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The Chinese Are Coming to Eat Your Ecommerce Lunch in 2018 – Here’s How They’re Doing It

In 2016 I wrote a post, The Chinese Are Coming – More and More Chinese Are Selling Direct to Consumers. The post detailed how more and more Chinese are now selling on Amazon and other ecommerce platforms.

Well, in 2017 the Chinese have officially arrived at the ecommerce walls of America. Some estimates put the total Amazon.com market share from Chinese Sellers as high as 25% and this number is only likely to rise. The worst of it is that many Chinese sellers have advantages and tools at their disposal that local sellers may not.

Here’s a summary of some of the ways Chinese sellers are using to get ahead of your ecommerce business and what you can do about it.

Amazon Doesn’t Want Your Private Label Business – They Want Your Factory’s Business

Most sellers think that Amazon only cares about consumers and not about sellers. This isn’t true. They care about sellers, just as long as they’re Chinese.

Two cases in point:

Amazon has been teasing that they will be offering end to end freight solutions from China direct to FBA for sellers in the near future. Sounds great right? Well, again, guess what? Amazon has been offering this to Chinese sellers since 2015. Not only do Chinese sellers get  reliable, quick, and cheap sea freight from China direct to FBA they also get the benefit of only shipping into one fulfillment center (called Lock FC) without any inventory placement fees. For a 5 lbs item, the Chinese get a $0.70 break from Amazon on Inventory Placement Fees.

Chinese sellers get lots of advantages from Amazon, including access to global logistics.

Chinese sellers get lots of advantages from Amazon, including access to global logistics.

Amazon hosted its first ever conference in New York this year, the Boost Conference. Fabulous, right? Well guess what – Amazon has been hosting a seller focused conference in Hangzhou, China for multiple years now.

It might be a little reactive to say that Amazon only cares about Chinese sellers but there’s no denying that they are a very big focus of Amazon.

Chinese Sellers Have Way More Resources Then You’ll Ever Have

The good news about competing with Chinese sellers is that they are from a developing country and can’t quite grasp all the nuances of selling in America, right? Not in today’s world.

When I talk to my Chinese suppliers I am absolutely astonished to find out how much they know about selling on Amazon and ecommerce in general. They know about Amazon Super URLs, back-end keywords, sponsored ads, etc. Zack Franklin, who worked for one of the largest ecommerce companies in China and who I had the good fortune to meet and chat with last month, had a spine-numbing summary of the resources at the disposal of Chinese sellers in a recent interview with Global Sources.

I think Americans are really unaware of the resources that Chinese sellers have and the ecosystem for cross-border e-commerce here. For example, there are all of these different industrial parks that are only for Amazon. All of these individual sellers want to launch their dream go to these coworking spaces just for Amazon sellers. When they’re there, they have lectures and talks every week. You have tons of different professional sellers coming in with services and consultations and help. You even have coworking programs where sellers will come in and oversee training for 90 days, six months or one year. You’ll have professional people looking over your listings all the time. They get bulk discounts on services. There are probably about once a week massive conventions for these Amazon sellers. My company alone is doing more than 60 events this year for Amazon sellers.

Whereas Chinese sellers seem to be being given every leg up from their local governments, U.S. sellers seem to be being crippled from theirs, with everything from the de minimis increase to $800 last year and USPS’ e-packet postal rates.

Chinese Sellers are More Apt to Bend the Rules

The first time a friend showed me a spreadsheet from his company (a Chinese run pet supply company) of their half dozen Amazon Seller Central accounts I realized Chinese sellers are a little bit more inclined to bend the rules.

On the most innocent side of the spectrum, many Chinese sellers are simply willing to take more risks on Amazon. They’ll operate multiple accounts, have TOS violating pictures, and don’t even get me started on reviews. The truth of it is, Western sellers are often overly paranoid about having their account permanently suspended by Amazon.

Somewhere in the middle of the severity spectrum, Chinese sellers also often take a much more laisez-faire attitude towards intellectual property. Most Chinese sellers get that you can’t call a cell phone an iPhone simply because it is white and has a picture of a fruit on it, but many don’t quite understand how many benign items, like a baby bathtub for the sink, can have a patent.

On a more serious end, many Chinese sellers either deliberately or undeliberately do not give as much attention to consumer safety standards as Westerners. There’s a cultural component to this but also a monetary component – it’s a lot easier to sue an American in America than a Chinese person or organization. The same can be said about taxes, specifically sales tax. Western sellers have a higher cost to pay to ensure their products are safe for consumers, both via research and development costs, along with insurance costs.

As Lance Armstrong will tell you, if you compete in a world of cheaters, its hard to win without cheating yourself.

Chinese Sellers Are Hustling Better

As I am trying to relaunch a $1million brand, I am continuously amazed how GOOD Chinese competitors are playing their game. It’s convenient to simply say that Chinese sellers are bending the rules and therefore beating us, but let’s face it, many Chinese sellers are beating us by playing a better game. Some of the tactics I see being regularly employed by Chinese Sellers include:

  • Product photography that uses infographics, product-use underlays, lifestyle shots, etc
  • Sellers who are driving traffic to their listings off of Amazon (i.e. Facebook, Google, ‘review sites’, etc)
  • Products that are consistently bundled with high perceived value items

Let’s face it- importing a product from China, writing a description and bullet points (albeit in perfect English), and snapping some photos with your iPhone aren’t going to cut it any more. To succeed, Western sellers need to increase their sophistication in marketing tactics.

What Can You Do?

The real advantage of Chinese sellers is not the fact they get lower prices. A recent survey by Payoneer revealed over 50% of Chinese sellers were sourcing their inventory from similar places we do, like AliExpress. The truth is that product costs are actually only one part of the very large cost equation for ecommerce sellers. If you buy a widget for $10 and a Chinese seller buys it for $9 that 10% savings probably isn’t going to be the deciding factor in that seller winning the race. The biggest challenge is the fact that there’s now a country of 1.5 billion Chinese with many citizens eager to compete in an already competitive marketplace. What you need to do to protect your business from Chinese sellers is more or less the same as what you need to do to protect yourself from American sellers.

How Chinese sellers acquire their inventory, source Payoneer.

Here’s a summary of some of those things:

  • Build more defensible products. IP (specifically patents) are great but there are other simpler ways to build defensible products.
  • Avoid looking for “China arbitrage”, i.e. items you can buy cheap on Alibaba without any differentiation and sell for high on Amazon
  • Expand into international market places such as the EU, UK, Canada, and beyond
  • Expand your product line – don’t be at the mercy of one or two high performing products
  • Find ways to either drive outside traffic to your Amazon listings (i.e. your own email list, Facebook ads, your website) or drive traffic to your own website

Conclusion

Amazon.com is a truly global marketplace open to all sellers. Not only will Western sellers be competing with hordes of Chinese sellers with more direct and easier access to Chinese supply chains, I suspect soon we’ll be competing with even more other nationalities who are content with lower profit margins and wages than we may be. The onus is on everyone to evolve into more sophisticated products and more sophisticated marketing tactics. The same tactics from 2015 are likely to fail today.

Have you seen an impact from Chinese sellers? What are you doing to defend against them? Share your comments and thoughts below.

 

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