One year after full hosting, cross-border e-commerce industry undergoes major reshuffle

"The good days may really be coming to an end." This is how a seller commented on the market conditions on Amazon in the past two years.

During the just-concluded "Black Friday", many Amazon sellers lamented that this year's sales were not as good as in previous years, and some sellers even commented that this year was the "worst Black Friday in history."

According to official data, Amazon's platform traffic has declined significantly this year. In its Q3 financial report, Amazon warned of weak consumer spending during the year-end shopping season and said Q4 performance growth may be less than 10%. According to data from mobile analytics company GWS, from April to July this year, the number of daily active users on Amazon's US site dropped from 54 million to 46 million.

Behind the decline in platform data, in addition to the impact of the weak European and American economies, there is also the impact of Chinese cross-border platforms. China's "Four Little Dragons" Temu, AliExpress, SHEIN, and TikTok Shop have successively launched full-hosting services for overseas consumers in the past two years, intending to plunder the minds of overseas e-commerce consumers with low-priced goods from China in the context of economic downturn.

During Black Friday, many Temu sellers shared the good news of booming sales. Just one year after its launch, Temu expects its GMV to reach $14 billion this year and set a GMV target of $30 billion in 2024. SHEIN's GMV in 2022 is $29 billion, which shows how strong Temu's momentum is.

TikTok Shop even released a Black Friday battle report, saying that the number of orders in the US market increased by 205% during Black Friday.

After Temu launched full hosting, cross-border platforms such as AliExpress, Lazada, TikTok Shop, and SHEIN followed suit and launched their own full hosting systems. It is reported that 1688 will also launch an overseas shopping platform, and its model is also full hosting.

As platforms such as Amazon and eBay become saturated, they have begun to impose many restrictions on sellers. Chinese cross-border platforms have provided more opportunities and possibilities for Chinese supply chains to go overseas through the full-hosting model. However, behind the impressive results, many sellers complain that their profits are decreasing under the full-hosting model, and many even run away at a loss.

It can be expected that as all platforms invest in full trusteeship with huge financial strength, the ecosystem of cross-border sellers and even the entire cross-border e-commerce will be reshaped. The reshuffle has begun, who will be the winner in the future?

Fully managed " encirclement and suppression " of Amazon

Overseas platforms such as Amazon and eBay can no longer ignore the threat posed by full hosting.

Seller Xiao Luo told Yien.com that he has a friend who used to be a big seller in the toy category on Amazon. After starting Temu this year, he has been able to continue his business on Amazon.

"He put the same goods on Temu, and consumers have an additional purchasing channel. Temu's pricing is low, and the platform subsidies are large, so consumers go to Temu." Xiao Luo said that the size of the toy market in the United States is fixed, and after consumers moved to Temu, the seller's friend's sales on Amazon declined visibly.

This story is not an isolated case. Another seller, Aliang, used to be a pure trade seller on Amazon. He registered an account when Temu was first launched, started to really invest in full hosting in March 2023, and registered a Shein account in May. "We were the first batch to register for Temu, so we reaped the benefits." The reason why Aliang changed the platform was because he encountered a bottleneck in the growth of Amazon.

From the large-scale banning of seller accounts in 2021 to the trademark explosion incident in 2023, Amazon's attitude towards Chinese cross-border sellers has changed from its former friendliness to being very strict. The threshold for new sellers to enter Amazon is also getting higher, account audits are becoming more stringent, and storage and traffic fees are becoming more expensive.

"Those who can make money have already made money." A seller said that the bonus period for sellers on platforms such as Amazon and eBay has passed.

A salesperson from an independent website told Yien.com that their company has hundreds of independent websites covering quite a large number of product categories, but this year only the wedding dress category is profitable, while almost all other categories are losing money.

"Whichever category Temu is optimistic about, our category will die," he said.

On the one hand, the platform is saturated, and on the other hand, the overall overseas economic consumption is weak, and overseas consumers are more willing to buy low-priced goods. Under these multiple factors, it provides a good opportunity for full-hosting to go overseas. According to a report by market analysis agency Insider Intelligence, Temu has become the fourth most visited e-commerce website in the United States, with the top three being Amazon, Walmart, and eBay. According to GWS data, in October 2023, Temu's monthly active mobile users in Europe reached 51 million, surpassing the e-commerce giant eBay.

SHEIN, which also emphasizes cost-effectiveness, has also reaped great rewards this year. According to The Information, SHEIN 's revenue in the first three quarters of 2023 reached US$24 billion, an increase of more than 40%, and it is very likely to achieve the goal of a 40% increase in full-year sales.

AliExpress and TikTok Shop are also making efforts in overseas markets, launching preferential policies to attract sellers to settle in.

From Amazon’s recent introduction of several response strategies, we can see that the full-hosting offensive of the four little dragons going overseas has posed a threat to overseas platforms.

On December 6, Amazon announced that it would reduce the commission for clothing products. The commission for clothing products priced below $20 was reduced, and the commission for clothing products priced below $15 will be reduced from 17% to 5%. This move is aimed directly at SHEIN and Temu. SHEIN focuses on low-priced fast fashion, and Temu also regards clothing products as a first-level category.

During the Black Friday period, the four Asian Tigers joined the overseas promotion season and replicated the domestic Double 11 gameplay overseas. Temu extended the promotion period from October 20 to December 5, and TikTok Shop also launched "early purchase" and "return" to extend the promotion front.

American e-commerce giants had to respond. Amazon, which previously had a five-day Black Friday promotion, extended the promotion to 11 days, and Walmart even held three consecutive big promotions in November.

The downward economic environment, the saturation of traditional platforms, and the urgent need for cross-border sellers to clear inventory and find new growth points have provided almost the right soil for the growth of full-service hosting.

Many industry insiders predict that fully managed platforms represented by Temu may subvert the overseas e-commerce landscape.

But at the same time, many sellers complained about full custody, saying that it led to low prices and made "no one make money". Can full custody really be done? Where will full custody lead the industry? It has become a hot topic among sellers, but they are also very anxious.

" Life and death are in a roll "

Many sellers have said that among their peers in Temu, losing money is the norm.

"I heard that some people made money, but few people in my circle of friends made money. Most of them gave up halfway and would rather lose money than do it. But I have already set up the stall and there is no way to take it back, so I have to continue doing it." said the seller Xiao Liu.

Xiao Liu is an integrated industrial and commercial seller. He started selling SHEIN in 2021 and Temu in 2022. He is currently profitable on SHEIN and profitable on Temu. As of November, Temu's financial statements showed a net profit of nearly 4 million, but no cash has been received.

Seller Xiao Luo is a traditional Yiwu seller. Before he started using Temu, he was an Amazon seller and also supplied goods to domestic e-commerce customers. After trying Temu for a year, Xiao Luo said that his business was average, mainly because it was uncontrollable. "You sold a hot item, but you don't know why it suddenly became popular. After it became popular, the platform asked you to prepare inventory. After you prepared the inventory, you found that it suddenly became difficult to sell." This is a common problem encountered by sellers of Temu.

He said that many sellers who used to make money on Amazon and had good business are now unable to make money. "With the full-service management, if you don't do it, someone else will do it," Xiao Luo said, "I have a Buddhist mentality now, I just lie down and accept my fate."

Of course, in addition to cases of losing money, there are also many sellers who have seized the benefits of full custody.

Mike used to work in logistics, but he became rich overnight after becoming a full-service provider. Mike runs three platforms at the same time, Temu, SHEIN and TikTok Shop, and now the three platforms can handle one to two thousand orders a day. The categories he sells are quite diverse, including furniture, festival parties, textiles, and daily necessities. In addition to the products already on the market, he also creates new products on his own.

"Our strategy is to continuously launch new products and test hot-selling products," said Mike.

Aliang also runs four fully managed platforms, of which Temu has the largest number of orders and total profits, with nearly a thousand orders per day. Aliang's strategy is to produce more high-quality products, and to produce products that can be popular, and not to worry about the "death" of products that are not easy to sell.

"We cut off all the products with low profits and low average order value, and only kept the products that we thought had better profits. For example, we put 100 new products on the market every day, but only 10 of them can be sold." Aliang said that in response to the uncontrollable problem of popular products that many sellers encounter, Aliang's solution is not to stock too much. They stock and ship products that sell well every day, but they don't stock too much each time. Product selection is also very critical. Aliang sells products with thresholds, such as products with electricity.

But even sellers who have already made money are confused about the future development of full custody. To put it more bluntly, they don’t know how long they can continue to make money.

On the one hand, it is because of the increasingly lower profits under the full-hosting "flywheel" and the ruthless elimination mechanism brought about by the "extreme cost-effectiveness"; on the other hand, it is the changes and opacity of platform rules.

Mike said that as all platforms are investing in full hosting, the traffic of a single platform has decreased after the traffic is split. Secondly, as more and more sellers enter the market and prices become more and more competitive, their overall profits have decreased.

Although Aliang has made money, he doesn't know how long he can do it. He estimates that he can do it until next year. "When the platform becomes more and more competitive, some factories with lower prices will definitely appear to replace us," he said. "I dare not say that I have really succeeded, but I can still make a profit for the time being. We don't know what will happen in the future."

Due to various reasons such as low profits, imperfect management systems, and sellers losing initiative, sellers, regardless of whether they make a profit or a loss, generally express distrust in the long-term development of the platform.

They use Temu as a platform to clear inventory, and are considering how to find new ways out after this wave of dividends ends, whether to move to emerging markets or go overseas for localization.

The "disruption" of full trusteeship has disrupted the cross-border e-commerce ecosystem under the previous Amazon and eBay models, and sellers have to adapt accordingly. However, after clearing the inventory, where will the sellers go?

Big changes in the cross-border e-commerce ecosystem

The "involution" brought about by full trusteeship not only involves sellers and platforms, but ultimately the entire export business model.

Temu pursues the lowest price possible. If there are multiple suppliers for a product, and one supplier offers the lowest price, other sellers will replace it if they cannot meet this lowest price.

Under the slogan of "extreme cost-effectiveness", a group of trading sellers were first attracted, followed by factories. A platform investment manager told Ennet that he had recently contacted several factories in East China, which supplied Temu with goods, with a profit of 3-5 yuan, and the selling price was nearly 20 US dollars, with a profit margin of less than 5%.

"I earn money from the hard work of packing." The seller Aliang joked.

Low prices also lead to a decline in product quality. The investment manager said that a Japanese Rakuten lamp seller also considered whether to join Temu, but he found that he could not do it in Temu. Because his lamps use imported parts, Chinese factories use low-cost parts to assemble the same products, which can lower the price and gain platform traffic. The seller gave up the idea of ​​doing Temu.

When prices are pushed down to the limit, factories can only find ways to reduce product quality.

Many sellers and suppliers complained about this, saying that they could make a lot of money when they were selling on Amazon, but after switching to full hosting, the profits became very low.

Even so, sellers can only follow the platform. "If you don't do it, someone else will. You either get ripped off by others or you rip off others," said a seller. A product that could have made 8 yuan in profit was reduced to 5 yuan or even 2 yuan. Even so, the factory has no choice but to accept it.

Not only suppliers have been affected by full hosting, but some Amazon sellers have also commented that full hosting has brought "vicious competition." Xiao Chen, a veteran in the supply chain field, revealed that Xike Technology used to be a big seller of site groups, but later transformed into a boutique, focusing on several large sites and building boutique supply chain capabilities, streamlining 180 suppliers to 20.

After the rise of full hosting, the sales of independent sites have declined significantly. In order to survive, suppliers can only supply goods to full hosting platforms at a lower price. In this way, the high-quality supply chain originally built for boutique independent sites has been destroyed.

"The entire supplier's order logic has changed." Xiao Chen said. Under the impact of full hosting, many Amazon sellers and independent website sellers have begun to lay off employees.

Early cross-border e-commerce started out with a barbaric and extensive group of stores. In the past two years, after being educated by the market, it has turned to high-quality and branded products, and began to focus on improving supply chain efficiency and long-term brand development.

The full-hosting model has, to a certain extent, destroyed the ecological system established by sellers and supply chains to adapt to overseas e-commerce companies such as Amazon and independent sites.

"Supply chain is not something that can be achieved overnight. It must go through a process of sedimentation and accumulation," said the senior person. "It took several years to lay the foundation of Guangzhou CITIC Tower. Do you think it is possible to succeed in one year?"

This is also the reason why many practitioners believe that Amazon’s position will not be shaken by full hosting - years of development have allowed Amazon to establish unique advantages and have better services and experiences.

But it is undeniable that the cross-border ecological environment is already changing and the future is uncertain.

Where is full trusteeship heading?

Although many people complain about the disadvantages of full custody, some people are optimistic about the future of full custody.

From the data, Temu estimates that it will achieve a GMV of 14 billion US dollars in 2023, and set a GMV target of 30 billion US dollars next year. SHEIN's GMV in the first three quarters of this year was 24 billion US dollars, and it is expected to exceed 30 billion this year. TikTok Shop has made efforts in the US market, and the order volume during the "Black Friday" period increased by 205% month-on-month. It is reported that TikTok Shop will also vigorously develop full hosting business next year. .

China's e-commerce giants are investing heavily, which means a new incremental market will be created. And full trusteeship will shape a new market logic, which may lead to a reshuffle of existing sellers.

"There will definitely be many new winners in the future," said an Amazon seller.

From a macro perspective, national policies are encouraging cross-border e-commerce to go overseas, and overseas markets have become a new growth curve for large platforms. Under the full-hosting wave, it will drive the Chinese industry chain to participate more deeply in the overseas wave.

Although they are all fully hosted, each platform has different genes and has formed different business models, bringing diverse opportunities.

Xiao Chen introduced to Yien.com that he believes the full hosting models of each platform are different. SHEIN is brand hosting, Temu is inventory hosting, and TikTok Shop is supplier hosting.

SHEIN tried full hosting in 2018, but temporarily put it aside due to the large increase in the platform. This year, SHEIN will re-launch full hosting, and SHEIN will pay more attention to brand performance, such as logo and texture. "This road is also difficult, because it takes time to build a brand," said Xiao Chen.

In the full-hosting competition, SHEIN's advantage is the system capabilities accumulated over the years, which enables it to transform products through overseas consumer portraits and labeling.

Temu started with full trusteeship by clearing inventory. But this also brings a hidden danger. The market changes in the past two years have caused sellers and suppliers to accumulate a large amount of inventory. During the inventory clearance period, they can sell at a low price, but after the inventory is cleared, this model cannot develop in the long run. How to transform in the future and how to make money are the points that sellers are worried about Temu.

"Inventory is limited. Once the inventory is cleared, if the platform wants to continue purchasing from suppliers at the original price, it will not be able to get the same price when production actually starts. However, as a platform, it cannot run out of stock, which creates a contradiction," said Xiao Chen. "After the platform's traffic subsidy period, if it wants to make money, it needs to improve product strength and premium, and at the same time it cannot run out of stock. In this case, the supply chain capacity may not be able to keep up."

TikTok Shop is about supply chain going overseas. Because the ecosystem of TikTok Shop needs to bring its own traffic and influencer resources, companies that used to run Amazon or independent websites have more opportunities in TikTok Shop because their business models are similar. On the contrary, factories may not be able to run TikTok Shop.

Next year, all platforms will invest heavily in full-hosted overseas expansion. The future is full of uncertainty, with both risks and opportunities.

(At the request of the interviewees, Xiao Luo, A Liang, Xiao Liu, Mike, and Xiao Chen are pseudonyms)

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