Amazon Retreats from Selling Online in China Amid Tough Competition from Alibaba, JD.com
China is proving to be a tough nut to crack. So tough, in fact, that Amazon will reportedly close its e-commerce store there after a prolonged and fruitless attempt to re-create the stunning success it achieved in the U.S., where eMarketer says it commands 47% of all online retail.
Unable to compete directly with Alibaba and JD.com, which together own 74.5% of Chinese e-commerce, Amazon plans to focus on more profitable cloud and web services business on the mainland. It will also still service Kindle customers.
Amazon set July 18 as the target date for when it will discontinue its China store and servicing the third-party merchants who sell on the platform there. Reuters first reported Amazon’s China exit plans.
The news comes after Amazon was in talks to merge its e-commerce operations with Kaola, the online marketplace run by internet services firm NetEase. That was one of the first signals that Amazon’s commitment to operating e-commerce dominated by the Alibaba-JD duopoly could be crumbling. Late last year, reports surfaced of poorly paid Amazon employees in China accepting bribes in exchange for eliminating negative seller reviews.
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Meanwhile, growth in new Prime memberships, long a jewel in Amazon’s crown, seems to be hitting the skids to some degree. Josh Lowitz, partner and co-founder of Chicago’s Consumer Intelligence Research Partners (CIRP), wrote in a statement that though Prime has seemed to decelerate domestically for some time, new numbers cement this conclusion.
“In particular, year-over-year growth has flattened,” Lowitz said in a statement. “After the holidays, the March quarter is typically slow, and this one was worse than past ones. Amazon Prime grew 2% over the December 2018 quarter, similar to the first-quarter increase last year, but year-over-year growth was 11%, down from 16%, from March 2017 to March 2018.”
CIRP based its findings on a survey of 500 people in the U.S. who purchased from Amazon between January and March of this year. Prime members continue to outspend non-members by more than a factor of two, $1,400 to $600, CIRP noted.
“Conversion and retention rates help explain why U.S. Prime membership growth has flattened,” said CIRP partner and co-founder Mike Levin. “Retention after a year has always been high, and at over 95% after two years has been the envy of any company that sells memberships of any sort. But conversion from a 30-day free trial membership has declined, from over 75% at its height to under 65% today.”
Amazon’s 103 million global Prime members provide a steady source of revenue for the company.
“With the Prime members who get the most out of their membership already signed up, new trial members are less likely to convert to paid membership,” Levin continued. “Further, the option to pay for Prime membership on a monthly basis makes it even easier to let a trial membership lapse.”
This story originally appeared on Sourcing Journal.
