According to a recent report by The Information, Amazon.com, Inc. (NASDAQ: AMZN) is planning to launch a new shopping segment on its e-commerce platform to link shoppers directly to Chinese product vendors, enabling them to purchase low-cost items directly from Chinese warehouses that manufacture them. These products, once purchased, will be delivered to Europe and North America within 9 to 11 days. According to The Information, Amazon has already met with a few Chinese sellers to finalize this plan, and the company is expected to start building an inventory of discount items as soon as this fall. This move is likely to help Amazon expand its reach to a new cohort of target customers, which in return will expand the addressable market opportunity of the company.
Beating Them At Their Own Game
Trade tensions between the U.S. and China have been escalating since 2018 with both these nations striving for global tech dominance. Tit-for-tat tariffs have increased the prices of goods in China and the U.S., and global supply chain operations have been disrupted by these trade tensions as well. Making the most of this situation, countries such as Thailand, Malaysia, Singapore, and India have partnered with global businesses to replace China.
The reason behind Amazon’s bet on China amid these rising tensions is to directly compete with online discount stores such as Temu and Shein which have Chinese origins. Temu, in particular, has become a major sensation in the U.S., with its mobile application emerging as the most downloaded app in 2023. Amazon is potentially trying to counter this attack from Temu by competing directly for market share in the discount products category.
Potential Outcomes
Expanding into discount items will help Amazon grow its user base, potentially leading to a surge in the number of Prime subscribers. Consumers, on the other hand, will have access to these items on a familiar platform. Given these potential outcomes, it seems reasonable to conclude that Amazon’s decision will create a win-win scenario for both the company and consumers. However, a potential Trump precedency will complicate things for Amazon as trade tensions with China are likely to intensify. If the U.S. introduces new taxes targeting Chinese businesses, Amazon’s relationship with Chinese suppliers may deteriorate, leading to potential losses for the company.
Sean Kelland has not positions in the companies mentioned in this article. Stocks.News positions in Amazon.
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