American retailers seem to have adopted the maxim “if you can't beat your enemies, join them.” Will this strategic move initiated by Amazon, Magalu and Target be successful?
A recent announcement shows that TikTok quadrupled its global presence and sales in 2023.
The market - and the buyers - do not seem to care that the Biden government has given it an ultimatum to leave behind its Chinese owner Bytedance in November of this year and, conversely, the support of candidate Trump, who now says that he is going to save the platform because competition keeps the incumbents awake, it only gives new energy to the sector.
Competition in e-commerce is fierce and its actors know it.
In recent years, Chinese e-commerce companies have posed a threat to their local competitors in Brazil, Latin America's largest economy, often offering a wide range of products at lower prices.
In addition to Aliexpress, owned by the Alibaba group, Sea's Shopee and Shein have also established themselves in the Brazilian market, while PDD's Temu has entered the market more recently.
Hence, the various announcements in June by large American retailers – American and Latin – with some of the main players in global e-commerce have not been a big surprise for sector analysts. But yes for users and buyers.
At the end of June of this year, the American store Target teamed up with the Canadian marketplace Shopify to expand its product pool .
The new partnership “will give consumers even more options to explore at affordable prices and exceptional quality,” the firm said in a statement.
Target will also be the first mass retailer to work with Shopify to bring products from select merchants to its brick-and-mortar stores in the coming months, giving shoppers even more new brands to discover.
The same week, the Brazilian Magalu partnered with Alibaba's Aliexpress to strengthen its online sales and its shares immediately rose 10 points on Bovespa.
Brazilian retailer Magazine Luisa reached an agreement with the company created by Jack Ma for both to promote and sell products on each other's platforms, the Brazilian company reported.
Thus, Aliexpress will sell products from its Choice service on the Magazine Luiza platform, while it will offer products from its operation on the Chinese firm's platform in Brazil.
A few days later, the shock came from Amazon, which said it was preparing to launch
a new section on its site for Chinese sellers who want to ship their fast fashion and lifestyle products directly to American customers. It could be available later this year.
The plan of Jeff Bezos' firm is based on creating a section that can be accessed from the Amazon home page and that is aimed at people who are willing to accept a delivery time of between nine and 10 days if that It means paying a price of less than US$20 per item.
This tactic by Amazon would be to compete with Temu and Shein, by having sellers ship their products to a warehouse in China, from where they would be sent directly to American buyers. Currently this is the other way around: Chinese sellers send their products to Amazon warehouses in the United States and they are distributed from there.
COLLABORATE, NOT COMPETE
What do retail and e-commerce specialists think about these movements?
“Alliances can have more than one objective. At the most basic level they seek to complement capabilities, as could be the case of the alliance between Aliexpress and Magalu, where the alliance provides Aliexpress with an arm in the physical world. However, these alliances can also be beneficial even when the participants already have a developed omnichannel strategy. For example, Target already has years of experience in developing its digital channel, but the alliance with Shopify can give it a better view of consumption patterns, improving the value of its assortment,” Marcel Goic, director of the Marketing Center, explains to AméricaEconomía. Retail Studies (CERET) of Industrial Engineering, U. of Chile .
These alliances have various names, depending on the emphasis of the agreement.
If the main objective were to generate coverage in a geography in which there is no small presence, it would be a cross-border partnership .
If participants join together to reach a new market in which neither of them has a presence, it would probably be what is known as horizontal chains. Finally, if a brand joins a well-established program within a platform it would simply be a channel selection .
"Global retailers are making important strategic decisions in the face of growing competition in electronic commerce for items at very affordable prices. But the key is not to compete with Chinese platforms, but to collaborate," Juan Pablo Solar, partner of the consulting firm Spencer, tells AméricaEconomía . Stuart .
The greatest concern about competing seems to come from the United States, where so-called ' social commerce ' is expected to reach almost US$80 billion by 2025. In that area, Facebook continues to reign in the category, with a third of buyers opting for Facebook and Facebook Marketplace.
But after launching in the US in September 2023, TikTok Shop has become a major competitor in the social commerce space.
This momentum has been slow to build, as only 11% of US households report having made a purchase through TikTok. But these sales are equivalent to a 7.7% share of the total gross merchandise value (GMV) of social purchases, with the not inconsiderable sum of US$ 853.32 million.
“The immediacy of purchasing in local e-commerce surpasses the delays associated with shipments from China. And with these partnerships, local retailers can benefit by expanding their assortment and earning commissions on Chinese products, while Chinese retailers benefit by being able to deliver these products faster,” Solar details.
Unsurprisingly, Generation Z led this change, as 18-24 year olds are 3.2 times more likely to shop through TikTok Shop than the average consumer.
ALL AGAINST PINDUODUO
Given Amazon's global relevance, its ad ended up eclipsing that of Magalu and Target, with more limited audiences.
“Driven by macro factors and competition from other portals such as Pinduoduo or Temu, existing e-commerce platforms are working to exert greater control and leverage over the supply chain, especially in unbranded and low-value categories,” he indicates. to AmericaEconomy Jianggan Li, CEO of the Asian e-commerce analysis firm Momentum Works .
In April of this year, the Biden administration ordered closer scrutiny of 'de minimis' shipments from China, in part to check whether they are violating the US ban on goods produced with forced labor (a common accusation that has been leveled against Shein and Temu, and which both platforms have strongly denied).
The term, literally 'small things', comes from Latin and refers to a customs exemption provided for small purchases by Americans abroad. This was designed more than 60 years ago so that tourists could send purchases made in other countries to their home so as not to overload their stays. Using this law is how these platforms are exempt from paying taxes in the US.
Today two bills are being heard in the US Congress that would exclude China from this 'de minimis' channel.
This may be one of the reasons why the Chinese government is seeking to issue a series of regulations to make it easier for Shein, Temu and AliExpress to build distribution centers outside of China.
And although it is not clear whether Amazon shipments will also use the 'de minimis' channel with this new formula announced in June, the publication of new laws could interfere with its plans.
Some analysts, such as Momentum Works itself, believe that Amazon's bet will be successful, since Bezos' firm is 10 times the size of Pinduoduo, it is neither a safe path nor a calm one.
“Years ago, Amazon failed to operate in China's consumer market in a controlled, planned and well-executed manner. Some sellers in the US marketplace are skeptical while Chinese and Asian portals such as TikTok Shop and Shopee are rapidly gaining ground,” indicates the Momentum Works analysis.
In Latin America things are no less calm.
“Today we find ourselves in a competitive landscape in which companies develop by building digital ecosystems. Here, there is a constant movement to look for the channels that allow us to improve customer experience coverage,” says Marcel Goic.
For this, he cites the example of Adidas, which, along with selling in its own physical stores and having a very well-developed digital channel, also has its own digital store within Amazon that helps it expand the space of possibilities to connect with its customers.
“In Latin America, Mercado Libre has an entire section of Official Stores, in which dozens of brands such as HP, Trek or Samsung have decided to participate,” says Goic.
However, and recognizing that the asymmetries are large, the CERET researcher considers it correct to consider that these relationships become bidirectional.
“In the ecosystem logic, the business of platforms is to serve as enabling channels so that business opportunities can materialize. If there is demand, it is expected that some bidirectional flows will actually occur,” says Goic.
How can the success of these initiatives be determined? Analysts have a clear vision.
“I consider that each participant has different objectives and, therefore, the degree of success depends on each case. For example, I imagine that Aliexpress will measure the performance of the alliance by looking at the sales levels of its products through Magalu, while Magalu must also look at whether a potential increase in sales is at the expense of other more profitable products already available on the Magalu assortment,” says Marcel Goic.
For Jianggan, the success of these platforms depends largely on the determination of leaders and how aligned their staff and organization are.
These moves reflect that retail leaders are seeking to adapt and collaborate to leverage the strengths of both parties. “Innovation and rapid adaptation are essential in this dynamic environment,” concludes Solar.
