monthly users in September, Temu already has more than half of Amazon's traffic after just 2 years.
Tax and Import Advantages for Chinese Sellers
But here's where the story gets worse. Once Amazon starts selling cheap unbranded stuff direct from Chinese sellers, it's going to be hard for third-party sellers in the United States to compete. As of right now, Chinese sellers do not have to pay import duties or taxes on the products they sell because of the "de minimis" rule. This rule states that products can be imported into the United States without paying taxes or tariffs as long as the package is worth less than $800.
Second, selling direct allows Chinese factories to bypass the middleman altogether and ship directly to consumers in the United States. When Temu first launched in 2022, only a handful of the same Chinese suppliers on Temu were selling on Amazon. However, as of this past December, there is roughly a 10% overlap between Teemu sellers and Amazon sellers. Thanks to this new Amazon program, it's about to become 50% or more. Chinese sellers already make up over 50% of the top sellers on Amazon. Who knows, it could reach 75% or more once all of them start shipping direct from China and not have to pay taxes.
The Future Landscape for Amazon Sellers
Right now, if you search for the same product on both Amazon and Temu, you'll find that many of them are exactly the same except Temu is many times cheaper. I already showed you the foam floor mat earlier, which was 40x cheaper. Well, I just did a search literally right now, and this neck fan here is $23 on Amazon but only $6.95 on Temu.
Strategies for Third-Party Sellers to Stay Competitive
If the products being sold on both platforms are the same, why are Amazon's prices higher? It's because all FBA sellers on Amazon have to pay referral fees, import fees, duties, tariffs, and Amazon's hefty FBA fees. Just this year alone, Amazon introduced a slew of new fees and increased the rates of FBA. For example, Amazon now forces all sellers to pay an inbound placement fee, so basically you have to pay a fee of between $0.21 to $6 per unit for Amazon to accept standard and large bulky products into their warehouse. This fee is supposed to reflect the cost of distributing inventory to multiple fulfillment centers. In addition, they announced a low inventory fee. In the past, you only had to worry about having too much inventory in stock, but now you will pay hefty fines if you have too little inventory as well.
The Importance of Branding and Customization
By the way, if you're enjoying this video so far, make sure you sign up for my free six-day e-commerce mini course below that will outline exactly how you should start a profitable online store today. Now, how do you avoid these fees? You have to pay for Amazon warehousing and logistics. This service allows you to waive your placement fees by holding your products in Amazon's third-party warehouse where they are drop-shipped on demand directly to a fulfillment center. So basically, Amazon is forcing everyone to use their end-to-end logistics services now, and the fees all add up to a lot of money. Compared to a Chinese seller paying a couple of bucks to have a product shipped direct from China with no taxes or fees, a third-party Amazon seller importing from China and then selling on Amazon has no chance of matching prices.
Targeting High-End Customers
Then finally, there's the Amazon factor. Temu and Shein are hurting Amazon right now, so Amazon will be incentivized to show off these brand new cheap products to fight back. Can you imagine paying money to advertise your Amazon listing only for Amazon to display cheap unbranded Chinese products under your own product for one-third the cost? Well, this has already happened in the past with Amazon's own branded products. Now the price difference is going to be more dramatic. Sure, Amazon has said that the new El Cheapo Mall will appear in its own section of the Amazon website, but do you really think that Amazon's going to hide this section from regular Amazon buyer traffic? No way. Remember, Amazon makes money no matter what, whether the sale is coming from you or a Chinese seller shipping direct from China. Do you really think that these cheap Chinese products are not going to show up in regular Amazon search? Not a chance. So here's what's going to happen. A customer will do a search for your product and find ridiculously cheap alternatives right next to your higher-priced listing. It's next to impossible to start a brand on Amazon, so your brand will be pretty meaningless in the eyes of the consumer.
Building a Strong Brand Outside of Amazon
Now I hate to say it, but US-based Amazon FBA sellers are in big trouble. On one hand, Amazon is charging three-piece sellers placement fees, referral fees, inventory fees, pick and pack fees, and here comes a Chinese seller who doesn't have to pay for any of that stuff, and they have the pricing advantage. I really don't see how this can possibly end well. But the real question is how can you fight back? Well, for many Amazon sellers, they're going to have to rethink their entire product portfolio. If you're selling generic stuff on Amazon right now, you're in trouble. Someone from China will undercut you in price and you will not be able to compete. Instead, you need to think about products that cannot be easily sold from a seller in China. For example, I have a student in my class that sells skincare products. Would you ever buy a skincare product from a no-name company in China at one-tenth the cost? Well, skincare consumers will be less price conscious because who knows what chemicals are in the Chinese formulation. For my store over at bumblebeelinens.com, we've doubled down on personalization. Sure, Chinese sellers can copy every single product that I sell, but what they can't do easily is personalize a custom product for the consumer in a timely manner. We provide custom embroidery, custom printing
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