Amazon's discount direct shipping from China; What is Amazon thinking?

As we discussed on an earlier blog post, Amazon has announced plans to offer a discount section with direct shipping from China. Ostensibly, Amazon’s motivation for this new discount marketplace is to head of competition from Temu and Shein, but many eCommerce Experts, Amazon Sellers and Financial Analysts have been wondering, what is Amazon thinking?

For starters, while Temu and SHEIN have experienced explosive growth, it has come at the cost of profits. According to a report by WIRED, Temu has been losing a significant amount of money on the U.S. market. While SHEIN isn’t losing money, SHEIN’s profit margin is around 4%. It is a high revenue, low margin business, not the type of business investors love, and not something you would think Amazon would be looking to get involved with.

Another reason to question Amazon’s motivation in offering discount direct shipping from China is that it undermines Amazon’s own massive investment in logistics. Amazon has invested 10’s of billions of dollars in warehousing and logistics, it would seem odd that they are now pushing direct shipping from China that bypasses that investment.

Of a lesser apparent concern to Amazon, is the impact on Amazon’s 3rd party sellers. There has been a lot of frustration from 3P Sellers Amazon’s latest fee increase. Offering discount products direct from China will only further raise the temperature.

So what is Amazon thinking?

Unless, Amazon has a different motivation. Maybe Amazon's end game isn't to compete with Temu and Shein. Maybe Amazon’s goal is to shut them down.

TEMU and SHEIN rely on U.S. taxpayer subsidies via tariff loopholes, sales tax exemption and USPS subsidized e-packets. If Amazon starts doing the same, it may be to big for Congress to ignore. Amazon’s move to offer discount products shipping direct from China maybe a cynical move to force Congresses hand in shutting down the loopholes and taxpayer subsidies.

Seems crazy? Well maybe not. After years of opposing it, Amazon supported a nationwide sales tax on eCommerce. Seems counterintuitive, but with all the different state and municipal jurisdictions, collecting sales tax nationwide is complex. It was viewed as beyond the scope of most eCommerce Sellers, but something Amazon, with their vast resources could master.

Given Amazon’s history of playing the long game, it shouldn’t come as a shock if Amazon’s goal is not to compete whith SHEIN and Temu in their low margin business, but Amazon’s goal is to shut them down

Either way, for the near term, selling on Amazon is more challenging than ever, and expertise in Amazon Marketing is more important than ever. Reach out to O2 Consulting for a free consultation.