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Amazon China Is Bring New Challenge For China Top E-Commerce Business By Operating Amazon Warehouse

|Includes: Amazon.com, Inc. (AMZN)

International business of Amazon

Amazon international took 32.3% of Amazon's overall business in 2016. Their international business comprises of e-commerce export sales to 11 overseas countries, including Germany, India, Japan, China, and the United Kingdom. Although Amazon China is not the largest e-commerce business revenue contributor, Amazon is trying to deepen its China market through building four strategic areas, including e-commerce, Amazon bookstore, Amazon logistics and AWS, according to Amazon China. Now, What is the challenge that Amazon brought to China?

Amazon E-commerce and Amazon warehouse in China

As we know, Chinese e-commerce market has become the largest in the world and from Alibaba released data. According to data released by Alibaba, the Chinese e-commerce market reached $672bn in 2015 and is expected to reach $1.6 trillion in 2018. Although Amazon is trying to increase its e-commerce market share, the market is still leading by the top few domestic players, including the well-known Alibaba and JingDong Mall. At the end of last year, Amazon initiated the prime membership in China for a member fee of 388 yuan per year ($56-$57), offering no minimum free domestic shipping for shopping from Amazon Global. Amazon is building its logistic warehouses in China for the purpose of entering the logistic market as well as serving its e-commerce platform. As of April 2017, Amazon has built 17 logistic centers in China with 7,486,700 active square feet.

Unlike Alibaba's online trading system, where sellers and customers can trade by themselves freely, JingDong Mall secures its customers by providing "JingDong labeled service" with JingDong delivery service, and it gives customers high product quality of domestic and oversea products. Similar to JingDong Mall, Amazon prime allows its Chinese customers access to high quality products with a promised delivery date and reliable return policy, as well as free domestic shipping, which is just like JingDong business model. However, with prime membership, Amazon gave customers much more choice for cross-border e-commerce products, which JingDong could not compete with. According to China Internet Watch, JingDong is taking 22.5% of the B2C online shopping market share in 2015. For a long time JingDong competed with its competitors by using its advanced logistic system to support online retail and minimized costs by controlling inventory turnover days (37.88 days in 2016). Compared to JingDong, Amazon has much higher warehouse management technology and experience, which would better estimate the delivery time and controls the inventory costs and turnover rate. If Amazon could improve domestic delivery over time by well-managing its outsourcing partnership, it is not impossible for Amazon to take significant e-commerce business from JingDong (JingDong online sales is $25bn in 2015), and not to mention the revenue it would bring from its logistics segment serving other businesses.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.