Hou Yanting

The global e-commerce market has passed its high-growth era, and cross-border e-commerce is no exception. According to media reports, on January 4 (Beijing time January 5), Amazon CEO Andy Jassy issued an all-staff memo announcing that the layoff plan initiated in November 2022 would result in a total of over 18,000 job cuts. This will be the largest layoff in a major tech company to date. Behind Amazon's big crisis, in 2022, the cross-border e-commerce industry experienced a "survival of the fittest" reshuffle. The "brutal" growth of the past two years is gone; sellers who couldn't survive the cold winter eventually left, while those who seized opportunities expanded quietly.

From 2021 to 2022, from the global COVID-19 pandemic to global inflation, the world situation changed dramatically, and the cross-border e-commerce industry experienced both explosive growth and setbacks. Many cross-border e-commerce companies went bankrupt or laid off employees on a large scale. For example, Sihai Shangzhou, a comprehensive cross-border e-commerce service provider established over 10 years ago, announced that it would "cease operations and enter liquidation proceedings" on December 15, 2022.

Rosen entered the Amazon business in March 2021, starting from scratch to learn the full-chain operation of cross-border e-commerce stores. But after more than a year, she was still earning a very low salary and saw no hope of profitability for the company. "From entry to career change," in the second half of 2022, she chose to become a data analyst at a domestic e-commerce company.

In fact, with the rapid development of the cross-border e-commerce market, competition among merchants has become increasingly fierce. On major cross-border e-commerce platforms, top sellers are getting bigger, while mid- and bottom-tier sellers find it harder to get traffic, and order volumes decline year by year.

According to a report by China Commercial Industry Research Institute, the penetration rate of cross-border e-commerce in China's total import and export trade has been increasing year by year. Data shows that the penetration rate of cross-border e-commerce in China's foreign trade increased from 28% in 2016 to 39% in 2020. It is expected that cross-border e-commerce will play an increasingly important role in China's import and export trade in the future, with the penetration rate reaching 42% in 2022.

Image/2016-2022 China cross-border e-commerce foreign trade penetration rate forecast trend chart

Amazon seller Bai Xiaosheng, with a team of 10 people, had a rough first half of 2022, but from July onwards, sales of home goods, apparel, and other categories saw growth. In 2022, the company achieved sales of over 80 million yuan, with December alone selling 12 million yuan.

"The goal for 2023 is to triple (sales) and achieve 150 million yuan in performance. We will expand our personnel and team, expand the product supply chain, and expand stores," Bai Xiaosheng told Ranciyuan.

Shopee seller and Zhihu blogger @Heheguan started doing cross-border e-commerce "single-handedly" in October 2020. After experiencing being "harvested" by training institutions and delays in shipping by freight forwarders, his Shopee store had stable orders in 2021 but struggled to profit. In 2022, he began to transform, reducing products and pursuing profit. Although order volume declined, profitability improved.

"I think 2023 will definitely be better than 2022." Since epidemic prevention and control measures have been relaxed in China and globally, and logistics are becoming smoother, Heheguan believes that mature sellers doing cross-border e-commerce, as long as they choose products well, will have opportunities to earn more money.

After three years of ups and downs, cross-border e-commerce has gradually reached its peak and will enter a period of stability. Compliant operations, pursuit of profitability, and brand globalization will be key to the sustainable development of the cross-border e-commerce industry in 2023.

Amazon: Survival of the Fittest in the European and American "Jungle"

Rosen, based in Guangzhou, joined a friend's Amazon e-commerce startup team in March 2021. She independently operated Amazon stores, selling home category products, from the US site to the European sites, and single-handedly brought the department's stores to profitability.

Spanning two years, the US site remained unsatisfactory, with unstable profitability. "The hardest point is shipping. In 2020, too many merchants entered the Amazon US market. Starting in 2021, US ports were congested, and shipments that used to take a month took three to four months to arrive, causing store stockouts. Once out of stock, the store's weight drops, sales decrease, and you have to increase advertising and lower prices to boost sales, making profits even more unstable."

Rosen told Ranciyuan that this situation continued into 2022. Due to severe logistics delays, sales were unstable, leading to inventory backlogs, and the entire chain spiraled out of control. The payment cycle also extended from two to three months to six months, affecting the company's cash flow.

Ranciyuan learned that the Port of Los Angeles and Long Beach, the largest in the US, set their busiest record in June 2022, while on the East Coast, June 2022 was also the second busiest month on record for the Port of New York and New Jersey, second only to March 2022. Since the beginning of 2022, the port's throughput has increased by about 10%, and by more than a third compared to pre-pandemic levels.

In addition, Rosen mentioned Amazon's inventory storage restriction system. Amazon sets an Inventory Performance Index (IPI) to evaluate sellers' sales and inbound volume. "From April 2021 to now, Amazon's storage capacity has been reduced again and again, and excess goods can only be quickly sold at low prices." Once prices are reduced for promotions, the market becomes disordered.

However, relatively speaking, Rosen pointed out that the situation in 2022 improved compared to 2021, and the fierce competition of malicious price cuts has gradually decreased. "Basically, those who couldn't continue have been eliminated. In 2022, merchants were much more rational because they couldn't keep competing. Amazon raised FBA delivery fees, advertising fees, and storage fees, so no one could keep lowering prices; instead, they raised prices."

Rosen said that compared to the US, Amazon's European sites are easier to operate. She started operating a European site store at the end of 2021, and it became profitable in the second week. Within a month, sales reached the third place in the category, with daily sales of several thousand dollars. In 2022, the European site could earn $2,000 a week. "Europe has various policies and tax laws that are troublesome, and many sellers are unwilling to enter the European market. Plus, the market is relatively small, so orders can't compare to the US."

In fact, after the store closure wave in May 2021, Amazon's rules prohibiting review manipulation and infringement remain strict. Since 2022, Amazon merchants who survived the crisis must accept a "steady and steady" approach and return to rational operations.

Without the ability to manipulate reviews, it has become harder to "create bestsellers" on Amazon. Previously, a bestseller might emerge in a month, but now it takes at least half a year of "grinding," relying more on "luck," and costs have increased significantly.

Image/Amazon official website homepage

Rosen said, "The difficulty in 2022 is definitely not making money." Now, to do well on Amazon, you need to select products that fit the market, do solid on-site operations, and hope the product goes viral. "To sustain profitability, you need to develop new products while ensuring supply of old ones. But with a poor market environment, bosses won't easily increase investment because no matter how senior the seller, no one can guarantee that a new product will make money."

Under such circumstances, in 2022, Rosen also changed her operating model. She no longer stocked a large number of products as in 2021, but reduced products to seek profitability. "If the market environment is good, we invest to increase sales, then raise prices after sales increase, and profits come quickly. But when the market is bad, we have to shrink the product (scale) and focus on maintaining profits."

In 2022, Rosen's department could achieve daily sales of $15,000, but the profitability situation was unclear, and they could only rely on two or three profitable stores to break even. After more than a year, she was earning a low salary and often worked overtime on holidays. This job did not bring her satisfaction or a sense of achievement. In August 2022, she chose to resign and quickly switched careers to a job with double the salary.

"In 2022, more Amazon merchants exited than entered. In 2021, losses were too severe. In 2022, they slowly cleared inventory, and when they ran out of money, they had to leave," Rosen said.

Bai Xiaosheng's team in Shenzhen has been doing Amazon since 2019. In the 2021 store closure wave, they were less affected. Although performance declined, it was enough to survive the winter.

Bai Xiaosheng told Ranciyuan that in the first half of 2022, many large Amazon sellers conducted large-scale layoffs, and some mid-sized companies also went bankrupt. "In 2021, many big sellers' stores were closed, so performance couldn't rise, and they couldn't afford to keep so many employees. In the first half of the year, it was relatively difficult for Amazon cross-border sellers." He recalled that a data cable seller who had been in the industry for many years, with a company of over a thousand people, couldn't even afford tens of thousands of yuan in rent.

Bai Xiaosheng pointed out that starting in July 2022, Amazon entered the peak season, and some categories such as home goods saw sales growth of 3-5 times compared to 2021. But some categories performed poorly, such as outdoor sports products, with sales possibly down 60-90% from 2021.

In 2021, Bai Xiaosheng's team had already achieved performance of over 10 million yuan. In the 2022 peak season, they had funds to operate more new products, and performance exploded. "We introduced talent, established a talent development system, improved performance, activated talent motivation, optimized processes, and standardized product development. This allowed us to develop some bestsellers and improve performance."

Tiktok and Shopee: Seeking Profit in Southeast Asia

In October 2021, Wei Wanru returned from studying in the US and briefly worked at a Douyin short video company in Shenzhen and a cross-border e-commerce industrial park. In May 2022, optimistic about Tiktok e-commerce prospects, she resigned from the company and formed a team with two or three friends to start Tiktok live-streaming sales.

In the first two months, Wei Wanru tried Tiktok live-streaming sales in the UK and the US, but like all merchants trying Tiktok's UK store, they got very few orders, "couldn't make money," and struggled to support the team. "Each live stream lasted two hours and could only sell about 100 pounds, with very low profit," she said. Meanwhile, the US Tiktok did not yet have a full-chain "little yellow cart," so they could only divert traffic to private domain transactions.

At that time, by chance, Wei Wanru's team met an investor, a cross-border e-commerce company mainly doing Shopee in the Southeast Asian market. The team joined this company to open up the Tiktok e-commerce Southeast Asian market for it.

Ranciyuan learned that in April 2022, in addition to the Indonesia and UK sites, Tiktok e-commerce launched store features in Thailand, Vietnam, Malaysia, and the Philippines.

In May 2022, Wei Wanru's team started doing Tiktok Indonesia store. Due to language limitations, they couldn't do live-streaming sales, so they directly created original short video Tiktok accounts.

Whether a short video goes viral is a probability event. When entering a market, Wei Wanru's team would batch-create 10-20 accounts, post content daily, and invest in in-platform traffic, then select those with good traffic performance for long-term incubation.

"Product selection is very important. Products with market demand tend to have better video effects and are more likely to go viral," Wei Wanru told Ranciyuan. The Indonesia store started officially getting orders in June and July, and after stabilizing, it could achieve over a thousand orders per day.

Wei Wanru explained that they do beauty products and create short video content based on Southeast Asian local weather, culture, etc., such as emphasizing oil control, sun protection, and whitening products.

Subsequently, Wei Wanru's team also incubated accounts for the Thailand store. When promoting a men's care product, they targeted the local youth's preference for Boys' Love culture and output relevant original content. The account gained followers quickly, accumulating tens of thousands of fans, and became the team's best-performing account.

But cross-border e-commerce is not easy, and neither is the Tiktok Indonesia market. Due to policy reasons, the Indonesian market cannot do cross-border stores; only local stores are allowed. Cross-border sellers need to stock goods in local warehouses in advance to sell. "Indonesia's e-commerce is developing rapidly, but policies are unfavorable to outsiders. Local stocking is a big risk in the Indonesian market."

"At that time, we expected goods to arrive in a month and started selling. Unexpectedly, customs inspection delayed us for a few days, and buyers gave us negative reviews. Once negative reviews are posted, the store's score drops, and it's hard to pull it back up. Store traffic will also be affected," Wei Wanru said.

Compared to Europe and the US, the Southeast Asian market has lower profit margins and follows a "small profits, quick turnover" route. If sales don't increase, it's hard to make money. Despite having supply chain resources from the cross-border e-commerce company, the team found it difficult to achieve good profitability. Wei Wanru analyzed, "Our team of 4 people, even if we get 1,000 orders a day, (the profit) is only enough to support the team, just enough to pay these people's salaries."

By October 2022, due to disagreements with the investor's boss, Wei Wanru chose to leave the team. Now, she is cooperating with a company that exports industrial products, leading an internal team to build Tiktok e-commerce overseas channels.

In the Southeast Asian market, Tiktok e-commerce is just starting, but e-commerce giant Shopee began transforming in 2022. Continuous losses caused the stock price of listed company Sea to fall, and its key e-commerce platform Shopee had to adjust.

Heheguan originally ran a 711 store (franchise) under an office building in Beijing. When the epidemic hit, he closed the store in June 2020. While scrolling Douyin at home, he discovered Shopee, "and thus entered the cross-border e-commerce (industry)."

Full of longing for Shopee cross-border e-commerce, in October 2020, he spent 3,890 yuan to find an online "teacher" and started learning while operating a Shopee store, selling women's clothing and office supplies.

In December 2020, Heheguan's store began to get stable orders. By January 2021, he sold 118 orders and passed Shopee's new seller review. Initially, he opened a Malaysia store, and since then has opened stores in the Philippines, Thailand, Taiwan, Singapore, and Vietnam.

Similar to many initial cross-border e-commerce stores, in 2021, Heheguan was in a product-listing mode, with daily sales of 40-50 orders and daily sales of 3,000-5,000 yuan, but average profitability.

Heheguan operates as a solo Shopee merchant, contacting suppliers to produce goods, and cooperating freight forwarders handle logistics. In 2021, he encountered many unreliable freight forwarders who didn't handle goods in time or ship to Shopee warehouses on time, leading to order cancellations, a drop in order completion rate, points deductions, and decreased traffic.

After communicating with many peers, Heheguan found a reliable freight forwarder in 2022 and figured out some logic for Shopee product selection. That year, he transformed by raising product prices and reducing slow-selling products, and profits increased compared to 2021.

"In 2022, the platform rules changed. If I hadn't transformed, profits would definitely have declined," Heheguan told Ranciyuan. During various promotions in 2022, order volume was "far worse" than in 2021. For example, "Double 11" orders halved. "Many peers around me saw their order volumes decline."

Heheguan also encountered logistics difficulties in 2022. Due to repeated domestic epidemics, logistics were intermittent. When goods couldn't be shipped, the store's natural traffic was affected, which was also one reason for the decline in order volume.

Cross-Border E-Commerce Evolution: Platforms Go Down, Brands Go Up

Since 2022, amid the global economic recession, e-commerce giants have not been spared.

This year, Amazon "went through tribulations." According to public information, Amazon's market value shrank from $1.7 trillion at the beginning of 2022 to $857.5 billion on the last working day of the year, a total decline of 51%, losing $842.5 billion.

Amazon's Q3 FY2022 earnings report showed net income of $2.872 billion, down 9% year-over-year; diluted earnings per share were $0.28, compared to $0.31 in the same period last year.

To be profitable, Amazon took many measures against merchants in 2022. Ranciyuan learned that in 2022, Amazon adjusted FBA delivery fees multiple times, charged additional peak season delivery fees, and overall increased them by about 30%. In addition, Amazon also raised storage fees in 2022 and adjusted policies multiple times to limit storage capacity.

In such a scenario, only some Chinese cross-border sellers survived. As the merchants above shared, startups are limited by cost pressures and find it hard to create bestsellers on Amazon and achieve profitability. Large sellers who have been in the industry for years, if they have financial strength and invest in development, may see performance explode. But if the company is too large, constrained by human efficiency, and cash flow falls into crisis, they can only go bankrupt.

Earlier than Amazon, after successively closing sites in France, India, and Spain, Southeast Asian e-commerce giant Shopee began layoffs in June 2022, "optimizing" related teams. In August and September 2022, it laid off employees again, involving teams in Singapore and Shenzhen, on a considerable scale.

No longer pursuing growth but focusing on efficiency and economic benefits is Shopee's strategy since 2022. In practice, besides layoffs, Shopee no longer blindly subsidizes sellers and buyers. For example, it added multiple fee items for sellers (such as a 3,000 yuan store deposit) and reduced benefits for buyers such as free shipping and coupons.

"Shopee is getting harder year by year. Capital-backed top sellers are becoming more mature, and more and more local stores with local warehouses are squeezing the living space of cross-border individual sellers," Heheguan admitted. Now Shopee sellers must run ads to ensure traffic and sales. "For example, now that the New Year is approaching, I turned off ads for two weeks, and order volume dropped significantly."

In contrast, Tiktok accelerated its e-commerce exploration in 2022. After an unsuccessful trial in the UK and European markets in 2021, it decisively opened up the Southeast Asian market in 2022, launching store features in major countries.

However, in Europe and the US, there is the strong competitor Amazon, and in Southeast Asia, there is the giant Shopee. Tiktok has a wide user base and strong traffic, but when it comes to e-commerce, it is still in the "entry" stage.

TikTok e-commerce wants to scale up and catch up with leading platforms. According to Bloomberg, in 2022, TikTok e-commerce's GMV target was $2 billion, and by 2023, the annual GMV target is to reach $23 billion.

"After my exploration, I found that Tiktok is a very good traffic portal, but without a mature cross-border e-commerce foundation, it's hard to make money relying on Tiktok alone," Wei Wanru concluded. The trend for cross-border e-commerce is positive, but current Tiktok e-commerce does not yet have scale effects. "It's said that Tiktok is now like Douyin in 2015 or 2016, but is Douyin e-commerce very successful now? If current Douyin e-commerce isn't mature, then Tiktok e-commerce will find it hard to develop to an ideal state in the future."

Like all e-commerce platforms, the just-starting Tiktok e-commerce is also a wild west, full of low-price and homogeneous competition. Wei Wanru believes that to do well in Tiktok e-commerce, you need to build a brand. "Only brands are the most competitive and have the most room for premium pricing." She cited an example: in Indonesia, a regular foundation can sell for at most 30,000 Indonesian rupiah (about 13 yuan), while a branded foundation can have a market even at 300,000 rupiah.

Throughout the Chinese cross-border e-commerce industry's exploration in recent years, the advantages of brand globalization are obvious, with SHEIN being a representative. By building a mature supply chain and targeting Gen Z's fashion social media marketing, SHEIN has changed the attitude of young Europeans and Americans towards Chinese products and quickly captured the market.

According to a report by Amazon, in the first half of 2022, SHEIN's app downloads in the US surpassed Amazon for the first time, reaching 22 million. According to Reuters, in 2021, SHEIN's sales were approximately $15.7 billion, up nearly 60% from $10 billion the previous year.

Now, Pinduoduo's Temu, which imitates SHEIN, is also making a name in the US. In September 2022, Temu launched in the US, and within just four to five months, its downloads ranked first in the US App Store shopping category.

Cross-border e-commerce giants are also gradually realizing the importance of brand globalization. Ranciyuan learned that AliExpress launched the AE Mall feature in August 2022, similar to Tmall flagship stores, mainly for domestic brands to enter.

At the same time, according to exclusive information from Ranciyuan, some AliExpress merchants pointed out that AliExpress is imitating SHEIN by launching "full custody" and self-operated store features. Invited merchants will transform into suppliers, with AliExpress handling brand operations. This feature is still in a three-month testing period.

The three-year high-growth period of global e-commerce has quietly passed. Market research firm Insider Intelligence predicts that global e-commerce sales will grow by 9.7% in 2022, the lowest growth rate since 2011.

However, as the shadow of the COVID-19 pandemic dissipates and China relaxes border restrictions, the cross-border e-commerce industry will see new developments in 2023. Cross-border sellers who embrace compliant operations and explore brand globalization may usher in new opportunities.

References:

"2022 China Cross-Border E-Commerce Industry Market Prospects and Investment Research Report," source: China Commercial Industry Research Institute.

*The title image and some in-text images are sourced from Visual China.

*Rosen and Heheguan in the text are pseudonyms.

*Disclaimer: Under no circumstances does the information or opinions expressed in this article constitute investment advice to anyone.