Let Temu keep the cheap stuff. Amazon needs to be more luxurious

Let Temu keep the cheap stuff. Amazon needs to be more luxurious

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July 9, 2024

Over the past two weeks, Inc. has tried to sell both bling and bargains. Only one move is wise. It has a better chance of competing with Tiffany & Co. than Temu.


Amazon will help broker a deal by Saks Fifth Avenue owner Hudson’s Bay Co. to acquire rival Neiman Marcus Group for $2.65 billion. The tech giant will take a minority stake in the resulting company, Saks Global, giving it entry into the luxury sector.

The move comes just days after it was reported that Amazon plans to acquire PDD Holdings Inc.’s Temu and Chinese fast-fashion rival SheIn Group Ltd. with a new store selling ultra-cheap items.

Neither market will be easy to conquer. But even a giant like Amazon will have a hard time beating Temu and Shein at their own game, and in the process it risks devaluing what has become its core proposition: convenience.

And while it’s unlikely Amazon can outperform LVMH Moet Hennessy Louis Vuitton SE, owner of Tiffany and Dior, it may have the potential to outpace other high-end players given the recent turmoil in online luxury fashion.

Let’s start with the discount campaign. It’s definitely a reversal of the status quo. For the past 30 years, Amazon was the challenger. Now, the cheap Chinese shoe is on the other side.

Amazon is therefore looking to emulate Temu and Shein’s business models. That means shipping goods directly from China, rather than keeping them in warehouses in the US, close to where customers live and where it can offer its trademark lightning-fast delivery. Shipping from China would be much slower — nine to 11 days — but would allow for lower prices. That’s because Amazon could take advantage of the same de minimis rule used by Chinese retailers, which allows citizens in many countries to receive international packages under a certain value without paying import tariffs. In the US, the threshold is $800 per package.

This would preserve Amazon’s everything-store status and keep cost-conscious shoppers in the ecosystem. But it also raises important questions and challenges.

One is whether it would use the Chinese companies already selling on its marketplace to fulfill those orders, or turn to new ones. Bringing in new Chinese factories is risky. Shein in particular has seen its supplier base come under scrutiny. By widening its supplier network, Amazon could face similar questions.

Another downside: It devalues ​​Amazon’s Prime proposition. For the past 20 years, the company has tried to convince shoppers to pay a fee — currently $139 per year — for access to its super-fast shipping. Introducing a slower option is essentially saying that convenience isn’t so valuable after all.

Meanwhile, selling $15 dresses on one part of Amazon seems at odds with selling $1,500 dresses on another. And the Saks deal is the clearest indication yet that the company hasn’t given up on the latter market.

According to research group GlobalData, Amazon is the largest clothing and footwear retailer in the US, including sales through its marketplace, but the company has long tried — and failed — to reach the top spot.

The company launched Luxury Stores in the U.S. in 2020, featuring designers like Oscar de la Renta and Altuzarra; it added pre-owned luxury and expanded to Europe two years later. Initially limited to Prime members, Luxury Stores is now open to everyone. Even with control over products and prices, only a select few brands have signed up.

Big names like Louis Vuitton, Kering SA’s Gucci and Prada SpA will likely never sell on Amazon. Around the time Amazon was working on Luxury Stores, LVMH CEO Benard Arnault told analysts that his brands would not be joining the platform.

The bling giants are increasingly reaching their customers through their own boutiques and websites. That’s one reason why department stores like Saks and Neiman Marcus, as well as Macy’s Inc., which is facing a larger bid from an investor group, are trying to stay relevant.

But the deal with Saks gives Amazon an alternative way to enter the roughly $400 billion global luxury market.

Marc Metrick, CEO of Saks Fifth Avenue’s online operations, told Bloomberg News that the technology company, as well as Salesforce Inc., which will also take a minority stake, would “future-proof” the combined company.

Amazon will provide technological and logistical expertise, potentially making deliveries and returns smoother for Saks Global’s VIP customers. But closer collaboration with Luxury Stores can’t be ruled out. Either way, the move could lend more credibility to Amazon’s upscale efforts.

The timing is right. The U.S. luxury market has been hit by comfortable — rather than super-rich — consumers who are cutting back. That has hurt e-commerce in particular, because those shoppers tend to buy online. That shift helped fuel the sale of Farfetch Ltd. to South Korean e-commerce firm Coupang Ltd. in December and the collapse of Britain’s Matches Fashion in March. Cie Financiere Richemont SA’s Yoox Net-a-Porter is also up for sale. The implosion of the online market could make Amazon more attractive to smaller fashion houses that previously sold through those channels.

Even with the drawbacks, moving into a higher-end segment is a better option than a race to the bottom against Temu and Shein, especially since Prime members, Amazon’s core market, tend to be more affluent.

And it’s unclear how long Shein and Temu will continue to gain market share. The latter’s explosive growth is already slowing. Any reduction in the de minimis rule could accelerate the slowdown. On the other hand, the U.S. luxury market has been transformed over the past five years and won’t remain in the doldrums forever.

The demand for expensive handbags will continue to exist. The same does not necessarily apply to budget bags from China.