We asked industry pros to comment on Amazon’s plan to create a new section for Chinese sellers to ship directly to U.S. customers. The move is an apparent effort to recoup consumers who have turned to Temu and Schein, producers of inexpensive household goods and apparel, respectively.
China-based Shein sells inexpensive “fast fashion” apparel.
Bad Idea
It’s a bad idea, according to Phil Masiello, CEO of CrunchGrowth Revenue Acceleration Agency and a longtime Amazon seller and founder of multiple ecommerce companies.
Sellers and brands have been fighting with Amazon against cheap fakes from China for years. “It’s going to anger the brands on there,” Masiello said in a video interview, adding, “Amazon should go higher. They should go into exclusives versus trying to be a Temu.”
The Chinese competition is selling “junk to the uneducated. They buy it once. They’re not long-term Temu customers,” Masiello said. Temu’s popular, he says, but the business model is not sustainable.
“Amazon has one thing that any brand would love, which is retention,” Masiello added. “Everybody has the Amazon app on their phone. It’s the first place we look for something.”
Masiello believes the move will cost Amazon, where quality sellers face increasing fees — about 50% of sales go to Amazon.
Masiello’s not alone in his opinion that Amazon’s making a mistake.
Inviting Competition
“Amazon made a deal with the devil by letting this crap in from overseas,” stated Rick Wilson, chief executive officer of Miva, an ecommerce platform. “They invited the competition.”
Higher-end products will be insulated from the new storefront, but “it ultimately depends on the item.”
“Amazon continues to aggressively pursue overseas manufacturers and make it easier for them to become consumer brands themselves,” James Thomson, managing partner at Equity Value Advisors and a former Amazon executive, said. “In many categories, U.S.-based brands on Amazon are sourcing stuff overseas and now competing against their manufacturers. Amazon’s enabling them.”
“As Amazon goes after lower cost options, it’s harder for small brands in the United States to do well,” Thomson said.
Still, Thomson doesn’t see much of a problem for better sellers at higher price points.
“Lots of stuff on Temu and Schein is a spontaneous purchase,” Thomson said. “I don’t go to these types of sites thinking here’s what I need to refill my supplies at home.”
Thrasio, the ecommerce aggregator that recently emerged from bankruptcy, is focusing on quality and loyalty to avoid competing with Temu and Schein products.
Commoditized items, like kitchen utensils, will become even cheaper for consumers with direct-from-China offerings.
By focusing on quality, Thrasio hopes to avoid competing against inexpensive alternatives.
“There’s just no way to compete on some of those commodity products,” Stephanie Fox, Thrasio’s new chief executive officer, said in an interview. “Your margins are going to be 5%, which will never support a scaled business. Could solo entrepreneurs potentially compete against those products? Sure, but they won’t make a ton of money doing it.”
“Competing in those low-margin commodity products, which is exactly what Amazon is focusing on, it’s not going to be worth it,” Fox said.
Mark Daoust, the founder of Quiet Light, an ecommerce brokerage, compared the move to the launch of Amazon Basics.
“I saw a business that was killed by Amazon Basics,” Daoust said, citing one client who sold lower-priced office chairs. “Most sellers want to build a brand, a quality product, and focus on a uniqueness that no one can imitate. The client made economical chairs that were accessible to a lot of people. That was the whole value proposition.”
It wasn’t necessarily the best chair on the market, but it was economical and worked very well — until it didn’t. “Amazon Basics destroyed that company.”
