The Marketplace Boom   //   July 1, 2024

Amazon’s reported Temu-like discount store likened to ‘slap in the face’ by sellers

Amazon sellers are bracing for yet more challenges after reports that the e-commerce giant plans to launch a Temu-like bargain section on its sprawling web store  – all on top of rising fees the company rolled out earlier this year. 

Last week, The Information reported that Amazon plans to launch an online storefront focused on shipping inexpensive apparel and household goods directly from warehouses in China in an apparent bid to fend off growing competition from e-commerce platforms including Temu and Shein, which are known for their head-scratchingly low prices.

The new storefront will appear in its own section of Amazon’s homepage, according to presentation slides from an invite-only meeting with China-based sellers cited by The Information. Items will take 9 to 11 days to get to customers, the slides also said. Amazon told Chinese sellers that it would start signing up merchants this summer and begin accepting inventory in the fall. Previously, Chinese merchants routed merchandise through Amazon’s warehouses in the U.S.

About a half-dozen Amazon sellers told Modern Retail that the prospect of a discount storefront threatens to erode their market share at a time when Chinese e-commerce platforms have already won over price-conscious American shoppers. Sixty-eight percent of U.S. shoppers have bought something on Temu in the past year despite the fact that only 7% of Americans said they trust it, according to a recent survey from e-commerce marketing firm Omnisend.

“This new storefront could significantly impact U.S. sellers’ ability to compete,” said Lori Barzvi, whose brand Pupiboo sells washable pee pads for dogs. “Amazon customers are already price-sensitive, and a dedicated discount section could further erode our market share.” Although Temu and Shein have gained popularity in the U.S., many customers have hesitated to use them due to trust issues. But Amazon’s established reputation could eliminate this barrier, accelerating the shift towards ultra-cheap purchases from China, Barzvi added.

Compounding the problem is a slew of new fees that Amazon introduced earlier this year that sellers have previously told Modern Retail has forced them to overhaul their businesses, while also pressuring profit margins.

“The combination of these fee increases and the pressure to lower prices to compete with the new discount platform could make it unsustainable for many small businesses to continue operating on Amazon,” said Barzvi.

“We are always exploring new ways to work with our selling partners to delight our customers with more selection, lower prices and greater convenience,” Amazon spokesperson Maria Boschetti said in a statement. 

Private-label brands that lack name recognition are the ones most likely to be hit hardest by the prospect of a bargain store on Amazon, according to Judah Bergman, the CEO of Jool Baby, which sells baby products, including swings and changing pads. Bergman is less concerned about his own brand, which does eight figures in sales annually on Amazon and sells goods through major retailers including Walmart and Target. He’s more worried about the rise of counterfeits, which are already a widespread problem on Amazon. 

Amazon prohibits counterfeit and IP infringement on its platform, and the company has taken steps to crack down on the issue. Earlier this year, Amazon said it blocked about 700,000 counterfeit accounts from being created. Still, it’s a difficult problem to eradicate completely. Big-name brands including Birkenstock and Nike have previously said they won’t sell on Amazon because of counterfeits and lack of sufficient enforcement from Amazon. 

“I’m concerned that making it really cheap and easy for Chinese sellers to sell from overseas is going to incentivize a lot of bad apples,” said Bergman. 

Meanwhile, Eva Hart, who sells candles and coffee products on Amazon, said the tech giant’s potential foray into a Temu-like discount store has her wondering if she should scrap plans to open a separate home decor brand on the platform. “It makes me cautious of even thinking of launching products that are going to be sold more cheaply on this new platform,” said Hart. 

The news is puzzling given that the e-commerce platform has doubled down on efforts to woo big-name brands to its site, including high-end labels, said Hart. In 2020, for example, Amazon introduced Luxury Stores, which aims to give prestige brands more control over how their goods are presented to customers on the company’s marketplace. 

Amazon’s bargain store also raises questions about compliance and product safety, according to Cara Sayer, CEO of SnoozeShade, a baby brand that sells blackout sunshades for prams and car seats.

“Once they start this program, it’s going to be hard to control the product quality, and yet a customer will assume because something is on Amazon that it must be okay to use,” said Sayer. “Who’s doing the quality control on these products? Who’s going to take responsibility if something goes wrong? You can’t go to the factory in China because your child got burned  because no one tested the product for flammability.”

All told, Sayer said it’s gotten harder to stay competitive on Amazon since she first pivoted away from brick-and-mortar retail more than a decade ago to sell on the Seattle-based company’s platform. The prospect of a Temu-like competitor only adds to that problem. 

“We’re all getting squeezed so hard, and there’s going to be a lot of business that will go under,” said Sayer. “It’s a bit of a slap in the face, frankly.”