Amazon just announced that they are going to compete directly against Temu with a brand new low-cost option of unbranded goods shipped direct from China and Amazon FBA Sellers are in trouble.
Basically, Amazon is going to offer the exact same service that Temu does, selling cheap generic Chinese products that take about 7-11 days to be delivered to the US directly from China.
In this post, I give my take on what is happening, the implications on the 3rd party Amazon seller community and what you must do right now to prepare yourself as an ecommerce seller.
Are you interested in creating a strong, defensible brand for your products? If so, I put together a comprehensive package of resources that will help you launch your own online store from complete scratch. Be sure to grab it before you leave!
Amazon’s New Chinese Marketplace
For the past 2 decades, Amazon has focused on the speed of delivery. By selling cheap stuff that arrives quickly, Amazon has built the most expansive and optimized fulfillment network the United States has ever seen, capable of delivering almost any product imaginable to consumers within two days.
There are roughly 180 million Americans who are Amazon Prime subscribers which is at an all-time high as of this year.
But we’re in a recession and right now, Americans care more about saving money than the speed of delivery and that’s where sites like Temu and Shein have been destroying Amazon’s market share.
Last year, Amazon’s revenue from apparel was down 30% year over year and tens of millions of Americans have started shopping on Shein and Temu instead.
If you aren’t familiar with these two platforms, Temu and Shein are Chinese-owned e-commerce platforms that ship products directly from China with no middleman. The shipping takes longer, but the prices are lower.
For example, this floor mat on Temu is $1.06.
But an identical floor mat on Amazon is being sold for 40 bucks.
Is getting a product in 2 days vs 11 days worth paying 40X for the product? Americans are speaking with their wallets and saying no. They’re willing to wait a week to get their stuff if they can save money.
Temu’s core strengths are household items and electronics whereas Shein specializes in Women’s clothing and accessories.
Together, these 2 chinese companies are decimating Amazon’s sales.
Amazon Fights Back!
But last week, Amazon declared war on these 2 chinese platforms by opening a new online store for low-cost products shipped directly from China.
According to their announcement, the rollout is going to occur in stages. To start, Amazon is going to first focus on unbranded clothing and household items priced less than $20 and weighing less than a pound.
As we speak, Amazon is rounding up and encouraging Chinese factories to sign up for this program where Amazon will ship the orders from China directly and arrive in 9-11 days.
Compared to 1-2 day prime shipping, 9-11 days feels like forever but like I said already, American’s are speaking with their wallets and care less about delivery speed.
According to Statista, Temu was the most downloaded e-commerce app in 2023, surpassing Amazon with over 120 million downloads.
Meanwhile, according to GWS Magnify, Temu had 82.4 million active shoppers on its app in September 2023, up from only 4.6 million the previous year.
By comparison, eBay only drew 40 million online shoppers that month, while Temu ran neck and neck with Walmart, which had 85.5 million online users. And while Amazon was still number one with 142 million monthly users in September, Temu already has more than half Amazon’s traffic after just 2 years..
But here’s where the story gets worse. Once Amazon starts selling cheap unbranded stuff direct from Chinese sellers, it’s going to be hard for 3rd party sellers in the United States to compete.
China’s Unfair Advantage
The main advantage Chinese sellers have is that they do not have to pay import duties or taxes on the products they sell direct from China due to the de minimis rule. This rule states that products can be imported into the United without paying taxes or tariffs as long as the package is worth less than $800.
Second, selling direct allows Chinese factories to bypass the middle man altogether and ship directly to consumers in the US. When Temu first launched in 2022, only a handful of the same Chinese suppliers on Temu were selling on Amazon.
However as of this past December, there was roughly a 10 percent overlap between Temu sellers and Amazon sellers.
But thanks to this new Amazon program, it’s about to become 50% or more. Heck, Chinese sellers already make up over 50% of the top sellers on Amazon. Who knows, it could reach 75% or more once all of them start shipping direct from China and not have to pay taxes.
Right now, if you search for the same product on both Amazon and Temu, you’ll find that many of them are exactly the same except Temu is many times cheaper.
I already showed you the foam floor mat earlier which was 40X cheaper. Well I did a search literally just now and this neckfan is $23 on Amazon but only $6.95 on Temu:
If the products being sold on both platforms are the same, why are Amazon’s prices higher?
Amazon Is Squeezing FBA Sellers
Over the years, Amazon fees have gone up dramatically and all FBA sellers are getting squeezed. Amazon sellers have to pay referral fees, import fees, duties, tariffs and Amazon’s hefty FBA fees.
Just this year alone, Amazon introduced a slew of new fees and increased the rates on FBA.
For example, Amazon now forces all sellers to pay an inbound placement fee. Basically, you must pay a fee of between $.21 – $6 per unit for Amazon to accept standard and large bulky products into their warehouse.
This fee is supposed to reflect the cost of distributing inventory to multiple fulfillment centers.
In addition, they announced a low inventory fee. In the past, you only had to worry about having too much inventory in stock but now you will pay hefty fines if you have too little inventory as well.
To avoid paying these fees, you have to use Amazon Warehousing and Logistics. This service allows you to waive your placement fees by holding your products in Amazon’s third-party warehouse where they are dropshipped on demand directly to a fulfillment center.
Basically, Amazon is forcing everyone to use their end to end logistics services and the fees all add up to a lot of money.
Compared to a Chinese seller paying a few bucks to have a product shipped direct from China with no taxes or fees, a 3rd party amazon seller importing from China and then selling on Amazon has no chance of matching prices.
Amazon Is Directly Targeting Temu
Temu and Shein are hurting Amazon right now so Amazon will be incentivized to show off these brand new cheap products to fight back.
Can you imagine paying money to advertise your Amazon listing only for Amazon to display cheap unbranded Chinese products under your own product for one third the cost?
This has already happened in the past with Amazon’s own branded products. Now the price difference is going to be more dramatic.
Even though Amazon has said that the new el cheapo mall will appear on its own section of the Amazon website, do you really think that Amazon is going to hide this section from regular Amazon buyer traffic?
No way! Remember, Amazon makes money no matter what, whether the sale is coming from you or a Chinese seller shipping direct from China.
Do you really think that these cheap chinese products are not going to show up in regular amazon search? Not a chance.
So here’s what’s going to happen.
A customer will do a search for your product and find ridiculously cheap alternatives right next to your higher priced listing.
It’s next to impossible to start a brand on Amazon, so your brand will be pretty meaningless in the eyes of the consumer.
Amazon FBA Sellers Are In Trouble
Amazon FBA sellers are in trouble. On one hand, Amazon is charging 3P sellers placement fees, referral fees, inventory fees, pick and pack fees and here comes a Chinese seller who doesn’t have to pay any taxes and they have the pricing advantage.
I really don’t see how this can possibly end well. But the real question is how can you fight back?
For many Amazon sellers, they are going to have to rethink their entire product portfolio. If you’re selling generic stuff on Amazon right now, you’re in big trouble. Someone from China will undercut you in price and you will not be able to compete.
Instead, you need to think about products that can not be easily sold from a seller in China.
For example, I have a student in my class that sells skin care products. Would you ever buy skin care products from a no name company in China at one tenth the cost?
Skin care consumers will be less price conscious because who knows what chemicals are in the Chinese formulation.
For my store over at bumblebeelinens.com, we’ve doubled down on personalization. Sure, Chinese sellers can copy every single product that I sell, but what they can’t do easily is personalize a custom product for the consumer in a timely manner.
We provide custom embroidery, custom printing, custom pretty much everything and admittedly it’s a pain in the butt. But what’s a pain in the butt for you is a moat for your business.
Another thing to consider is that Amazon is only catering to Chinese sellers for low end products for now.
If you sell online, you want to target the high end customer. You want your products to be premium so you can make more money per sale which makes everything else easier. You make more money, customer service is easier and advertising is more profitable.
I have purchased handkerchiefs from many competing sellers on Temu and their quality is terrible. Am I worried that someone will buy these cheap hankies for a wedding? Highly unlikely and they don’t provide monogramming either.
You Must Build A Brand
In order to succeed, you have to learn how to build a brand. Technically, the definition of a brand is just a name that identifies your goods or services.
But just placing your brand on a product is meaningless. You have to create content to build an audience around your brand and unfortunately, that’s not something you can do on Amazon. You need to have your own website.
The best way to build a brand is by triggering the emotions of your customers. If there’s one thing that I’ve learned from selling online for the past 18 years, it’s that people buy based on feelings and not logic.
Price isn’t everything. Emotions are everything. Let’s take Dr.Squatch. This company sells soap for men which is a commodity product. On Temu, you can buy 50 bars of soap for 79 cents.
But Dr.Squatch charges $8 for a single bar of soap. How is this possible? It’s because Dr.Squatch has mastered the art of emotional marketing.
If you watch any of their commercials, Dr.Squatch doesn’t sell soap, they really sell sexual companionship.
Another one of my favorite brands is True Classic Tees. This company literally sells plain colored t-shirts for $30 a piece.
On Temu, you can literally buy 8 shirts for $13.49.
But watch any True Classic Tees commercial and you’ll understand why they are a 9 figure company today.
As a guy, I want to look buff and hide my buddha belly so I’ll happy shell out 30 bucks for what I perceive is a higher end shirt.
The key to succeeding in ecommerce is marketing and branding. And guess what? These are by far the worst attributes of selling on Amazon.
You can’t build a brand on Amazon. You can’t really market effectively on Amazon so your options on Amazon are limited. On Amazon, it’s all about price and with these new Chinese sellers selling direct on Amazon, you’re not going to be competitive.
You Must Own Your Own Website
The only real way to succeed in ecommerce today is to own your own web presence and create content to build a brand.
Your goal should also be to sell on as many different marketplaces as possible to diversify your sales.
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Steve Chou is a highly recognized influencer in the ecommerce space and has taught thousands of students how to effectively sell physical products online over at ProfitableOnlineStore.com.
His blog, MyWifeQuitHerJob.com, has been featured in Forbes, Inc, The New York Times, Entrepreneur and MSNBC.
He's also a contributing author for BigCommerce, Klaviyo, ManyChat, Printful, Privy, CXL, Ecommerce Fuel, GlockApps, Privy, Social Media Examiner, Web Designer Depot, Sumo and other leading business publications.
In addition, he runs a popular ecommerce podcast, My Wife Quit Her Job, which is a top 25 marketing show on all of Apple Podcasts.
To stay up to date with all of the latest ecommerce trends, Steve runs a 7 figure ecommerce store, BumblebeeLinens.com, with his wife and puts on an annual ecommerce conference called The Sellers Summit.
Steve carries both a bachelors and a masters degree in electrical engineering from Stanford University. Despite majoring in electrical engineering, he spent a good portion of his graduate education studying entrepreneurship and the mechanics of running small businesses.
