21st Century Business Herald reporter Dong Jingyi reports from Shanghai
More than half of 2024 has passed, and overseas e-commerce is gradually adjusting in cost reduction, efficiency improvement, and refined operation, but it still cannot escape the growth problem. According to the second quarter financial report, Amazon's largest business e-commerce sales fell short of expectations, with eBay's revenue and GMV growth only reaching 1%.
Since the beginning of this year, the overall overseas retail market has maintained a certain degree of growth, but the frequency of consumer spending has relatively decreased, and this is also the case in the European and American markets, "said Zhang Zhouping, Executive Director of Beige Think Tank, to 21st Century Business Herald reporters.
The sustained weak consumption remains the main problem facing the mainstream e-commerce market, as consumers have turned to low-priced products, giving domestic platforms such as Temu, SHEIN, and TikTok Shop room to break through. Bank of America analysts predict that the sales of Chinese e-commerce platforms in the United States may surge from $15 billion in the previous year to nearly $40 billion in 2024.
Faced with small but significantly growing latecomers, overseas e-commerce giants represented by Amazon have begun to respond to competition, adopting a series of measures to embrace low prices, increase traffic, and deepen their moats.
The industry generally believes that the transformation of giants is driving the entire industry forward, in which consumers enjoy more benefits and the market is becoming more diverse.
Consumption downgrade, competition rise
In 2024, the pressure of overseas inflation still exists, and sustained inflation may lead to a decrease in consumer purchasing power, a continued decline in consumer confidence, and an unfavorable overall environment for e-commerce sales.
This can also be seen from Amazon's latest financial report performance. Amazon's Q2 2024 financial report shows that sales of its largest business, e-commerce, fell short of expectations. According to the financial report, Amazon's e-commerce business had a net sales of $55.39 billion, a year-on-year increase of 4.6%, lower than analysts' expectations of $55.55 billion.
Amazon CFO Brian Olsavsky stated during the earnings conference that revenue growth in North America was slightly lower than internal expectations, mainly due to consumers tending to purchase more economical products. In terms of geographical division, the net sales of Amazon's North American division were $90.033 billion, a year-on-year increase of 9%.
At the earnings conference, a major issue discussed between Amazon executives and analysts was that shoppers remain cautious in their spending due to economic difficulties. Amazon President and CEO Andy Jassy said that consumers are buying cheaper products, which means the average selling price of the products sold is lower.
Consumers tend to choose products with lower prices whenever possible, "Jassy said." For us, the sales of high-value goods such as computers, televisions, and electronic products have grown faster than the industry average, but still appear slower compared to the growth rate during more prosperous economic periods. "This is also one of the main reasons for the weak expected performance in the third quarter.
Other e-commerce companies have also made similar observations.
Due to inflation and stagnant real estate market, the online home platform Wayfair has slowed down the purchase volume of home goods. Wayfair CEO Niraj Shah stated that the current sales slowdown in the home goods category is "unprecedented," and customers remain cautious about household expenses.
According to the second quarter financial report, its net revenue decreased by 1.7% year-on-year to $3.1 billion, with a net loss of $42 million. Both revenue and profit did not meet Wall Street's expectations.
According to the financial report data of American e-commerce platform Etsy, its sales in the second quarter decreased by 2.1% year-on-year, and its comprehensive net income also decreased by 8.9 million US dollars compared to last year, with comprehensive income increasing by 3% to 647.8 million US dollars. Etsy CEO Josh Silverman said in an interview after announcing the financial report that "this is a difficult period for consumers" and stated that "every industry has indeed seen this".
The weakness of the domestic consumer market has also provided growth opportunities for newcomers, including Chinese online retail giants such as Temu, AliExpress, TikTok stores, and SHEIN, which have aggressively entered the US and other global markets. These platforms rely on China's strong manufacturing capabilities and efficient supply chain and logistics networks, "said analysts from Bank of America.
Pan Helin, a member of the Information and Communication Economy Expert Committee of the Ministry of Industry and Information Technology, told 21st Century Business Herald reporters that overseas consumers are currently facing consumption downgrades, and products with higher cost-effectiveness have become the mainstream demand. In the current development of overseas e-commerce, e-commerce with cost-effectiveness attributes is advancing rapidly. Currently, e-commerce represented by China's Temu and SHEIN also pose challenges to giants such as Amazon.
Competing with overseas local e-commerce platforms, these platforms are indeed far from reaching their bottleneck period. According to third-party organization Sensor Tower data, the download volume of department store and retailer apps will decrease in 2023. Among them, retailers such as Nordstrom Rack, Amazon, Old Navy, and Macy's saw a year-on-year decrease of 27%, 22%, 20%, and 10% in download volume in 2023, respectively. In contrast, SHEIN and Temu's download volume increased by 56% and 861% year-on-year, respectively.
Bank of America analysts predict that the sales of Chinese e-commerce platforms in the United States may surge from $15 billion in the previous year to nearly $40 billion in 2024. This will account for 3% of the projected $1.2 trillion US e-commerce market by the US Department of Commerce this year.
Giant Challenge
In the face of fierce market competition, especially challenges from low-priced retailers, overseas e-commerce giants facing the city must take action.
The most active is undoubtedly Amazon. As a global e-commerce giant with 30 years of experience, Amazon has stepped out of its comfort zone this year and introduced various measures with a clear intention of joining the low price competition.
Low price has been a prominent feature in the past two years. For e-commerce platforms, low price is not only a strategy to attract more consumer groups, but also a favorable means to maintain platform competition, "Zhang Zhouping told reporters.
Starting from January 2024, Amazon will reduce the commission rate for clothing product sellers priced below $15 to 5%; Meanwhile, for clothing priced between $15 and $20, the commission rate will be reduced to 10%. Previously, the commission rate for clothing products in both price ranges was 17%. Industry analysis suggests that this move can attract more low-priced clothing sellers and enhance the platform's competitiveness.
Jassy also stated during the earnings conference that although the reduction in seller fees may have some impact on Amazon's revenue, Amazon is satisfied with this trend, stating that "reducing clothing costs has stimulated a significant year-on-year increase in clothing sales
Subsequently, Amazon plans to launch a "low-priced store" that focuses on selling unbranded products, mainly targeting the fashion, home, and daily necessities categories for investment. The price is less than $20, and fulfilled delivery will be carried out by Amazon's warehouses operated in China. It is expected that the products will be delivered directly to customers within 9-11 days.
This is very similar to the fully managed model that once swept the domestic cross-border community. The industry generally believes that this is Amazon's direct response to competition from emerging e-commerce platforms, especially in the face of rapidly rising competitors with low price strategies such as Temu and SHEIN, in order to attract and retain more Chinese sellers.
Zhang Zhouping told 21st Century Business Herald reporters that in the current context of global consumer downgrading, Amazon's launch of low-priced stores is also in line with the times. low-priced and cost-effective products are highly favored in the global consumer market, and Amazon also wants to use this opportunity to create more incremental markets.
Amazon not only attracts consumers with low prices, but also wants more traffic, especially to catch the eyes of young people. A study by HerCampus found that 74% of Gen Z Internet users search products on TikTok.
In the past, Amazon has been trying to launch its own social media app or collaborate with other social media platforms, targeting TikTok Shop. However, shortly after the release of the second quarter report, Amazon announced a partnership with TikTok, allowing TikTok users to browse and purchase products on the Amazon platform directly within the app without leaving the app. For both parties, it is a win-win situation.
In contrast, another e-commerce giant eBay's strategy is to avoid being rigid and focus on the growth of specific categories, including automotive parts, collectibles, and second-hand refurbished goods. It is interesting that these categories are actually more likely to experience growth in the context of economic downturn and weak consumption.
Taking auto parts as an example, Huang Bujin, Regional Director of eBay China Cross border Trade Business Unit, stated in an interview with 21st Century Business Herald that due to the impact of the overall environment, American cars are being used for longer years and have longer mileage. When the demand for new car purchases decreases, the demand for maintenance and repair of old cars will increase, and the demand for car parts will rise.
Second hand goods follow a similar logic. Due to persistent inflation and rising global market prices, more and more consumers are turning their attention to more affordable second-hand resale goods. According to eBay's latest report, 86% of surveyed consumers have purchased or sold second-hand items. According to platform data, global sales of second-hand clothing and accessories products on eBay platform surged by over 400% between mid March 2023 and March 2024.
At present, this strategy of focusing on specific product categories has begun to have a positive impact, and the growth rate of products in these categories has significantly exceeded the overall growth level of eBay's online marketplace in recent quarters. EBay CEO Jamie Iannone stated during the earnings conference that GMV for the focus category grew by over 4% in the second quarter, approximately 5 percentage points faster than other segments.
In the eyes of industry insiders, the measures taken by various giants reflect their flexibility and innovation ability to actively seek new growth opportunities. However, it is still unknown whether these new attempts can sustain the overall performance.
For example, the excellent performance of specific categories has not significantly improved eBay's slow growth situation. The second quarter financial report showed revenue of $2.6 billion, with a year-on-year growth of only 1%; GMV was $18.4 billion, with a year-on-year increase of 1%.
Similarly, Amazon's low price measures can indeed lead to sales growth, but the decrease in average selling price can also affect revenue. As an established e-commerce company, Amazon's competitiveness still lies mainly in high-value areas.
In a changing market, whoever can better understand consumer needs will be able to stand firm in the market. At present, for established e-commerce giants, maintaining market share may be more important.