A large number of sellers are fleeing from low average order value!

The “darkest moment” for low-priced products !

As cross-border e-commerce becomes widely known, it seems normal that more sellers join the Amazon platform, causing market involution, thereby squeezing everyone's living space. However, it can be observed that under the tide of the times, low-priced products are facing more brutal market tests.

Amazon seller Xiao Zhang is an old player who mainly sells low-priced products. In the past two years, he has clearly felt that the order volume and profit margin of the low-priced track have dropped significantly, and the life cycle of a product has also shortened. The time from entering the market to upgrading and exiting the market has been shortened from 3 years at the beginning to 1 year...

"The profit margin of a product used to be pretty good, but now it has shrunk significantly, and in some months it's even losing money." It is understood that in 2024, the products made by Xiao Zhang were surrounded by the problem of declining order volume for more than two consecutive months. The number of orders in March fell by nearly half year-on-year, and it was still difficult to reverse the downward trend in April.

There are many sellers on Amazon who are in a similar situation as Xiao Zhang. Many of his peers who have been unable to hold on have withdrawn from the low-priced product market in recent years. The road ahead is bleak, and Xiao Zhang believes that he has now reached a crossroads.

Products with low average order value seem to be entering their real “dark hour”.

"As soon as Temu started an event, the number of orders on Amazon started to plummet." Xiao Li, who also specializes in low-priced products, believes that the low-priced products on the Amazon platform are currently being severely impacted by the Temu platform, which is known for its cost-effectiveness. If you can't beat them, just join. Many of his colleagues went from resisting at the beginning to following the trend in just a short time.

Is Temu the culprit that has caused many Amazon low-price sellers to have difficulty surviving? Digging deeper into the reasons behind it, it is actually a multi-faceted "encirclement and interception"!

A group of Amazon sellers quit the low-price track

“Currently, many people have a big misunderstanding about low-priced products,” said Xiao Li.

From the outside, the cost of low-priced products is very low. A cost of 1 yuan can be clearly marked as 10 US dollars. Moreover, the products are small in size and light in weight , so the shipping cost is negligible, and even air transportation is cheap. Due to the low price, the repurchase rate of products is very high, or it can be said that the impulse consumption is very high. As long as the seller spends money in the early stage to grab the slot, he can make a fortune quietly .

However, the biggest deceptive thing about low-priced products is their low cost and high sales volume . It can be said that products with low average order value "both succeed and fail because of sales volume" - the entry threshold is not high, but the competition is very fierce.

Xiao Zhang has a deep understanding of this. "Low-priced products, especially those priced below $9.99, are basically supported by volume. If the sales of the products are good, the company will live a very comfortable life. Generally speaking , only the top-ranked products have high conversion rates, but the top positions are rare, and only a few sellers are making a fortune quietly.

Moreover, in comparison, the entry threshold of low-unit-price products is lower, so the risk resistance is relatively weak, and product sales are more vulnerable to peer impact. For example, for a market currency, everyone basically purchases from fixed channels, and the homogeneity phenomenon is serious. Seller A sells for $9.99 and increases sales, and will immediately be targeted by a group of peers. In order to seize the market, some people sell their products for only $8.99 or even lower. Consumers turn to buy cheaper products, and then seller A's product sales will immediately drop. This kind of low-unit-price hit product with no barriers has an extremely short life cycle, and it may only take "a moment" for sellers to go from explosive orders to clearing out the stock.

The internal competition is far more serious than imagined. Xiao Li once experienced it personally. A product that was originally priced at US$9.99 once dropped to US$ 3.99 . Although the price later rose to US$5.99, it was difficult to return to the original selling price. Almost the vast majority of sellers were "injured" in this wave of price wars and their profits suffered heavy losses.

Because of the low cost , every year a large number of sellers blindly enter the low-price track to trial and error . When they clear their inventory at a loss , the market price of each category will inevitably be affected , and it will only become more and more difficult to do business over time.  

As market competition becomes increasingly fierce, the living space of low-priced products continues to be squeezed.

In the past, products with low customer price per unit could be called "capital blind spots", but now this "fly meat" has also been targeted by some small capitals. Currently, in many categories of products, the top-ranked red ocean products basically have thousands or even tens of thousands of reviews. If new players want to launch new products from scratch, they need to make a lot of concessions at the beginning, and they have to work hard on advertising expenses. In this way, the initial investment is not low, but the profit of each product is much lower than that of high-priced products.

" The investment in low- priced products has been increasing year by year . When sales were still considerable before, the financial pressure was also very high. The inventory volume was basically close to 4 months' volume, and the cost of inventory was high , but the profits were almost all saved. All costs were compressed to the extreme, but some fixed "large" expenses could not be avoided. For a product priced at US$10, the CPC is about 1-1.5 , and the ACOS must be 40% for advertising to achieve a conversion rate of more than 20% . In addition, delivery fees are also a big cost. The delivery fee of a single product alone is several dollars, plus storage fees and the cost of maintaining links ... In the end, there is very little room for profit. " Xiao Zhang said that he can no longer hold on and is considering other ways out.

Unlike Xiao Zhang who is still thinking about whether to exit the low-priced unit track, Xiao Liu had already shifted the battlefield as early as the beginning of 2023 and focused on high-priced unit products.

"The sales volume in 2022 is still considerable, but when calculating the profit, it is found that it is only a small profit. During the traditional sales off-season, the profit in some months is actually negative." According to Xiao Liu's feedback, low-priced products were still very popular around 2017. At that time, they mainly made products below 15 US dollars. As long as the sales volume was increased, the monthly profit could reach about 50,000. However, the sales volume of low-priced products looks good on the surface, and the packaging is very busy, but the actual sales and profits are far less than those of high-priced products. It may take dozens of orders to make the same profit as selling one high-priced product, but the work is not less than that of high -priced products , or even more .

In the past two years, the profits of low-priced products have been much lower than before, and the energy and pressure required have begun to increase exponentially. " Low-priced products are too difficult to operate . The CPC of advertising is not low at all, and the delivery fee is getting higher and higher. The cost of sales is getting higher and higher, which will eventually eat up the already meager profits. "

This was the final push that prompted him to abandon low-priced products. In early 2023, he immediately began to clear out low-priced products, and at the same time developed relatively high-priced products in the categories he was working on.

Xiao Liu's situation is not an isolated case. In recent years, Amazon sellers have gradually withdrawn from the low-unit-price track. Many people only see the considerable product sales when they enter the industry , but ignore the operating costs behind the sales . The low entry threshold of low-unit-price products brings the negative impact of " fierce competition " . High CPC bidding , high delivery fees, and endless vulgar pranks have turned small profits and quick turnover into continuous losses. After all the trouble, only a few can withstand the long-term losses in the early stage and finally make a profit .

Working for the platform? "Amazon's delivery fees have increased, and more than ten points of profit have flown away!"

Among all the cost expenditures, the service fees charged by Amazon have been rising year by year, which is the key point that is currently prompting more and more sellers to exit the low-unit-price track.

For low-priced products, product cost and transportation cost only account for a small part, but Amazon's delivery fees and advertising CPC have been rising. These two points are the bulk of the costs , especially for those low-priced products with very fierce competition , which have greatly affected profits.

"For a $10 product, all the money over $7 goes into Amazon's pocket. After all the fierce operations, the profit is only 0.25 cents. Most sellers are just working for the platform. " Xiao Liu said that he spent a lot of money on advertising at the time. The ACOS of products was very easy to explode, and the ACOS would easily reach hundreds... In the end, in order to save advertising costs, he simply turned off ads with poor results. For products that were slightly profitable, he also used fewer or even no ads , and relied entirely on a Buddhist approach to place orders.

" As soon as the delivery fee increases, almost ten points of profit are gone . " Xiao Zhang said that Amazon has been increasing fees in various ways every year. This year is an exception. The frequency of updating the charging policy has become more frequent. Since the beginning of 2024, FBA has made several fee adjustments, each time adding salt to the wound of sellers with low average order values.

Take the recent policy of warehouse configuration fees, which has caused widespread complaints. After the new policy came into effect, the costs of sellers of low-value products and small items have skyrocketed. For example, a seller of jewelry will receive a warehouse configuration service fee of US$200 or US$300 for a box of 1,000 items. The profit of small items is limited, but the cost may increase several times... Some sellers who have no competitiveness have become "philanthropists."

Marketplace Pulse data shows that today, the majority of sellers use Fulfillment by Amazon ( FBA ) fulfillment services — more than 90% of top sellers and nearly 100% of international sellers.

Amazon’s delivery network is now one of the largest in the world, and the larger and more complex it becomes, the faster delivery becomes, and the more expensive it becomes for sellers . For example, sellers are required to pay a placement fee if they do not split their shipments into multiple separate shipments to Amazon’s regional centers ; sellers also need to pay fees for inventory on hand for less than 30 days. Amazon said: “ When sellers have low inventory relative to unit sales, it inhibits our ability to distribute products throughout the network, thereby reducing delivery speeds and increasing our shipping costs. ”

Amazon provides dozens of services to third-party sellers , and sellers pay an increasing percentage of their sales to the platform each year . In 2023 , Amazon charged brand sellers 50-60% of sales in various fees , and sellers may pay more in the future.

Low price suppression from Temu! Seller: The product price is only one tenth of that on Amazon platform

There are both internal and external troubles.

Data shows that Temu has risen rapidly in the discount market , expanding from 0% a year ago to 14% in September 2023. In contrast , the market share of well-known discount companies such as Dollar General Corp. and Dollar Tree Inc. has shrunk to varying degrees.  

Temu may not be enough to become an "Amazon platform killer ". Unlike Temu, which plays in the low-price market, nearly half of Amazon's customers are high-income people , who are more inclined to buy premium services such as Amazon Prime to get faster delivery. Stable quality and reliable express delivery services are the biggest reliance of Amazon to maintain its dominance in the cross-border e-commerce platform.

The overall market remains stable, but the regional position has loosened . Some consumers who originally bought low-priced products on the Amazon platform are happily placing orders on the Temu platform!

The strong price contrast makes many buyers automatically ignore Temu's slower delivery speed: a mobile phone case sells for $ 9 on Amazon , and the product must be worth at least $ 35 for free shipping, while the exact same product from Temu only costs $ 1 and free shipping ; the same retro polka dress sells for $43.99 on Amazon , but only $13.58 on Temu, a full $30.41 cheaper ... More and more overseas consumers are expressing incredible feelings.

Consumers who are extremely price-sensitive have switched to Temu , and the first to feel the impact are Amazon sellers.

Xiao Zhou, who mainly sells products priced between 10 and 20 dollars, feels deeply touched. The price of the products he sells on Temu is only one-third of that on Amazon . Now the orders on the Amazon platform have been visibly reduced. The orders for some old product links that were once very powerful are also decreasing day by day . There are two ways ahead : switch to high-priced products, or join the Temu platform to compete together.

"This is the cruelty of the market . Where there is a market, there is competition. If you can't beat Temu , run away. If you can't outrun, join. Sellers must eventually solve problems through practical actions. Complaining can't solve any problems. " In the end, Xiao Zhou decided to join Temu. Before Xiao Zhou, many Amazon sellers have shifted their business focus.

A merchant selling false eyelashes said that they started planning soon after Temu was launched. Previously, the price of the product on Amazon could reach about $10, but Amazon's commission and shipping costs were nearly $5, and the remaining $5 also included advertising costs, etc., so the profit was very low. Although the supply price to Temu also had little profit, the advantage was that it did not require any advertising and promotion fees, saving some energy in operating the product.

At present, Temu is still launching a fierce attack on the cross-border market. Some time ago, it released a signal of transformation into a full-category platform. In the future, the influence of Temu on Amazon's low-priced products will only increase. Considering this factor, a group of sellers who are unwilling to give up Amazon are pursuing the strategy of "doing both platforms" and selling the same products on both platforms.

One group of sellers went the other way.

" The transition to medium to high unit prices is a trend . " Xiao Liu said that after switching to high-value and less popular products, he adopted a high-price and high-advertising strategy . Calculations showed that even after deducting the high advertising costs, those advertising orders could still break even or even make a profit.

Amazon platform is also obviously wary of Temu. An insider previously revealed that they learned from the platform's investment manager that Amazon did not take Temu seriously at first, but after gradually discovering that it had the potential to threaten Amazon, it began to pay attention to this phenomenon and formally studied Temu's model.

Amazon’s several new policies in the past year have been interpreted as important measures to counter Temu.

Starting from August 29, 2023 , Amazon officially closed the Small and Light Program in the United States and replaced it with a new low-cost logistics rate . The unit price of products that can enjoy the low-cost logistics standard has dropped from US$12 to US$10. Sellers believe that this is Amazon's battle to defend the low-price commodity market.

First , the cancellation of the light and small plan is to speed up the delivery, so that the delivery time is consistent with that of ordinary FBA products, and the logistics and delivery advantages are prominent when competing with Temu. Then forced involution , merchants with products priced at around US$12 had to reduce the price to US$10 in order to enjoy the low-cost logistics standards. The variety of products under US$10 has further increased, and some consumers have been retained.

Starting from January 15, 2024, Amazon will reduce the commission rate of clothing products from 17%, and the commission rate for clothing products priced below $15 will be reduced to 5%, and the commission rate for clothing products priced between $15 and $20 will be reduced to 10%. This is also considered to be a disguised encouragement for sellers to lower prices. Clothing is one of the main categories on the Temu platform. Amazon has significantly reduced its commission rate, giving sellers more room for price cuts and promotions, which will benefit consumers while also benefiting the platform.

The future of low-price products

Temu's development is unstoppable, and the intensification of platform involution is also a normal market law. What is the future for Amazon players caught up in the tide of the times?

Many industry insiders believe that in the long run, Amazon may eventually develop in two directions: one is supply chain integration + operation, and a very cost-effective price advantage; the other is disruptive products. The former requires continuous cost optimization, decomposition of the underlying product structure, and the cost of a single product on the user side and other links, so that each product can meet market demand while optimizing costs to the extreme . The latter relies on a full investigation of the terminal vertical market to gradually form a set of self-developed and self-sold strategies.

Therefore, there is still a vast space for the development of low-priced products. The low-priced track that has not yet been completely occupied by capital is still an opportunity for small and medium-sized sellers, especially for small sellers with insufficient financial strength but strong operations. It’s just that competition continues to intensify. Whether it is Temu and other low-priced e-commerce platforms grabbing market share, or the increasingly harsh living environment within the Amazon platform, to a certain extent, it is accelerating the elimination of sellers who have no competitive ability, or urging sellers to transform and upgrade as soon as possible.

Sellers who continue to stick to the low-unit-price track and profit from it believe that "the key to making low-unit-price products is large volume , no season , no cycle , and no need for iteration. The real low unit price is not to achieve the purpose of selling at a price lower than the market price by compressing costs and reducing quality , which will only ruin the entire market, but to look at the pain points and needs of buyers and develop low-cost, ordinary-quality products that can meet the market's low-price demand . In any case, products are the core competitiveness of Amazon.

Truly capable sellers will be very limited in the impact of the overall environment, and may even successfully find opportunities in the crisis to expand their sales channels. ”

Amazon Platform