Amazon will struggle to beat Temu and Shein at their own game, and in the process, it risks devaluing what has become its core proposition: convenience.
Over the past two weeks, Amazon has pursued dual strategies in selling both high-end and budget goods. The company’s recent decision to assist Hudson’s Bay Co., owner of Saks Fifth Avenue, in acquiring Neiman Marcus Group for $2.65 billion, signals a clearer path to tapping the luxury market. Amazon will gain a minority stake in the new entity, Saks Global, opening doors to the luxury sector.
However, Amazon’s plan to counter PDD Holdings Inc.’s Temu and Shein Group Ltd. with a new storefront for ultra-cheap goods is fraught with risks. Competing in the fast-fashion, budget-focused segment may compromise Amazon’s core value of convenience. Shipping goods directly from China, akin to Temu and Shein’s business model, will increase delivery times to nine to eleven days, impacting customer satisfaction that relies on Amazon’s speedy Prime service.
Additionally, this move presents logistical and reputational challenges. Shein has faced scrutiny over factory conditions and supply chain transparency. Amazon could encounter similar issues if it broadens its supplier network without rigorous oversight.
Conversely, the luxe market poses its own difficulties. Despite being a leading retailer in the clothing and footwear sector in the U.S., Amazon has historically failed to penetrate the high-end market. Initiatives like Luxury Stores, featuring brands such as Oscar de la Renta, have not attracted major players like Louis Vuitton and Gucci. Yet, the partnership with Saks and the current disruptions in online luxury retail present new opportunities. Smaller fashion houses might find Amazon more appealing given recent obstacles faced by competitors like Farfetch and Matches Fashion.
The luxury market’s downturn, driven by financially comfortable consumers cutting back, might not last forever. Amazon’s core market of affluent Prime members aligns better with luxury, and offering technological and logistical support to Saks Global could solidify its upscale ambitions.
Facing Temu and Shein’s dominance will likely be an uphill battle, marking a race to the bottom. It’s a gamble that could erode Amazon’s established consumer trust. In contrast, a strong focus on the high-end market, leveraging existing affluent customers, could yield better long-term success. The luxury sector’s resilience means demand for high-end goods will persist. Amazon should let Temu keep the cheap stuff and go luxe.
