Bezos famously prescribed focusing on what will remain the same in the next 10 years. He proposed that Amazon’s customers would always want their stuff cheaper, faster, and with more options to choose from. Today, we are witnessing a fascinating divergence in global retail that both challenges and validates this wisdom.
U.S. consumers disproving Bezos with their wallets (July 2024)
In the United States, inflation and recession have reshaped consumer priorities, challenging Bezos’s postulate. The definition of value itself has shifted dramatically, moving away from Amazon’s core proposition.
Americans are speaking with their wallets, and the message is clear: saving money now trumps fast delivery. This shift has opened the door for platforms like Temu and Shein, which are rapidly eroding Amazon’s market share. Consider this:
- Temu was the most downloaded e-commerce app in 2023, surpassing Amazon with over 120 million downloads.
- By September 2023, Temu had 82.4 million active shoppers, up from just 4.6 million the previous year.
- Temu’s user base now rivals Walmart’s online presence (85.5 million users) and dwarfs eBay’s 40 million shoppers.
Example
A yoga mat on Temu retails for $16, while an identical mat on Amazon sells for $40. Consumers are increasingly willing to wait 7-11 days for delivery to save 60% or more on their purchases, challenging Amazon’s long-held belief that fast delivery is king.
This trend is hitting Amazon hard. Amazon’s apparel revenue is reportedly down 30% year-over-year, with millions of Americans shifting their shopping to Shein and Temu instead.
Implications for Amazon sellers
This shift poses significant challenges for U.S.-based Amazon sellers, particularly those using Fulfillment by Amazon (FBA):
- Chinese sellers on these platforms don’t pay import duties or taxes, thanks to the “De Minimis” rule for packages under $800.
- The overlap between Temu sellers and Amazon sellers has grown from a handful in 2022 to about 10% as of December 2023, with potential to reach higher percentages.
- Amazon’s new fees, including inbound placement fees and low inventory fees, further squeeze profit margins for FBA sellers.
- U.S.-based sellers, burdened with these fees and taxes, struggle to compete with the ultra-low prices offered by Chinese sellers shipping directly.
The e-Commerce emperor strikes back at Temu and Shein
The combined impact of Temu and Shein on Amazon’s sales has forced it to make a dramatic shift in strategy. Amazon plans to launch a new online store featuring cheap, unbranded items shipped directly from China. This move represents Amazon’s “most aggressive response yet” to the rising popularity of these Chinese bargain sites.
The rollout will occur in stages, with Amazon initially focusing on branded clothing and household items priced under $20 and weighing less than a pound. As we speak, Amazon is actively recruiting Chinese factories to participate in this program, which will see orders shipped directly from China with delivery times of 9 to 11 days.
While this is a far cry from Amazon’s signature one—to two-day Prime shipping, it reflects the new reality of American consumer preferences: prioritizing cost savings over speedy delivery. This pivot challenges Bezos’s original principle of focusing on fast delivery and signals a major transformation in Amazon’s approach to competing in the evolving e-commerce landscape.
Speed reigns supreme in India, vindicating Bezos!
In contrast to the U.S. market, urban India is witnessing a trend that actually reinforces Bezos’s notion of focusing on what won’t change. Here, the constant demand for ever-faster delivery aligns perfectly with Amazon’s long-standing focus on convenience and speed.
Quick commerce platforms like Blinkit, Zepto, Swiggy’s Instamart, and Zomato’s Blinkit are capitalizing on this unwavering consumer preference:
- These platforms deliver products within minutes, not hours or days.
- Even high-value items like the iPhone 15 are being delivered in as little as 15 minutes by Blinkit.
- The focus on hyper-local fulfillment through strategically located “dark stores” enables this ultra-fast delivery model.
Urban Indian consumers prioritize speed over marginal price differences, reinforcing that convenience will always be a primary driver of consumer behavior in certain markets.
The retail paradox & realities
Here is my hot take on these differences across continents.
- In the U.S., Bezos’s principle is being challenged: consumers prioritizing cost savings over speed could be temporary. It is a no-questions-asked returns economy (at least it was)
- Once consumers experience atrocious qualities and supply chain disruptions in DTC, some of these trends can be expected to reverse.
- In urban India, the game remains unchanged: speed and convenience continue to be the driving factors, aligning with Amazon’s long-standing strategy.
- But, but, but…India is not a 1Bn-sized market. Obviously.
- India’s smartphone users that transact on super apps are just shy of 400Mn. (Outlook)
- And don’t be fooled by bloated TAM pitches from Indian startups. This market for Quick Commerce in 2024 is less than 100Mn with much lower SAM. Amazon may even choose to ignore this segment.
As the retail landscape continues to evolve, it’s clear that what “won’t change” in the next 10 years might depend entirely on where you look. For businesses operating globally, this means constantly reassessing and adapting strategies to meet each market’s unique and evolving demands.