In response to competition, Amazon has further reduced sales commissions for low-priced clothing products.
Recently, Amazon announced that starting from May 15th, it will offer discounts on sales commissions for low-priced clothing products in Europe, Japan, and Canada. The commission reduction varies in different regions. For example, for clothing products priced below 20 Canadian dollars in Canada, the original sales commission was 17%, adjusted to 10%, while for clothing products priced below 15 euros in France, Italy, and Spain, the original sales commission was 15.45%, adjusted to 8.24%.
In January of this year, Amazon reduced the commission for clothing products on the US website. In the eyes of merchants, this move is in response to competition from platforms such as Temu and Shein.
Continue to reduce commission
According to official information released by Amazon, on January 15, 2024, Amazon lowered the commission ratio for low-priced clothing products on its US website, which received a good response.
According to feedback from merchants, this measure has effectively alleviated profit pressure. Wang Zhi, a clothing seller with annual sales of over 100 million yuan, told First Financial that his brand sells on Amazon’s US website. After Amazon lowered its commission in January, the brand’s profit in the first quarter was better than expected, and he has raised his profit target for the whole year. Wang Zhi stated that there was significant pressure on brand performance last year. On the one hand, the decline in sales combined with excessive investment in marketing expenses resulted in poor profits. On the other hand, the rise of other platforms led to the brand’s halving of sales on the Amazon platform in the Black Friday last year, which made him hold a pessimistic attitude towards future development.
Regarding Amazon’s previous reduction in commission for clothing products on the US website based on a price of $15, Wang Zhi stated that it may be because the platform believes that $15 is a price band for Temu and Shein. He believes that this measure is essentially “to compete against platforms such as TikTok Shop, Shein, and Temu.”. From a business perspective, he believes that Amazon’s policy has been relatively successful and “should have achieved Amazon’s goals. At least our family is not interested in considering Temu and Shein.” When the brand’s performance was poor last year, he considered joining other platforms. Regarding Amazon’s follow-up measures, Wang Zhi speculates that Amazon may lower commissions for other categories.
Ding Lingchao, Assistant General Manager and Cross disciplinary Head of Zhejiang Yiluyou Cross border Trade Service Co., Ltd., told First Financial that Amazon’s commission reduction this time still focuses on the clothing category, expanding from the original US site to Europe, Japan, and Canada. This may be because the previous commission reduction on the US site had a certain effect, so this measure has also been extended to other sites. Amazon’s current downgrade continues to benchmark against Temu and Shein, possibly to attract more sellers who can offer low-priced clothing, accelerating the growth of its clothing category. It may also be that Amazon is laying out a low price sinking market. The influence brought by Temu last year was significant, and Amazon undoubtedly felt threatened. For sellers in the clothing category, the decrease in commission has given them a cost advantage to some extent, and they can invest costs into promotional activities to attract and drive sales.
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From the data, emerging platforms undoubtedly pose challenges to Amazon.
According to data from third-party agency Sensor Tower, department stores and retailers saw a decrease in download volume in 2023. Among them, retailers such as Nordstrom Rack, Amazon, Old Navy, Macy’s and Kohls saw a year-on-year decrease of 27%, 22%, 20%, 10%, and 7% in download volume in 2023, respectively. Perhaps due to consumers turning to rapidly growing Chinese electronic retailers, especially Shein and Temu, whose download volume increased by 56% and 861% year-on-year, respectively. However, in terms of retention rate, the average retention user penetration rate for Macy’s, Cole’s, Shein’s, and Temu in 2023 was 66%, which is nearly 30 percentage points lower than Amazon’s.
Intense market competition
Since April, various platforms have taken frequent actions. On April 6th, TikTok Shop Indonesia and GoTo’s e-commerce platform Tokopedia completed system integration. The shopping functions managed by Tokopedia will help consumers complete all e-commerce activities such as placing orders, making payments, and conducting transactions.
Amazon announced on April 16th that Amazon Live has launched an interactive shopping channel called FAST Channel, allowing customers to seamlessly browse, shop, and participate in the content they watch on their TV screens using mobile devices.
In addition, there were rumors in April that YouTube would increase its e-commerce business, and YouTube plans to launch short videos for in app shopping in 2024.
In terms of sales, in April, TikTok Shop ended its fully hosted Saudi Ramadan promotion. The data shows that the highest daily GMV growth during the event was 173%; The full cycle order volume increased by 130%.
For the merchant side, in addition to Amazon’s commission reduction, the platforms have also launched measures such as a semi hosting model for investment promotion and subsidies for popular products. Bao Guoliang, General Manager of Hangzhou Yuanqi Full Information Technology Co., Ltd., told First Financial that Temu has started a semi hosting model, which means that the seller brand has settled in and is actively seeking investment. In addition to Temu, the Amazon platform also provides subsidies to make popular products, in order to boost sales and block Temu and Shein. Bao Guoliang revealed that the requirement for subsidized products is high repurchase, with a unit price below $40 to $50, and a certain market size. In addition, Bao Guoliang noticed that some daily consumer goods on the Amazon platform have lower prices, including disposable consumer goods, gardening tools, electric tools, etc. The merchants believe that the above measures are a response to TEMU and SHEIN’s low price offensive to retain users.
From the perspective of merchants, Wang Zhi believes that market competition will still be fierce this year. “The overall market has not increased much, and the industry will become more concentrated, with larger big sellers and smaller sellers being squeezed, while top platforms will have higher sales.”
Some merchants also believe that competition between platforms will have a negative impact on merchants. Bao Guoliang stated that the platform needs to retain customers and will use various tactics. Immortal fights can harm the fish in the pond. Merchants not only need to deal with competitors, but also need to deal with policy changes on the platform and the entry of self operated platforms. It will become increasingly difficult in the future. In addition, from the perspective of the development of merchants themselves, branding has become increasingly important.
Ding Lingchao believes that in terms of the industry development trend this year, the European and American markets tend to be saturated, and sellers may switch to emerging markets such as Latin America, Central and Southeast Asia. These regions have great consumption potential and Internet penetration is also rapidly increasing. In addition, the Russian market this year is also widely concerned, but affected by external factors, many sellers also choose to wait and see.
In terms of emerging markets, according to the Economic and Commercial Department of the Chinese Embassy in South Korea, the number of global AliExpress and TEMU users in South Korea in March was 8.871 million and 8.296 million, respectively, an increase of 8.4% and 42.8% month on month, ranking second and third. Global AliExpress recently announced a plan to invest $1.1 billion in South Korea within three years and expand its subsidiary by hiring a large number of South Korean employees. Temu has recently established a Korean company to accelerate its penetration into the Korean market.