Amazon Delivers Prime Program to China
October 28 2016 - 6:20AM
Dow Jones News
Amazon.com Inc. launched its Prime membership program in
mainland China on Friday, in an effort to capitalize on Chinese
consumers' desire for overseas products.
The service, which offers unlimited free cross-border and
domestic shipping, will cost 388 yuan ($57) for one year, with a
promotional price of 188 yuan ($28) available through February.
Prime will give Chinese consumers access to more than nine million
domestic products with no minimum purchase, and among four million
imports via Amazon's Global Store with unlimited free overseas
shipping on orders of 200 yuan or more. Amazon estimates that most
members will receive overseas packages in five to nine days.
The launch by the U.S. e-commerce behemoth comes as Chinese
e-commerce players Alibaba Group Holding Ltd. and JD.com Inc. are
ramping up their array of international products available to
mainland shoppers. In recent months, Alibaba has opened up branded
Target and Costco stores on its Tmall business-to-consumer
platform, while JD.com recently opened a global Wal-Mart store on
its world-wide platform.
Amazon Prime China is one of the first subscription-based
e-commerce membership services to be rolled out for Chinese
consumers. Earlier this year, JD.com launched a membership program
called JD Members+ for 149 yuan a year that includes free access to
e-books and five free deliveries a month. The company declined to
disclose the number of members.
China's e-commerce market grew 21% in 2015, with gross
merchandise volume of 16 trillion yuan, according to data from
iResearch. Cross-border shoppers increased to nearly 23% of online
shoppers last year, up from 14% in 2014.
Seattle-based Amazon has struggled in China in recent years to
distinguish itself among China's domestic players, and Prime
membership could be a way for Amazon to gain ground in the country.
Chief Executive Jeff Bezos said at a conference last week that
Amazon must adapt in China, where it considers JD.com its biggest
competitor. "We cannot run our normal playbook in China," he said.
That is in contrast to the company's business in India, where it
has touted its winning strategy and pledged $5 billion in
investments.
The service is also part of Amazon's push to look abroad for
growth as it increasingly dominates the U.S. market. Counting
China, Amazon has now launched Prime in 12 countries, including
India, Germany and the U.K., and analysts estimate there are more
than 50 million Prime members world-wide. Those members can be
valuable: In the U.S., Prime members often spend double the amount
of their non-Prime counterparts on the website, according to
analysts.
However, Amazon often must spend heavily to earn Prime loyalists
in new markets. On an earnings call Thursday, Amazon executives
said spending to improve Prime benefits overseas, along with
expansion in India, drove up costs that contributed to widening the
loss in its international division to $541 million from $208
million a year ago. While Amazon can negotiate steep discounts with
international delivery companies due to huge package volumes,
shipping costs still add up quickly.
A person familiar with Amazon China's logistics said the company
is still trying out options for cross-border shipping. "It's still
a very early point in time for companies to explore what the value
is for cross-border shipping and how much you can charge for it,"
the person said.
The Prime China price is well below the $99 a year for U.S.
Prime membership, and the service is somewhat limited because of
local Chinese restrictions. With media subject to censorship,
books, for example, aren't offered on Amazon China's global store,
nor are TV shows or movies.
The service also is limited to Chinese nationals, who must
provide their national ID number for overseas purchases. New
regulations released this spring placed a maximum of 2,000 yuan for
each overseas transaction and a yearly limit of 20,000 yuan a
person for cross-border e-commerce imports.
Another hurdle for Amazon in China is convincing Chinese
consumers that paying for such a service is worth it. While in the
U.S., savings on shipping is one of Prime's biggest draws, free
shipping within China is the norm on Alibaba and JD.com's
platforms. Analysts say China's growing middle class and citizens
who have spent time abroad and hanker for specific overseas
products will most likely be the key consumers for the service.
In some ways, though, Amazon may have a leg up over local
competitors in that it already has a global network of vendors and
logistics partners, with 123 fulfillment centers around the
world.
Analysts say the Prime subscription could be a central play to
Amazon China's overall strategy.
"The sentiment of people wanting to have premium memberships for
a better experience is growing," says Nicole Peng, director of
China research at market research firm Canalys in Hong Kong.
Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com and Laura
Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
October 28, 2016 06:05 ET (10:05 GMT)
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