Amazon's marketplace has connected US consumers to worldwide markets. Did it do the hard work for Shein and Temu?
This morning I read , Is This How Amazon Ends?, written by Amanda Mull (@AmandaMull). It’s a wonderfully written article that talks about the Amazon Marketplace, 3rd party sellers, and the pressure on Amazon’s market share due to new players like Shein and Temu.
I’ll summarize the article and share what I believe to be the takeaways for retail ecommerce, and consumers. At the end, there are a couple of questions for you, the reader. I’d love to hear from you.
The Article:
Amazon’s online marketplace is unquestionably the worldwide leader in ease, accessibility, and availability for pretty much anything you can think of. If something exists, your best shot to buy it is to visit Amazon.com. Perhaps even more impressive is that it’s able to do this and maintain itself as a price leader on nearly everything on its online store. As I write this, I have to force myself to set aside my endless positive feelings on the masterclass of market dominance that Bezos and team have built to remind myself, it is not perfect. Something I tend to overlook, and I’m wondering if you do too- how much of the inventory is not in the Prime catalog and is sourced from 3rd party vendors with funky names like WOOPKJINO or DPUNNL. Amanda asks the question in her article, (which is terrifically written, I might add), “What is Amazon really providing in this agreement?”
She argues that for Amazon’s reported ~50% cut of revenue, they are connecting US consumers to marketplaces previously unreachable. Amazon, in this arrangement, is the missing piece in the formula of “I want the lowest price possible” and “I need a reputable retailer.”
Personally, I couldn’t imagine heading off to WOOPKJINO dot com which holds a stock image of a standing desk with no locatable phone number or email address, and entering my credit card. But, because it’s listed on Amazon, I can’t add it to my cart fast enough. (PS, the name of this website has been changed, but yes- I did buy a standing desk on the Amazon online marketplace, and yes, it was fantastic.)
Amazon’s marketplace gives consumers the earned stamp of approval that ensures I am almost certainly not getting scammed, the product is of acceptable quality, and if I decide I don’t want it, returns are easy. (Read: INDUSTRY LEADING SIMPLE.) Amazon even perhaps invented the modern returns process we’ve all come to love and expect, but that’s a blog for another day.
So, Amazon is great. So what? Well, a staple of this wonderful economic system we have built for ourselves is when one organization grows too big (monopoly?? The US government seems to think so- FTC Sues Amazon for Illegally Maintaining Monopoly Power), competition creeps in. This is true of Amazon itself. There was a time, as Andrew Yang so eloquently put it- that Walmart was the tank bulldozing mom-and-pop shops up and down Main Streets across the country. And pretty soon after Walmart was done admiring the smell of napalm in the morning over a conquered retail map, Amazon beamed in like a spaceship playing by a different set of rules and absorbed enormous swaths of market share- and there was nothing Walmart could do to slow them down. By the rules of a free market, it is inevitable (and healthy) that we see a new player.
Enter Shein, and Temu.
With US consumers now accustomed to taking a perceived risk on quality for cheap overseas alternatives, Amazon has arguably done the hard work for the newcomers. Since launching on the scene, Shein and Temu have rocketed to an estimated 16B and 6B, respectively. Sound like a lot? Well, Target (a personal favorite) reported $22B in online sales last year. Not bad for the new kids on the block.
So, the question is, what happens next? Can Shein and Temu, or others eke out a sustainable footing in the US? Are we on a one-way path to the bottom, forgoing any semblance of sustainability in apparel retail? How big of a portion of Amazon’s lunch can the new players eat? What is Bezos thinking about from the deck of his yacht parked in South Florida? (On this last one, I don’t imagine Jeff is thinking about retail market share much these days, and I don't blame him.)
My thoughts:
The article talks about how the “junkification” of merchandise is observable through shotty product descriptions written by foreign copywriters. If you’ve shopped Amazon’s marketplace, I’m sure you’ve read some pretty funny twists of the English language. As someone currently studying a second language, I can appreciate how challenging it is to even know the correct word, let alone nail the style you are aiming for. That aside, my mind immediately goes to- is this not the perfect use case for Generative AI? A few quick prompts over lunch, and problem solved. AT SCALE. Truly, amazing times we live in. Again, perhaps a blog for another day.
The article mentions that Amazon takes ~50% of the sales from its online marketplace vendors. I found myself wondering, is this too high? It certainly seems like a high price. At least higher than I’d expect for a domestic vendor to pay on a platform. To frame up my thoughts, I asked myself what does 50% buy a vendor?
For starters – visibility. Amazon owns the largest US marketplace in the history of the world. If you want to drive over the bridge, you’ve gotta pay the toll.
Reputation. As stated above, I can’t imagine buying something directly from most of these companies. But slapping Amazon’s hard earned brand name on it changes a lot for me. And given the size of the online marketplace, I’m guessing it does for a lot of others too.
Contingency for consumers. On Amazon, I always have an escape hatch. Because it’s on Amazon, if at ANY point I decide I don’t want it, Amazon will take it back almost no questions asked. Even better, they’ll take it back at full price, to almost no inconvenience to me. I can drop it in the mail at any number of channels, return it to Whole Foods, or for bulky items, have someone come to my house and take it away. And I never need to interact with a single human. Millennial bliss has entered the chat.
So, it’s hard to say. But I don’t see another alternative for these vendors. Perhaps this is just free markets doing free market things, and that I can stand behind.
So, is Amazon doomed?
The big question – How big a slice can the new players take?
Well, there is a big slice on the table. Amazon controls about 37% of a nearly $1T annual pie. (Context note, try and guess who’s in second and what their share of the market is. I’ll wait…. Ok- Walmart, 6%). But I think the new class of uber-low-price retailers are approaching their peaks. Shein and Temu have a simple offer. Find the trend, develop the product fast, make it cheap, sell it cheaper than anyone, and get out. It’s an excellent model- but it’s only applicable to so much. If this model works for that vacation bathing suit or funky iPhone charger, great- but does this work for furniture? Electronics? Consumables? I’m betting no.
Ask yourself, who are Shein’s customers?
Far and away, this is a young demographic, largely without the means or desire to prioritize quality for price. For someone who simply wants a tank-top, or an $8 spaceman lamp that emits a neon glow, it’s the perfect outlet. But I have a hard time seeing the value proposition outside of this demographic. In a $1T online marketplace, young, Gen Z/millennial shoppers can only account for so much. It is estimated that visits to Amazon.com by consumers aged 18-24 years old make up 22% of Amazon’s traffic. Significant, but there's a lot of pizza pie left to eat. How likely is it that this group will forgo Amazon entirely for Shein/Temu? Remember, Amazon while it competes on price, it also provides best-in-class service. (Wow, a 3rd blog idea.. The Value of Service and Why You Should Never Forget it).
Further, one of my new favorite words- Regulatory Capture.
Tensions are tight between the US and China, to say the least. Amazon is the established player, and while we all like to demonize the biggest gorilla in the room, Amazon is our gorilla. And if there’s one thing that unites us all- it’s coming together to find a common (perceived) enemy. I just don’t see a low-price play without the ability to scale up or scale out challenging the king of retail on its home turf.
In short- Will Shein/Temu generate billions of dollars on US soil- Yes.
Will Shein/Temu continue to grow and take a larger share of the US online marketplace- Probably.
Will they be mainstay players, reshaping the environment- I don’t think so.
I’d love to hear from you, have you ordered from Shein/Temu? What was your experience? How comfortable that you’d be satisfied with the quality of that order, or that you could return it easily if you weren’t.