business news in context, analysis with attitude

The Information has a fascinating story about an existential debate going on inside Amazon, where the company is trying to figure out its priorities.

Here are the issues that Amazon, essentially, is sorting out.

•  Amazon is customer-obsessed, and prides itself on being the "everything store."

•  Amazon's product mix increasingly depends on inexpensive items sourced from China.

•  At the same time, e-commerce companies like Shein and Temu are able to offer "rock-bottom prices" by shipping directly from China.

•  "Amazon merchants say they can’t compete with Temu and Shein under current fee structure," and so "Amazon leadership discussed overhauling seller fees and adding second buy box."  (This second buy box "would put greater emphasis on the lowest price and less emphasis on delivery speed.")

•  And, Amazon management "talked about ways to incentivize sellers to lower their prices for Amazon customers, provided customers were willing to accept longer shipping times, a combination that would play to the advantage of third-party merchants shipping items from China."

•  However, this approach would be at odds with a strategy that has focused on the reduction of shipping times, and so could undermine Amazon's larger value proposition.

The Information writes that " the previously unreported discussions show the company is grappling with a wave of scrappy competitors with roots in China who are eager to nibble away at its dominance of online shopping in the U.S. In addition to Temu, those challengers include Shein and TikTok Shop, the social media giant’s e-commerce initiative, which TikTok’s parent company, ByteDance, is pushing heavily. And they quickly caught fire with American shoppers by offering hypertrendy, dirt-cheap items and pouring money into ads on Meta Platforms and other social media outlets.

"Amazon’s growing reliance on sellers from China also brings risks. In its most recent annual report, filed last Friday, the internet retailer added new language warning that the risks it faces include 'geopolitical events,' 'security issues' and 'regulatory and trade restrictions' affecting Chinese merchants, which  could hurt its business because 'China-based sellers account for significant portions of our third-party seller services and advertising revenues'."

Part of the problem, The Information reports, is that "the current generation of Amazon competitors has deeper pockets than the one that preceded it. Temu, Shein and TikTok Shop have all shown a willingness to incinerate cash to gain market share. PDD is believed to have spent $3 billion in marketing and customer acquisition last year on Temu … Temu’s prodigious ad spending on Meta is widely believed to have contributed to the retailer’s strong performance in the fourth quarter. The ad blitz helped make Temu the most downloaded app of the year in Apple’s U.S. App Store.

"Temu may soon be encroaching further on Amazon’s turf. Currently, there are over 100,000 sellers on Temu, all of them based in China, Marketplace Pulse estimates. In addition to storing and shipping their items from its warehouses, Temu also determines the price customers pay for those items—similar to how consignment stores work."

The Wall Street Journal this morning has a story about another turf war that Amazon may be fighting:

"Fast-fashion company Shein and TikTok’s shopping unit are expanding in’s territory, seeking to poach Amazon’s employees and building out workspaces in the same Seattle-area office tower.

"The two companies are bolstering their staff at a 22-story tower near Seattle known as the Key Center, and both are recruiting current and former Amazon employees as they expand their U.S. logistics and supply-chain operations. 

"The move into Amazon’s home city represents a new front in what has quickly grown into one of the tech giant’s greatest retail threats. Shein, TikTok and e-commerce company Temu, all of which have Chinese roots and close ties to sellers in Asia where many products sold on Amazon originate, are investing heavily in U.S. online shopping."

KC's View:

Let's all say it together:

There is no such thing as an unassailable business model.

We've talked about this before - depending on the category, Amazon increasingly has the appearance of an online flea market where it can be difficult to separate the good stuff from the crap.  

In some ways, this can diminish the customer experience that Amazon claims to prioritize.  Not for everybody, and not in every category.  But some of the "nibbling away" at Amazon's dominance may be coming from inside the house, and, it could be argued, could be revealing a flaw in its business model.  Not an unfixable flaw, certainly, but a flaw that requires soul-searching, that exposes some existential questions with which Amazon must grapple.

It is a good thing, in the end, to ask questions like, Who are we?  What are our priorities?  Where in our business are we consistent with our priorities, and where are we not?  And, when our priorities conflict, what our REAL priorities?

And, it is critical to remember one basic truth in retailing.

One more time:

There is no such thing as an unassailable business model.

Can I get an Amen?