Facing fierce competition from local rivals Alibaba and JD.com, e-commerce giant Amazon has decided to wind-down its Amazon China marketplace and focus instead on cross-border
sales.
In a statement, the U.S.-based company said that it is working to shift customers to its Amazon Global Store and sellers to its Global Selling operations.
A report in Retail Dive quoted Michelle Grant, head of retailing at Euromonitor International as saying that although Amazon "has grown sales consistently, its share of sales has actually been dropping. At its peak in 2009, Amazon had 8% of the market, in 2018, it only has 1%."
Winding down Chinese ops
Ms Grant noted that both market leader Alibaba and rival JD.com made moves that helped them stand out, while Amazon didn't.
"Alibaba differentiated on wide selection at a range of price points while JD.com emphasised quality products delivered quickly," she said. "Both companies understood the importance of digital
payments with Alibaba developing Alipay and JD.com using WeChat Pay. Amazon didn't have any differentiation in the eyes of the Chinese consumers. The fact that Amazon opened its own digital
storefront on Alibaba's Tmall in 2015 may be the strongest indication that Amazon would likely wind down its domestic sales operations."
Concentrating on cross border sales
With the domestic market locked up by Alibaba and JD.com (combined they control 75% of the e-commerce market in China), it makes sense for Amazon to focus on its true differentiator: cross border
sales," Grant said according to the Retail Dive report. "But Alibaba and JD also have robust cross border sales platforms. It's not guaranteed that the focus on cross border sales in the
market will succeed either."
Although Amazon stressed that it will continue its other businesses in China, including Amazon Web Services, Kindle e-books, and cross-border operations that help ship goods from Chinese
merchants to customers abroad, the decision to pull out of Chinese e-commerce represents a setback for the company in the world’s largest retail market and for Chief Executive Officer Jeff Bezos,
known for his willingness to weather losses to achieve long-term gains, a Bloomberg report noted.
Amazon entered China in 2004, when it bought a local online book seller for US$75 million. Since then, it has invested in warehouses, data centres, and programmes to teach Chinese sellers how to
get their goods to Amazon customers.
It launched its Prime membership programme in China in 2016 with hopes of luring customers with promises of high-quality Western goods and perks like free international deliveries.
Focusing on India?
According to the Bloomberg report, the pullback is the latest sign that Amazon is ceding China so it can focus on India, where it stands a better chance of becoming a dominant player. The company
has plowed billions of dollars into the India business since opening its website there in 2013, building more than 50 warehouses to support the business.
However, Amazon still has to contend with Chinese e-commerce players in India, where Alibaba and others are building up operations or investing in local startups such as Paytm E-commerce Pvt and
BigBasket, the report noted.
Ironically, Amazon's decision coincides with several media reports that one of Amazon's Chinese rivals, JD.com, has announced wide-scale layoffs and the closing down of most of its offices
abroad.
Amazon rival JD.com scales down as well, axing jobs
Reports said that JD.com may cut up to 8%, or about 12,000 of its worldwide staff, slashing half of the workforce in some teams. One report said executive ranks have seen critical departures in
recent weeks, and cutbacks are hitting the rank-and-file workforce.
A JD.com spokesman denied the large-scale layoffs and said the company instead is returning to “our entrepreneurial roots,” including more hiring in logistics. A network of more than 550
warehouses across China has already eaten into profit margins, however, and consumers are turning to low-price competitors.
Earlier in February, JD.com said it would fire 10% of its senior management (vice president or above) with the worst performance. In addition, media reported that JD.com has recently stopped
paying delivery staff a base salary - instead, they will only receive performance-based incomes.
Nol van Fenema