Amazon appears to be reducing its exposure to the Chinese consumer market. It what would be a remarkable volte face, the Seattle giant has confirmed earlier press reports that it would close its website selling China-sourced products to Chinese consumers.
Amazon’s retail presence will now “evolve” to “emphasise cross-border sales”. It is unknown what proportion of present sales this will represent. These cross-border sales will include non-Chinese merchants selling through Amazon as well as Amazon’s own lines.
Amazon said that it was looking to reconfigure its logistics presence in China but gave no further details.
The company gave no specific reasons why it was withdrawing from such a significant part of the Chinese market, however it has made little progress against Alibaba and JD.com who dominate e-retailing in the country. Opinions expressed in the press point to Amazon’s failure to adapt to the Chinese retail environment as being the main cause of its failure, with the company dominated by its US headquarters.
It might also be worth speculating that logistics played a significant part in Amazon’s failure to compete. Constructing a trunking network, let alone a last mile capability, has proved to be a major problem for the two large Chinese companies demanding very heavy investment with not yet entirely successful results. For a smaller-scale player, this could represent a significant cost barrier.
Amazon did make serious moves in logistics in China, notably gaining a freight forwarders license. This however was relevant to cross-border sales both within China as well as selling China-sourced goods outside of the country. It also has put in place logistics capabilities in China, where for example this month it opened an ‘E-commerce park’ in Hangzhou which is designed to pick-up and consolidate goods for export from local producers.
It may be that sales of domestic goods were too small or unprofitable to justify the additional cost of investing in infrastructure to serve it. That said, both in terms of inventory management and fixed cost utilisation, any reduction in throughput is likely to be undesirable.
Exiting even a part of the Chinese market can hardly be regarded as a move forward by Amazon. Its business model depends on economies of scale and a loss of such a large group of customers to two major potential global rivals is serious.
Source: Transport Intelligence, April 23, 2019
Author: Thomas Cullen
