E83 – The Impulso Podcast – Will Amazon succeed in copying Temu?

During a closed-door seller meeting in Shenzhen, China, Amazon announced it would open a dedicated section offering low-cost, unbranded items shipped directly from China. Reports from Chinese and international media see this as a major attempt by Amazon to counter the growth of Chinese rivals, especially Temu and SHEIN. However, scepticism still remains on the viability of this new initiative.
On the latest episode of the Impulso Podcast by Momentum Works, we examine the details behind this announcement and figure out whether Amazon would succeed in their newly launched discount section.

Tune in for an in-depth conversation on the current state and future of eCommerce in China & SE Asia:

Also available on Spotify.

 

[AI-generated transcript] 

 

[00:00:00] Weihan:
Hello everyone, welcome to episode 83 of the Impulso podcast by Momentum Works. On today’s episode, we are going to be looking at Amazon and its newest discount service. So what happened last week was that Amazon announced that it would open a dedicated section offering low cost and unbranded items that are shipped directly from China.

 

[00:00:20] Weihan:
So many media sources have actually picked up on this news, and a lot of them are actually seeing this as a major attempt by Amazon to counter the growth of their Chinese rivals, many of them which are very, very big and very, very how should I say Aggressive. Yes, aggressive. And the two that are specifically picked out by them is Temu and SHEIN.

 

[00:00:41] Jianggan:
I think it’s interesting that media tend to lump SHEIN and Temu together, but these are very different companies. I think we have been to both. Yes. You see the culture is very different, but in terms of the categories they sell, it’s also quite different. I mean, Temu sells A lot of low cost household items at extreme discounts to to to the US and as well as people in other countries.

 

[00:01:03] Jianggan:
SHEIN focuses on fashion and we know that fashion is a category that Amazon has traditionally been quite weak about. But SHEIN also trying to become a marketplace, which means that moving forwards, even though that SHEIN, Temu, Amazon. So now in terms of user base, there’s a very little overlap, but moving forwards, I think each one wants to enter the space that the other one’s strong at and or trying to block the growth of of the other players. So it’s, it’s kind of an interesting dynamic.

 

[00:01:31] Weihan: Yep. So I think we will jump straight into our topic for today, which is very interesting because it was a invite only closed door seller meeting that Amazon held in China last week. I don’t know if you know, but this meeting itself is actually exclusive and you’re not supposed to flesh out or take picture of any of the slides, but if you were to see in our subsequent ones, right, people actually do not care about it and they’re very eager to share.

 

[00:02:01] Jianggan: I don’t know, I remember a story like back in 2017, there’s a, there’s a founder in Singapore who came to us saying that, Hey, We built this amazing technology, and we’re contracting somebody in China to, to manufacture it. I said, be careful, because they might, I mean, if this is truly a product which would work in a good scale, they might copy yours.

 

[00:02:20] Jianggan: And they said, Oh, but we signed an NDA with them. I said, come on, don’t be naive. I mean, who believes in NDA in China?

 

[00:02:27] Weihan: Yeah, so precisely because of that, we have this slide. If you can see here, there’s actually a very big watermark right located right behind the pictures that says photography prohibited, but then everyone is taking photos.

 

[00:02:39] Jianggan: That doesn’t prevent this this the photos been taking and the shared.

 

[00:02:43] Weihan: In fact, I, I feel like psychology wise, it makes people want to share it even more because it’s exclusive content.

 

[00:02:50] Jianggan: So you mean that that might be deliberate from for Amazon?

 

[00:02:53] Weihan: Maybe, maybe, but

 

[00:02:55] Jianggan: I mean, knowing organization this big, maybe there’s a corporate policy.

 

[00:02:58] Jianggan: I mean, from headquarters saying that, okay, this is an announcement, not for everyone. So you need to put that disclaimer. But the local team probably doesn’t care.

 

[00:03:07] Weihan: Maybe, maybe, maybe they just want to get this information out to as many sellers as possible who they can onboard onto this new scheme. So speaking of scheme, I think they have this thing called All New Low Cost Shop and it’s shipped directly from China by Amazon.

 

[00:03:24] Weihan: So I think the focus for this Temue round is more on how sellers themselves can be they are the ones who actually make the sales, the listings, and then they don’t really have to care so much in terms of the logistics and fulfillment. Yeah.

 

[00:03:39] Jianggan: So if you look at currently how on Chinese Chinese sellers, which I think power, like half or more than half of the, of the GMV of of Amazon marketplace.

 

[00:03:49] Jianggan: So what they do now is that okay, they will list on, I mean, they’ll get approved by Amazon. They will list on Amazon. They will. Send the goods largely to fulfilled by Amazon, FBA warehouses in the destination countries. The Amazon will handle the, the, the last leg of warehousing as well as the delivery.

 

[00:04:06] Jianggan: So if you go by that model, people will still need to figure out, I mean, how to sell. Mm-Hmm, . And people will still need to operate on a platform and they need to make sure that their goods are sent across the border, into the, into the warehouses in Amazon, in the us, Europe, in other places. So, so if you look at this model, it seems that Amazon’s building warehouses in China where the sellers just need to send the goods to Amazon warehouse in China and Amazon will take care of the the cross border fulfillment as well as the last mile.

 

[00:04:34] Jianggan: So that would, I think, open up to a lot more people because the skill of operating the goods and the risk of sending the goods directly to the U. S. is not something that everybody can take.

 

[00:04:46] Weihan: Okay, okay. So how, so if you can understand it in a way, it’s that Temu mainly focus on consignment model. So they handle everything, including the price, whatsoever.

 

[00:04:57] Weihan: Sellers just have to sell, send the goods to Temu themselves, and then Temu handles everything. But for Amazon, sellers just, they do, Mostly everything except for the fulfillment section except for the fulfillment. Yes. So I think the sellers can set their own prices

 

[00:05:12] Weihan: Oh, yes, speaking of that. I think they also have a slide which talks specifically about how a lot of the sellers have a lot of independent control on what they can do with their products So I think one thing that captured my attention is that there’s this line that says that they are able to test new products through small batch production and provide customers with more choices.

 

[00:05:37] Weihan: This sounds a bit familiar to what we know of SHEIN’s supply chain model, right? They do small batch testing. So what do you think Amazon would say that? Sellers, their sellers can do the same thing as well.

 

[00:05:49] Jianggan: I, I don’t actually know for sure, but but, but to me that, okay, there will be sellers who are Um, who don’t want to take too much risk when it comes to new products.

 

[00:06:00] Jianggan: I think Amazon as a platform will probably want to have a better assortment of products and making it easier for sellers to test new items would eventually increase the assortment that’s available on Amazon. Because, I mean, if you think about modern now, you have to have the goods in the U. S. before you can sell on Amazon.

 

[00:06:18] Jianggan: So that means that, I mean, The goods which the sellers are willing to put on Amazon platform has already been selected, right? So there might be some innovative products, which the sellers are not sure whether they will sell and they will not put on a platform

 

[00:06:30] Weihan: Okay. Okay. So I think we talked about Products we talked about what fulfillment Amazon can do Let’s look a bit at the specific as to what goes on behind this entire scheme So if you were to take a look here Amazon actually listed three, actually they listed a couple, but we picked out the three main Important attributes for them.

 

[00:06:52] Weihan: So the first thing if you can they’re mostly focused on low cost goods and specifically goods that are priced under 20 u. s dollars And then their cross border fulfillment duration is actually 9 to 11 days. And last but not least, they are actually, in a sense, helping them to cut the fulfillment cost by only costing about 45 percent of what FBA is currently charging.

 

[00:07:20] Jianggan: So basically 45% lowers, as we mentioned, that lowers the barrier entry for people to, to test these products and the price per item below $20. We know that, I mean, for items which are priced below $30, and typically it doesn’t make much sense for them to sell on Amazon, fulfill by Amazon because the fulfillment cost is already like eight or $9.

 

[00:07:39] Jianggan: Yes. Something like that. So, so there are, I mean, now they are testing a completely different cost structure. So nine to 11 days is interesting because it’s. Well, I mean nine days from China to US It’s longer than what air freight would take but it’s shorter than most Commercial cargo would take I think now there are fast boats right from I think for somewhere I can’t remember which which two ports in China to Los Angeles and Long Beach, the two ports in the west coast of U.S., that would take 11 days. And plus loading, unloading, et cetera, and last mile delivery will still take that 12 to 13 days. So, so I suspect 9 to 11 days they would have to either have very dedicated fast line or or they would have to use air freight. So I, I don’t know but I think, I, I think Temu uses air freight for, for most of his low cost items.

 

[00:08:33] Jianggan: So, so I think air freight is probably still a viable option for them.

 

[00:08:37] Weihan: So when do you think we can expect this entire system to be put in place by Amazon?

 

[00:08:43] Jianggan: I think what Amazon told people attending the meeting is this will be launched sometime in autumn or, I mean, Americans will call fall this year.

 

[00:08:52] Jianggan: And and I think the registration for, for selected invite only sellers will take place in summer. So So assume that they are serious. This is something that consumers will probably see before Christmas.

 

[00:09:04] Weihan: So they’re trying to capture the Black Friday. Yeah. They’re trying to have all this like before.

 

[00:09:10] Jianggan: But of course the question is that are sellers and merchants willing to cooperate,

 

[00:09:15] Weihan: then what are some of the categories that we can expect to be rolled out for this price point? I think they’re looking at fashion and household items. I mean, fashion will be something that That she has been strong at and household items like the the small gadgets at home, etc This is something that has been largely sold on on Temu and most of these items do not carry like specific requirements for Safety license and stuff.

 

[00:09:40] Jianggan: So this would be the easy categories and and this will be the categories which Makes sense to to ship by air freight

 

[00:09:47] Weihan: So this, in a sense, will put them in direct competition with their two largest rivals so far.

 

[00:09:53] Jianggan: I’m not sure if Amazon sees SHEIN and and Temu as as rivals, because if you look at the size

 

[00:10:00] Weihan: Okay, so it feels like Amazon is about ten times as big as Temu by market cap.

 

[00:10:07] Jianggan: So Temu, you mean Pinduoduo, right? Yes. Temu’s parent company. So, so the market cap at the end of June 2024 of of Pinduoduo, which, which, Which, which owns Temu is is a bit lower than 200 billion U. S. dollars, while Amazon is a two trillion dollar company, so it’s ten Temues. And obviously, with that kind of size, they can mobilize more resources Amazon also has the fulfillment industry infrastructure as well as customer base in the U.S. and other markets. So so lots of our friends are saying that, well, if Amazon is serious about that, they can put resources and they can make it work.

 

[00:10:42] Weihan: This sounds a bit like the history that we have all been aware of, which

 

[00:10:48] Jianggan: is So we had a counter argument, and somebody had a counter argument, right?

 

[00:10:51] Jianggan: Saying that because at the beginning of, at the end of 2018, if you look at Pinduoduo versus Alibaba, Alibaba was 14 Temues bigger than Pinduoduo in terms of market cap. And fast forward to now, mid of 2024 Pinduoduo is actually more valuable than Alibaba. And of course, Alibaba suffered a lot of the regulatory issues in China in 2021 and 2022.

 

[00:11:13] Jianggan: But still, I think I think in terms of e commerce, it’s, it’s fair competition in China. And Pinduoduo managed to catch up quite a bit. So it shows that when you are larger, it doesn’t necessarily mean that you can always make it work and, and, and squeeze your relatively smaller competitors.

 

Yeah, so it’s we would see whether The history will repeat again for That would be something very interesting to watch because because I mean, of course China is penudo’s home market and Temu ulTemuately still foreign market And no matter how much they want to sort of distance themselves. They are still a chinese company.

 

[00:11:47] Jianggan: So they will still have the the political weakness inherent to to to their origin. So let’s see how that will play out at the moment they are still relatively small, but if they really become a threat to, to Amazon and and U. S. retail companies and I think there will be more pressure.

 

[00:12:02] Jianggan: I think that’s also why in the last earnings call in, was that a month ago? So Pinduoduo’s co CEOs kept emphasizing that compliance is the key focus for this year.

 

[00:12:14] Weihan: Okay. So I think we’ve seen. We have talked a bit about Amazon and about Temu. What, what do you think the, some of the sellers are feeling?

 

[00:12:23] Weihan: Because they ulTemuately are the ones who would be affected the most by this new scheme that Amazon is pushing out. So I think we have spoken to some large sellers and I think the general consensus is that many of them are still very skeptical of how this whole thing would go, right? I think many of them are Generally, we’re coming an alternative to Temu, because, because they’ve been squeezed, they’ve been fired, they’ve been made kind of uncomfortable by Temu especially, I mean, all the, all the policies they put and all the stringent sort of price controls they have.

 

[00:12:56] Jianggan: And and obviously if Amazon wants to, to come in and create some competition, it’s, it’s good for them. But many of them actually are a bit skeptical of whether Amazon would make it work. So we’ve spoken with quite a number of major sellers and here are the few concerns they have, right?

 

[00:13:12] Jianggan: I mean, first is that, okay, they don’t know how serious Amazon is because if a seller were to, like, you know, become very serious about that, they need to make investments. Yes. And if the Amazon doesn’t give enough, sort of consumer traffic doesn’t give enough platform support to, to this section, you will, you will die out.

 

[00:13:30] Jianggan: So, so, so they don’t yet know whether this is a sort of really sort of focused counter offensive at the strategic level for Amazon, or it’s just a one attempt to test all the waters and we measure the KPI and it doesn’t make sense, they will shut it down. So what we do know is that Amazon does not intend to put that onto the homepage.

 

[00:13:51] Jianggan: I mean, it makes sense for them, right? Because you have the consumer traffic, which is very valuable. And of course, if you have a choice, it would channel them to more expensive items where the platform can earn a higher commission or advertising fee. So the low cost items would would always be at the backseat.

 

[00:14:10] Jianggan: I mean, It was the case for for Alibaba in China. For a while, they struggled to to counter Pinduoduo because because all the brands are the ones who have been like paying Alibaba lots of advertising fees until the moment that the co founders of Alibaba took over, they said, Okay, we know that in the short term, these brands make us make sort of become more profitable.

 

[00:14:31] Jianggan: But if we Lose our consumers in a long Temue. We’re going to lose out. That’s why you see I think as we talked to last week Alibaba has been quite aggressive in lowering its costs and even someTemues at the sacrifice of the brand partners they, they work with, but they need to sort of reverse the growth momentum of of Pinduoduo.

 

[00:14:49] Jianggan: I’m not sure how much Amazon sees that.

 

[00:14:52] Weihan: Okay. Okay. So I think we have heard quite a fair bit of status. What’s that, census? But we actually have a favourite quote from one of the sellers themselves. It’s that, Will sellers BD reps from Amazon ever be as aggressive and determined as those at Temu, who do not have fixed targets, but need to show month on month growth every single month?

 

[00:15:16] Jianggan: This is actually crazy because, because every month you need to grow. With less resources. Yes. And, and, and, and you don’t set the target that that you can’t hit, or, or, or it’s very easy to hit. You just need to show growth. And while the resources to given to you keep getting like, chipped away.

 

[00:15:31] Jianggan: So, so, so this is a very aggressive, I mean, I’m not sure if I told you that some seller friend are being complained to me that a, a team of BD rep has been like stationed in his office

 

And refuses to leave. And and, and, and the guy asked why, why are you here? And, and he’s, and he, and, and the guy said, oh, I want to, so the platform asked us to improve the communications between, platforms and major sellers.

 

[00:15:55] Jianggan: So if you have any issues, I can help you resolve on the spot, but he just sits there.

 

[00:16:01] Weihan: Very good use of human resources.

 

[00:16:03] Jianggan: Yes. So they are, they are aggressive. I mean I think, I think the bidi rape is probably not the major sort of differentiator of whether Amazon can make it work or not. But this quote the way, the way I like it is that it shows that, I mean, people are skeptical.

 

[00:16:17] Jianggan: About the organizational focus of Amazon versus versus Temu. I mean, Pinduoduo essentially put all their resources, like 50 percent of the personnel, 70 percent of the management, on Temu. And how much dedication Amazon is able to put onto this low cost section. Because if you Just do this as a trial.

[00:16:37] Jianggan: You don’t get traffic. You don’t get a platform support. You don’t get a investment and And sellers will be skeptical and you this will never take never take off So at the moment, we don’t know how much commitment they have but if if they do We’re not seeing it yet

 

[00:16:53] Weihan: I think speaking of Temu, right? I think when we published our report last year, we have realized that actually Temu’s success today could a lot of it be attributable to the lessons that they have learned from its predecessors like Wish, from sort of like a competitive SHEIN, but also from Amazon, which previously I think they have not been focusing a lot on their Chinese sellers.

 

[00:17:15] Jianggan: They have in 2020 I think 2021, Amazon banned about 50, 000 Chinese seller accounts citing platform sort of sort of violation of platform rules. We know that that caused a significant fear amongst Chinese sellers because even if you do not have even if you’re not affected by this ban you will still be skeptical because you spend so much Temue, I mean, building your, your, your, your store, building your profile, building your review base.

 

[00:17:41] Jianggan: If, if the platform can shut it down without giving you too much details overnight, and of course you are scared. And that’s, that’s also the reason why many sellers now, if they have another platform to work with, they would prefer to work on multiple platforms. So so, like, like, like, like this few days people, people, I mean, the sellers complain a lot about Temu, about Pinduoduo.

 

[00:18:02] Jianggan: And many, many seem to have forgotten that I mean, it’s Amazon, which they were complaining about, about two years ago. So, so, so, so I do think that Temu learned lessons from all these players, and they created a space for them to work in, like, together. cheap on branded goods fulfilled directly from China with a bit of cost control because it’s full consignment, right?

 

[00:18:22] Jianggan: Everything goes into their warehouse. They have quality control before things are allowed into the warehouse and it’s not perfect But but it gives people the consumers the goods of reasonable quality at a very reasonable cost So so that allowed them to to take off and once they have achieved certain Volume and obviously the ambition probably doesn’t stop there.

 

[00:18:45] Jianggan: So this is probably why Amazon needs to pay attention

 

[00:18:48] Weihan: So I think Temu has already obtained quite a large scale in the global market today So they are in about 72 countries and territories as of 1st July 2024 And I think for those who are watching the podcast, right? You can see that it’s actually it looks quite big intense if you were to just look at the number of countries here.

 

[00:19:11] Jianggan: So, yes, these are all the countries that are in now, right? I mean, like, every week you go there and you see like a few new names being added to it, yeah.

 

Yeah, but if you want to look at it in a world map sense, you can see that most of its efforts are concentrated in the U. S. I mean, not, not just the U. S. North America, A lot in Europe, and then you have a few in South America, Middle East, North Africa, Australia, New Zealand, two countries in Southeast Asia and Japan and Korea. Yes.

 

[00:19:42] Jianggan: they’re doing very well in Japan now. And I think we mentioned in the previous part that they have maximized the customs capacity in in South Korea to process incoming parcels.

 

[00:19:53] Jianggan: And if you look at this, this map they have covered I think most of the, the developed regions you have a few gaps here and there, which I presume is because, I mean, for instance, Argentina, so they don’t have it, and presumably because of some, some obstacles in terms of operations maybe in terms of currency exchange, in terms of policies, because we know that Shopee, when they tried to do Latin America, it took them a long Temue to, I think a year to do it, to get access to Argentina, which doesn’t necessarily mean that, I mean, Temu is not working towards it.

 

[00:20:24] Jianggan: That leaves us to the interesting question of what they are going to do with the rest of Southeast Asia, Thailand, Vietnam, and Indonesia. We heard rumors that some substantial People from Temu were actually in Indonesia in the first half of the year trying to figure out, I mean, how to do the market.

 

[00:20:41] Jianggan: They have not approached the service providers to, for immediate launch, but I do think that they are, they are trying to find ways to, to make this market work for them. So yeah, so it’s quite aggressive. And and we said that I mean, would they want to challenge Amazon? And if you ask them, they will, I mean, I don’t think they actually ever reply to, to, to press queries.

 

[00:21:01] Jianggan: Yes, no. Yeah. So, but, but, but, but if you ask them, they’ll probably say no, but but if I were Amazon, I would be actually very careful, right? Because these guys are data driven. These guys are aggressive, and these guys are also opportunistic. If they see opportunity where they can slice through the market, and, and really challenge the, the dominance of Amazon, they will probably seize it.

 

[00:21:21] Weihan: Mm. So I think that this comes back to the question of whether Amazon would actually succeed in their latest strategy with low cost goods?

 

[00:21:30] Jianggan: I’m not sure whether it’s, whether it’s even a strategy. So so one question that one seller asked is It’s interesting. He said, okay, does this come from the Amazon China team or does it come from the Amazon headquarters?

 

[00:21:41] Jianggan: If this initiative comes from headquarters, who from the headquarters? Does it go to the CEO? Does the CEO actually put his mind on it or it’s just one of the minor initiatives which gets evaluated the same way as the other initiatives? because Yeah, I think I think I think I think one of the earliest lights we mentioned about Amazon’s to see B to C business exiting China in 2019.

 

[00:22:04] Jianggan: Right? So back in 2015, I remember a friend of mine who was working as a data scientist at Amazon Beijing then was telling me that Oh, based on our current trajectory Amazon China will die in 2019. And, and, and in 2019 when the company decided to shut down the consumer business in China, this guy came to me saying that who had by then left Amazon, was saying that, see, I told you.

 

[00:22:26] Jianggan: And back then I was asking him, how, how do you How do you make that prediction so precise? He said, okay, because my job is making predictions. And and Amazon being a very rational company, they allocate resources based on the predictions we make. And we predict the, the sales volume to go down. We predict, he said, we predict the need for fulfillment is, is going to go down.

 

[00:22:46] Jianggan: And based on that, the company will allocate less resources. I mean, fewer and fewer resources, and eventually it becomes so self fulfilling. And so this is what happened. So still comes back to Amazon has, I think, some sellers also mentioned to us in the past, try to include the low cost and the unbranded items, but it has not worked out.

 

[00:23:07] Jianggan: So what makes the sellers believe that this Temue is different? So it has to come from the top with enough money. And metal space because when you try to sacrifice some of the premium sort of traffic with low cost items, you need top level support, right? You need the people and organization within Amazon to be aligned to do this, which is different from what they have traditionally been strong at doing.

 

[00:23:30] Jianggan: So, so, so it’s a question mark. We don’t know yet. But leadership, people and organization are probably more important factors in this compared to product.

 

[00:23:39] Weihan: So that’s a very good insight from Zhanggan. So all this came from the book, Seeing the Unseen. So if you’re interested, do give it a download. You can get it off Amazon.

 

[00:23:51] Jianggan: the book has been translated into Chinese. And it’s going through the approval process for publication in China. So it will probably come out in September and October. We’ll have a very interesting Chinese name for the book, which we’ll share later.

 

[00:24:08] Weihan: Yep, so do stay tuned to that. So thank you very much for tuning in to another episode of the Impulso Podcast.

 

[00:24:16] Weihan: We hope you’ve enjoyed today’s episode and if you do, like our podcast and subscribe on YouTube, Spotify, Apple Podcasts or your preferred podcast platform to stay up to date on the latest happenings and trends in tech, new retail and the broader digital economy. So thank you very much and we’ll see you in the next podcast.

 

[00:24:34] Weihan: Bye bye.

 

[00:24:35] Jianggan: Have a great week.