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Author | Mai Lin@ Disclaimer | This article is copyrighted and may not be reproduced without permission
In 2023, North American e-commerce is in turmoil. SHEIN, which has been an independent brand for more than ten years, begins to embrace the trend of third-party platforms. Temu, a rising star, is arming itself with full-hosting armor and pressing forward step by step. The immortal myth of the old giant Amazon continues in this land...
In this protracted melee, who is the current winner and who will be the final winner? Perhaps we can get a glimpse of it from the Q3 performance of the giants.
As the peak season is in full swing, major e-commerce platforms have released their third-quarter financial reports. Looking at the Q3 results, the joys and sorrows of different platforms may not be the same.
1. Amazon: Leaning on the e-commerce cash cow
In the fiercely competitive North American e-commerce arena, Amazon is still the undisputed "king" - the gorgeous performance data once again emphasizes this point to challengers who attempt to shake its throne. I still remember that last year, Amazon suffered the worst Waterloo in its history - a huge loss of $3.8 billion in the first quarter severely tore open the performance gap. Due to investment mistakes and slowing growth, Amazon's net loss for the whole year was as high as $2.7 billion. In addition to internal performance problems, dangers are also approaching step by step - multiple new and old forces led by Temu are waiting for an opportunity to seize power. Amazon certainly will not give up its territory, and through a series of cost-cutting measures, it will return as a king in 2023. After achieving a 433% surge in net profit in Q2, Q3 performance continued to be "superb": revenue increased by 13% year-on-year to US$141.3 billion; net profit increased by more than 241% year-on-year to approximately US$9.9 billion, both of which slapped the face of market expectations. In just one year, Amazon's profitability has made a big leap from $2.9 billion to $9.9 billion . Although this old giant is approaching middle age, its retail business cash cow is still full of vitality. Its $57.3 billion e-commerce revenue firmly controls half of its performance, and it still maintains steady growth despite the pressure on the global economy. Prime Day played a supporting role in the strong performance of Q3. Affected by high inflation, consumers are more sensitive to prices, so Amazon ushered in a record-breaking membership day with sales of nearly $13 billion. Based on this, the coming of year-end promotions such as Black Friday and Cyber Monday is expected to boost performance again, and Amazon has given an optimistic forecast of more than $160 billion. However, faced with a market environment full of uncertainty, if Amazon wants to run faster and longer, it not only needs to grasp the growth engine of its core business, but also needs the courage of a hero - strategically reducing costs by laying off employees, reducing recruitment, and cutting marginal businesses.
2. Shopify: A growth story based on “slimming down”
In the third quarter, Shopify's growth story was still based on the main theme of reducing costs and increasing efficiency. Shopify, which has been a "nobody" in the North American e-commerce world for many years, only became famous when the pandemic emerged. However, the high growth brought about by the pandemic was like a bubble scam, and the soaring Shopify suddenly fell from the clouds. In order to fill the invisible black hole of losses, Shopify turned and headed for the road of no return of "selling itself to lose weight". After selling its multi-billion dollar logistics division in May this year and implementing a 2,300-employee layoff plan, Shopify successfully turned losses into profits in Q3 with a complete set of "slimming" measures: revenue reached US$1.71 billion, a year-on-year increase of 25%; net profit soared to US$720 million, a surge of nearly 552% over the same period last year. For quite some time, Shopify seemed to be trapped in the vicious circle of "Amazon rebels", overly obsessed with chasing and surpassing Amazon, and was willing to gradually transform from the lightweight SASS model to heavy assets, building its own logistics to match Amazon FBA and make up for its shortcomings in e-commerce. But after its performance plummeted, Shopify came to its senses and gradually grasped the balance between survival and growth: returning its focus to the "main line" of independent website building services. Shopify builds its stage with independent websites, and its core story is still to provide SASS services to merchants. Of course, this does not mean that Shopify will give up the branch of e-commerce ecology. However, no matter what chapter is told, the main theme of the story is to reduce costs and increase efficiency.
3.Temu: Burning money for growth
If Amazon and Shopify are retreating to advance, then Temu is charging ahead. Temu is still in its explosive growth period and is eager to seize the high ground in the minds of users. The words "cost reduction and efficiency improvement" are not yet in its dictionary. According to 36Kr, Temu's sales in the third quarter of this year have reached 5 billion US dollars (about 36.5 billion RMB), and in September alone, the daily GMV reached 80 million US dollars (about 600 million RMB). With the year-end promotions coming one after another, Temu may achieve and exceed the annual GMV target of 15 billion US dollars ahead of schedule, and even achieve the final figure of 18 billion US dollars. It took Temu only one year to reach this revenue level, and it did so by taking a completely different path from that of many e-commerce giants at this stage: burning money to increase sales. We all know that Temu's core strategy lies in the ultimate cost-effectiveness + social fission, and behind the absolute price advantage and viral marketing buying volume is the continuous transfusion of funds. The numbers don’t lie: According to industry sources, Temu’s marketing budget this year is expected to be between 2 billion and 3 billion US dollars, and its daily advertising costs on major social media have reached tens of millions of US dollars since July. As early as the beginning of the project, the management was prepared to suffer losses for three years. Of course, Temu's ambitions are not limited to North America. So far, Temu's tentacles have spread across 47 countries and regions around the world. In order to meet the needs of more new markets, Pinduoduo's budget for Temu has increased from 20 billion at the beginning of the year to 23 billion. Different from the roundabout and conservative strategies of mature e-commerce platforms, the "immature" Temu is currently only pursuing gorgeous GMV figures and expanding market size, while deeper goals such as break-even are not yet the main consideration.
Looking at the three, Amazon leads the traditional third-party platform model, Shopify is a SASS website building tool, and Temu is more like a super seller in full-hosted sheepskin. The three represent different e-commerce models, and in the North American market where the e-commerce war is escalating, each tells its growth story in a different way.
1.Temu roll price, Amazon roll service
Price is the simplest and crudest "bait" to attract consumers, especially in an environment of consumption downgrade and intensified industry competition, occupying the high ground of low prices is the decisive factor in grabbing the minds of users. However, Temu's extreme cost-effectiveness is causing an imbalance in the price ecology. For the same product, the price on Temu may be only half of that on Amazon or other platforms, or even lower. Temu has built a low-price empire similar to Pinduoduo with full hosting as the basic framework, and has established a strict order: relying on domestic cheap supply chains to deliver a large number of suppliers, and then using the ultimate control of the sales chain to carry out a supplier "battle royale", and finally determine the most cost-effective product. In contrast, the US industrial chain is not as developed as China, and a large number of consumer goods rely on imports from China. It is difficult for Amazon to directly "squeeze out water" in the supply chain. In terms of price competition alone, it seems that it has no chance of winning against the fierce Temu, so it chose to kick Temu out of its price comparison system. Temu has pushed the low-price competition in the market to a new peak. Although Amazon is unwilling to confront it head-on, it has also introduced a number of measures to benefit consumers, such as launching discount plans one after another and paying out of its own pocket to help sellers get discounts; adding a new function to find the same product to facilitate consumers to quickly compare prices, which invisibly increases the bidding pressure on sellers while optimizing the shopping experience. Although Amazon’s price is not as competitive as Temu’s, the source of Amazon’s competitiveness is far more than just low prices. More importantly, as a new player, Temu wants to quickly seize the market, and betting a lot on low prices is the fastest shortcut. However, Amazon has entered a mature development stage and has accumulated a stable customer base. Excessive pursuit of low prices will breed quality problems and have a negative impact on consumer experience. The middle class population in the United States is large, the overall consumption level is high, and consumers are relatively more "strict" in terms of quality and timeliness. Therefore, Amazon's choice is to improve user experience and seek a balance between price, quality and service. Amazon's logistics moat, which has been cultivated for many years, is the biggest source of its high-quality consumer experience. The receiving end in the United States is concentrated, and the transportation distance between production and sales is long, so Amazon has built a competitive barrier by building its own warehouse and distribution network. The only way to defeat martial arts is to be fast, and the e-commerce showdown is also a battle of time efficiency. Amazon's fastest fulfillment time can be delivered in 1 to 2 days, while Temu's cross-border logistics time efficiency is controlled at around 7 to 15 days. Amazon is well aware that its logistics and fulfillment capabilities are its greatest competitive advantage, and has been committed to optimizing this advantage. As of the second quarter, Amazon US had achieved the fastest Prime delivery speed ever, with more than half of Amazon Prime member orders arriving on the same day or the next day. In the third quarter financial report, CEO Andy once again emphasized that Amazon has divided the US logistics network into eight independent regions, making it possible to provide Prime customers with the fastest delivery speed in 29 years during this holiday season. In order to achieve the "Amazon speed" that is far ahead of others, Amazon has launched a number of optimization measures: canceling the small and light commodity plan to improve the delivery time of low-priced products; launching the "Supply Chain by Amazon" service to provide sellers with an integrated, automated supply chain solution covering all sales channels. On the other hand, Amazon is embracing the wave of artificial intelligence, reducing costs and increasing efficiency through AI and automation technology, and strengthening logistics fulfillment capabilities. Amazon has currently deployed more than 750,000 robots in its U.S. warehouse and distribution network, and launched a robot called "Sequoia" in the Houston logistics warehouse, which will increase the speed of identifying and storing inventory by 75% and reduce the time to process orders by 25%. The construction of a warehousing and fulfillment system requires a lot of time and capital investment. Faced with Amazon's huge logistics empire, Shopify once wanted to challenge it and started to build its own logistics network to match Amazon FBA in 2019, but ultimately chose to unload the burden because it was unable to cope with the asset-heavy "money-eating beast" of logistics. For the emerging Temu, logistics is also a difficult hurdle that it must overcome in order to establish its roots in overseas markets. On the one hand, the cross-border transportation chain is too long, which makes the delivery time inherently weaker than that of local e-commerce platforms; on the other hand, Temu's warehousing and operation capabilities are unable to keep up with the rapidly expanding number of sellers and the rapid growth of order volume. In March this year, a warehouse explosion lasted for half a month. Therefore, it is imperative for Temu to strengthen its logistics and fulfillment capabilities. As early as May this year, there was news that Temu would launch an overseas warehouse plan to build an overseas warehouse in the east and west of the United States as a necessary basis for recruiting local sellers. But whether it is Temu or Shopify, there is still a long way to go to make up for the shortcomings in logistics.
2.Temu advances, Amazon retreats
It is not difficult to see from Temu's rapidly soaring GMV figures that its growth story over the past year was based on radical expansion: implanting the absolute cost-effectiveness advantage into the minds of consumers, and then replicating it in batches to more markets after scaling up. After gaining a firm foothold in the North American market, Temu expanded to six European countries starting from the UK, entering emerging markets such as Australia and Latin America, and then returning to Asia to enter Japan, South Korea and Southeast Asia. So far, Temu has expanded to 47 markets. Behind the crazy expansion is a bottomless pit of brutal money-burning. According to industry reports, Temu has become the new business with the largest investment since Pinduoduo was founded eight years ago. The budget for this year is expected to be between 20 billion and 23 billion US dollars. In order to meet the needs of business expansion, Temu has been aggressively recruiting. As of August this year, Temu has directly recruited about 2,000 employees, and more than one-third of Pinduoduo's headquarter R&D staff have received requests to send additional staff to Temu. In addition, Temu has also hired about 50,000 outsourced sorting workers to improve its warehouse fulfillment capabilities. While many e-commerce giants have adopted conservative strategies, Temu has always maintained a radical attitude, which has led to an overall loss of up to 40%. However, compared with sustainable profitability, Temu is more obsessed with the rapid expansion of market size at this stage. Temu tried to implement the low-price strategy to the extreme, which admittedly came with the drawback of eroding profit margins. But as long as it can maintain high growth and outperform the losses on the pricing side through economies of scale, it will eventually be able to squeeze out profits. Therefore, for Temu, a global expansion strategy is imperative. In contrast to Amazon, the two are like the two sides of the same coin. Temu is wild and aggressive, expanding madly, while Amazon believes in the development strategy of "retreating to advance". After suffering the consequences of overexpansion during the pandemic, Amazon chose to adopt a roundabout tactic to leverage business growth by reducing costs and increasing efficiency. From the financial report, we can see that Amazon has been committed to cutting costs in the past year, cutting marginal businesses while launching a large-scale layoff plan of 27,000 people, which has also been reflected in the improvement of profitability: Q3 operating profit margin rose to 7.8%. In addition to a series of cost-cutting measures, Amazon's conservatism is also reflected in the stalemate of its expansion strategy. According to the latest report from MarketPlace Pluse, 2023 will be the first year in nearly six years that Amazon has not launched a new site. According to the original plan, Amazon was supposed to launch sites in Chile, Colombia, Nigeria and South Africa at the beginning of this year. However, these emerging sites have now been temporarily shelved or delayed until next year. In the past six years, Amazon has launched a total of 11 new sites, with at least one new site launched every year. However, as its market territory continues to expand, Amazon is also deeply trapped in the pain point of growth that is lower than expected: the eight sites launched after 2018 have shown a trend of shrinking market size and increasingly fierce competition. These eight sites only account for 2% of all Amazon site traffic. In fact, Amazon's international business has been in a state of loss for a long time. In the third quarter of this year, its international department (net sales were US$32.137 billion, a year-on-year increase of 16%; operating loss was US$95 million. Although the operating loss was significantly narrowed from US$2.466 billion in the same period last year, it has not yet reached a real profit turning point. Amazon's core advantage in mature markets in Europe and the United States lies in its strong logistics and fulfillment capabilities, which provide the underlying support. Therefore, the development strategy of emerging markets also needs to be based on the consolidation of the FBA logistics network. However, to enter countries with relatively backward logistics infrastructure such as South Africa and Latin America, Amazon needs to build a logistics system from scratch, which will inevitably be accompanied by huge cost investment. Obviously, after the dark period of 2022 with a huge loss of 2.7 billion US dollars, Amazon will be more cautious in every step of its market expansion strategy at this stage. Compared with emerging markets full of uncertainty, Amazon prefers to bet on fast-growing international sites such as Brazil, Mexico and Australia, which is in line with Amazon's development strategy of reducing costs and increasing efficiency. Temu is in a comparison with Amazon. One is "young and energetic" and is in a stage of rapid development. It relies on an aggressive strategy of burning money to increase its volume in exchange for a rapid expansion of its GMV figures. The other is "nearly middle-aged" and has bid farewell to the era of high growth. With the invasion of the macroeconomic cold wave, it has turned the page on the old story of barbaric expansion and opened a new chapter of growth written on "slimming down". Q4 has slowly opened amidst the year-end promotions such as the Autumn Membership Day and Black Friday Cyber Monday. How the major e-commerce giants will show their talents and tell new growth stories can only be answered by time.
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