AMAZON DECLARES WAR ON TEMU

16 ביולי

Recently, Amazon (NASDAQ:AMZN) has launched war on Chinese platforms Shein (private) and Temu (PDD Holdings Ticker: NASDAQ:PDD), both of which have been capturing significant market share in online retail sales. Amazon has announced the opening of a new online store for low-cost products shipped directly from China. Initially, this store will focus on brand-name apparel and household products priced under $20 and weighing less than 1 pound (almost half a kilo).

Key Facts:
App Downloads in 2023: Temu was the most downloaded e-commerce app with over 120 million downloads, surpassing Amazon. According to Google GWS, Temu had 82.4 million active users in September 2023, compared to eBay's 40 million and Walmart's 85.5 million. Amazon, however, still leads with 142 million monthly users.

Impact of the "Dom Minimis" Rule: Chinese sellers take advantage of this rule that allows them to import products without paying duties or taxes if the value of the package is less than $800. This gives them a significant cost advantage.
Temu Growth: Since its launch in 2022, Temu has seen a considerable increase in sellers also operating on Amazon. Currently, there is approximately 10% overlap between Temu and Amazon sellers, and this number is expected to increase.

Price Comparison:
Price Difference: Many products on Temu are significantly cheaper than on Amazon.For example, a fan that costs $23 on Amazon is available for only $6.95 on Temu.This is because Amazon sellers must pay referral fees, import, duty, and high FBA fees.
Amazon Fees: This year, Amazon has increased its FBA fees, introducing an inventory placement fee ranging from $2 to $6 per unit, and a low inventory fee. This increases costs for Amazon sellers.

Amazon's strategy:
Chinese Factory Incentives: Amazon is incentivizing Chinese factories to sign up for its program, allowing them to ship directly from China, which would avoid additional costs and compete with lower prices.
El Cheo Mall Section: Amazon plans to have a section specifically for these low-cost products, although they would likely appear in regular searches as well, competing directly with products from third-party sellers on Amazon.

Implications:
This Amazon strategy could displace many local sellers who cannot compete with the low prices of products shipped directly from China.
Sellers will have to adapt, focusing on customized or high-end products that cannot be easily replicated.This is because local sellers must pay for mandatory inventory service and mandatory packaging, unlike products from China.
The consumer mindset shift of price over speed has mutated due to increased inflationary pressure from consumers who previously prioritized speed over price. But finding the same product in Temu at 1 euro and the same product at 40 euros on Amazon, has resulted in a drift of Amazon to seek imitation of its Asian competitors, who seek volume over price. Amazon was already punished in India for its monopolistic practices, but China, ends up fighting monopoly with low prices, lower than anyone could assume. In reality Amazon doesn't care how they make profits, and it is likely that FBA sellers will end up adapting their strategy to MOAT products (which cannot be easily replicated) and with higher quality and branding that defines their products. It is important to monitor how this strategy will affect the market and consider diversifying sales strategies to stay competitive in this environment.

Looking at the chart Amazon has been marking economic milestone after economic milestone with a new support zone being generated at this moment around $191.79 being the previous zone $174.24. We will see if it exceeds the highs of $201.20.
On the other hand, the control point (POC) is located around a lower support zone around $146.54. The current RSI is oversold at 39.02% so it would not be unusual for it to look for a rise again in the coming weeks.If we look at Temu's chart, since San Juan (June 24), it has been forming a fall in price to the $142.80 zone, being the current price zone $138.00. We will have to see if it recovers the $153.40 zone and looks for the highs in the $162.00 zone with the new Amazon strategy.

Ion Jauregui – ActivTrades Analyst




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