Amazon's Temu clone will give Chinese sellers a huge boost and cut out American middlemen

Amazon might not explicitly talk about competitors Temu and Shein, but it’s certainly thinking about them.

To combat these low-cost Chinese competitors, Amazon is launching a discount section in which unbranded goods would ship directly from China, according to The Information and the Wall Street Journal. The e-commerce giant is signing up Chinese merchants this summer and will begin accepting their inventory — which will take 9-11 days to ship to customers — this fall.

That’s potentially bad news for Temu, owned by PDD, and Shein, as well as American sellers, who’ve already struggled with the rising costs to advertise on and store goods with Amazon.

As “United States of Amazon” newsletter publisher Mike Mallazzo recently wrote for Sherwood, Amazon’s business “has become increasingly decoupled from those US sellers and instead tied to China.”

Chinese sellers, which already account for 25% to 30% of total e-commerce on the platform, “have the gross margins to remain profitable while continuing to invest heavily in Amazon’s wildly lucrative advertising ecosystem.”

American sellers don’t.

“There's a lot of trepidation right now amongst sub-$20 price point sellers,” Jon Elder, founder of Amazon seller consultancy Black Label Advisor, told Sherwood. “So many American sellers have been pushed out of that marketplace anyway, because the margins are just too thin.”

Chinese sellers hawking unbranded goods are already dominating that space. Now more American sellers will have to move more up-market, selling higher-priced, $50+ goods that have better profit margins.

To justify those price points, sellers have to lean into branding, customer service and product differentiation. He gave the example of selling fish oil with added compounds from verified origins, versus generic fish oil.

David Katz, Co-Founder & CEO of Archer Affiliates, a marketplace that connects Amazon sellers to people who promote Amazon products, said the Amazon discount section is actually a “win win.” Chinese sellers get new opportunities to reach American buyers and American sellers get a degree of separation from the Chinese goods they were competing with anyway.

“Separating these two customers out into two separate marketplaces is probably going to benefit a lot of those US-based sellers who are trying to compete at high price points in a marketplace that's [historically] targeted towards low price points products,” Katz said.

Juozas Kaziukenas, CEO at e-commerce data site Marketplace Pulse, said in the short-term not much will change because traditionally Amazon subsections haven’t been as popular as regular Prime offerings. He noted Amazon Luxury, which separates out luxury brands but which most people haven’t heard of.

“Everything is optimized for Prime, and this is not Prime,” he said. “This is very slow delivery relative to Prime. So it's not going to be a main shopping experience to consumers, and it's not necessarily going to be a big part of Amazon.”

Longer term, though he said American sellers will have to continue to differentiate themselves from Chinese competitors.

“The writing has been on the wall for a long time,” Kaziukenas said. “If you're selling generic goods, that a seller from China can sell as well and compete on price, your days are numbered.”