Competition in Global E-Commerce Marketplace Sees Amazon.com Taking Initiatives

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Pricing, volumes and logistics

Total e-commerce sales in the U.S. is still a fraction of the country’s total retail sales, about 7.8% at USD $3 billion in 1Q 2016, but up 220 bps over the past three years. E-commerce in the U.S. continues to grow at a fair clip annually (mid-teens), vis-à-vis low single digits for the retail sector as a whole. It is not too surprising therefore that competition among the largest players to capture market shares is heating up. Amazon (NYSE: AMZN), in its attempt to keep the likes of Alibaba (NYSE: BABA) and eBay (NYSE: EBAY) at bay, has decided to slash pricing for merchants. The price that Amazon charges merchants to use its marketplace, especially for smaller items, is expected to be cut by nearly 67%.

Chinese players dominating the small packages segment

One might think this is coming as a reaction to the aggressive approach adopted by Chinese players such as Alibaba and Wish.com. Chinese players dominate the small-sized goods and items market, and have been able to capture a big chunk of the volume by attracting merchants to their marketplaces with lower fees. Also, United Postal Services’ ePacket program, of which some Chinese e-commerce players are a part of, appears to be impacting Amazon’s delivery and handling services, and thus rendering its pricing uncompetitive.

Pricing alone may be insufficient to grab volume

It only seems natural that Amazon would do well in entering the global shipping and logistics business to ensure it does not lose out on merchants coming onto its marketplace through pricing or delivery constraints. This might suggest Amazon could well come up against the likes of FedEx (NYSE: FDX) and UPS. Fulfillment for an e-commerce player, especially as big as Amazon, is critical to achieve scale efficiencies and target volumes as well as provide complete services to merchants and thereby the ultimate customer.

Rapid growth in global e-commerce; additional strategic adjustments expected from large players

Though the most recent news of Amazon slashing prices for smaller packages and items for merchants may appear rather insignificant in the larger scheme of things, it does highlight the level at which the e-commerce turf war could be played in the near future. Clearly, the strategy by large players in this segment is not restricted to targeting the US e-commerce industry, but also to develop a model that works worldwide. The global e-commerce market is expected to reach over US$1 trillion by 2020 which indicates there is significant growth potential. With high population economies, such as India and China, increasingly buying goods online, product availability through multiple merchants, pricing and delivery together would determine who gets the maximum share.

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