Does Andy Jassy Have Temu On The Brain? Lowering Cost to Serve Could Be a Matter of Life and Death
Amazon's CEO Andy Jassy had one of the most interesting comments of the earnings call in the Q&A portion, and it was this:
"We have a saying that it's not hard to lower prices, it's hard to be able to afford lowering prices. The same is true with adding selection. It's not hard to add lower ASP selection, it's hard to be able to afford offering lower ASP selection and still like the economics. Like improving speed, adding selection puts us in the consideration set for more purchases."
Now my question to you is simple -- who is he referencing here? It sure sounds to me like it fits well to the challenges posed by major Chinese competitors like Shein and Temu who are manufacturing small batch items at the last possible moment, and bulk-injecting them directly into US fulfillment networks.
The Challenge Posed to Amazon
Game recognizes game, and the biggest challenge posed to Amazon is not the billions that Temu is spending on marketing (you might say that is a disadvantage they have relative to Amazon). No.
Instead, the biggest challenge is the lower cost to serve
Instead, Amazon is doubling down on its simple principles:
people will keep wanting items faster
people will keep wanting items reliably
people will keep wanting lower prices
people will keep wanting more selection
These items relate to each other. Andy Jassy's point is if your costs to serve are not low enough, they can't add the selection they need. His Chinese competitors have a lower cost to serve, period.
And that is the real problem. Because of course Amazon could match that selection, but he has betrayed that - at least at the moment - his competition may have a structural advantage in offering lower ASP selection.
Amazon's Next Move
What Amazon will do next about this will tell the story. Replicate what Shein and Temu have done? Or only continue down the "inventory closer to the consumer path".
Before you answer, consider the fact that in 2022 no one predicted Amazon would regionalize their fulfillment network. What's next from Amazon needs to address their structural disadvantage with lower ASP items.
In order to do this, they need to address not just a facilities and delivery problem (as they have recently). They also need to address a just-in-time manufacturing and data problem. Expect more salvos in this war in 2024 that we can't predict sitting here right now.
The problem with Amazon not acting to address just-in-time manufacturing could be that the marketplace is simply eaten from the bottom up.
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