By Liza Lin in Shanghai and Laura Stevens in San Francisco
In launching its Prime membership program in China last fall,
Amazon.com Inc. was betting that the lure of hard-to-find Western
goods and free international deliveries would be enough to get
traction in the world's largest e-commerce market.
That hasn't happened, according to retail analysts, underscoring
the difficulties faced by U.S. technology companies as they try to
compete in a country with high hurdles for outsiders and
increasingly sophisticated competitors.
Companies including Facebook Inc. and Alphabet Inc.'s Google
have struggled with stringent government controls and censorship,
while Apple Inc. has seen its iPhone market share decline as
Chinese smartphone makers offer less-expensive, high-performing
smartphones.
"Over time, companies from Apple to Microsoft are seeing Chinese
rivals move up the value chain and narrow the gap between them and
their products," said Mark Natkin, managing director of Marbridge
Consulting in Beijing.
Retail analysts say it is largely Chinese competition, and not
the ground rules of doing business, that has challenged Amazon's
efforts here. Membership programs aren't popular in China, and
consultants say Amazon's app for mobile phones -- the shopping cart
of choice in China -- lags behind its competitors in ease of use
and appeal.
What's more, the company's main pitch to Chinese consumers --
authentic Western goods shipped free from abroad -- is being
weakened as Chinese rivals strengthen their offerings and dangle
discounts.
Chinese competitors Alibaba Group Holding and JD.com Inc. have
invested heavily to improve their selection of products and spent
liberally on promotions and discounts through massive sale
campaigns this year, said Jason Yu, China general manager at Kantar
Worldpanel, a consumer-research firm.
In its most recent analysis in June, Kantar estimated that
Amazon had a 1% share of China's fast-moving consumable goods, like
diapers and food, unchanged from a year ago.
Free delivery, even internationally, isn't much of a selling
point in China either, since overseas shipping costs are free or
generally low. An 800-gram can of Aptamil infant formula, for
instance, is free to ship from Germany to Shanghai on both
Alibaba's Tmall and JD platforms via bonded warehouses. A similar
product is also shipped free by Amazon.
In China, Amazon Prime's offerings don't stand out, said Shirley
Lu, a Shanghai-based analyst focusing on retail at Euromonitor
International.
"Local e-commerce providers have fast deliveries, good customer
service and very competitive pricing," Ms. Lu said. "These are
areas Amazon will find hard to beat."
An Amazon spokeswoman said the company has had a "strong
response" to Prime from Chinese customers since its launch last
October, with membership figures more than doubling since the
beginning of the year. She declined to provide figures.
Amazon in October last year sweetened its offer by discounting
its China Prime membership fee to $30, or half its standard list
price. Prime membership costs $99 annually in the U.S.
But membership programs are also a tough sell in China, where
high-profile scandals involving beauty chains and health clubs have
made consumers wary, said Deborah Weinswig, New York-based managing
director at Fung Global Retail & Technology.
JD and Alibaba also offer memberships, but on those sites you
don't have to be a member to qualify for free shipping on most
purchases beyond $15. Alibaba's 88 Membership program is free and
rewards frequent shoppers on their site with discounts for high-end
brands and free concert tickets. JD's Plus program costs $22 and
dangles unlimited e-books and free exchanges and returns, on top of
free shipping for all purchases five times a month.
Furthermore, Euromonitor's Ms. Lu noted that most Chinese
consumers shop on their smartphones, and that Amazon's relatively
bare mobile platform is a turnoff for Chinese consumers used to
seeing a kaleidoscope of colors and attention-getting deals.
Mobile-phone shopping will account for more than 60% of China's
total e-commerce this year, about $720 billion, Boston Consulting
Group analysts estimated.
Wang Hao, a 38-year-old internet entrepreneur in Shanghai who
buys everything from steaks to computer parts online, said he found
Amazon's site "as bland as plain water." JD's website, a riot of
red and orange hues, "makes one feel festive and in the mood to
shop," he said.
Finally, the video streaming service included in Amazon Prime --
with its award-winning original content -- isn't available in China
due to censorship rules.
Still, China is an important piece of the puzzle for Amazon in
its plans to one day haul and deliver packages and cargo globally
for others as well as itself.
The online retailer has been building its business with
manufacturers and sellers in China, encouraging them to sell direct
to U.S. consumers via Amazon.com. As the company sends more
merchandise from China to the U.S. -- and especially as it develops
its own air-service offerings -- it needs to fill trucks and planes
going both ways.
As Amazon adds international shipping capabilities including its
own planes, "in order for it to be cost effective, they need to
have goods that are going out of the U.S. and into the U.S. to do
it profitably," said John Haber, chief executive of supply-chain
consultancy Spend Management Experts.
Going forward, Robert W. Baird & Co. Amazon analyst Colin
Sebastian expects Amazon to continue to focus on its global store,
which allows Chinese consumers to buy products from countries
including the U.S. and the U.K. That is an area where it can likely
gain a better foothold because of its reputation as a place to buy
authentic Western goods.
"They've dialed back their strategy and expectations from trying
to compete as a mainstream online retailer," Mr. Sebastian
said.
Write to Liza Lin at Liza.Lin@wsj.com and Laura Stevens at
laura.stevens@wsj.com
(END) Dow Jones Newswires
August 27, 2017 08:14 ET (12:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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