Temu, which rapidly expanded overseas with a low-price strategy, has made Amazon feel a strong sense of crisis.Recently, according to multiple media outlets such as The Information, Amazon plans to launch a &#34;discount/low-price store&#34; on its shopping website, specializing in selling inexpensive products directly shipped from Chinese warehouses to overseas consumers. This new section of Amazon will offer private label fashion products, household items, and daily necessities priced below $20, with orders taking 9 to 11 days to reach customers. Amazon informed Chinese sellers at a recent closed-door meeting that it will start signing merchants this summer and begin accepting inventory in the fall.The &#34;low-price track&#34; is becoming a new battlefield in the competition of overseas cross-border e-commerce markets. Ignoring Temu, understanding Temu, becoming Temu, Amazon seems to be on the road of rolling prices without turning back. Can Amazon's move block Temu's expansion and seize the low-price market? Citigroup believes that pricing power and storage costs are key.Temu is a cross-border e-commerce platform under Pinduoduo. Amid the Amazon-Temu battle, Citigroup remains bullish on Pinduoduo, raising its target price to $198, implying a 51% upside potential.<h2>Amazon vs. Temu, Citigroup: Pricing Power and Storage Costs are Key</h2>Citigroup's latest research report on June 27 pointed out that Amazon's low-price store initially offers limited product categories with a cap of $20, so Citigroup believes that in the short term, Amazon's low-price store may not have a significant appeal to American consumers, and the impact on Temu's operations may be minimal.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d1e50f2b-d134-4b5a-a6e7-85dc00ed7091.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d1e50f2b-d134-4b5a-a6e7-85dc00ed7091.png"/>It is introduced that Amazon's low-price store has price limits and weight/size restrictions. For example, the cap for items like screen protectors, keychains, hair clips, makeup brushes is $7, while for items like sweaters, jackets, boots, the cap is $20. Packages must not exceed 1 pound in weight and 14x8x5 inches in size.Amazon's low-price store and Temu platform sell similar product categories and both adopt a &#34;private label low-price&#34; strategy, with platforms responsible for logistics, traffic, and operational processes while sellers are responsible for product selection. However, they differ significantly in pricing power.Temu platform does not charge sellers commissions but has pricing power, while the pricing power of Amazon's low-price store lies with the merchants. Sellers on Amazon's low-price store have the right to select products, set prices, and participate in activities, while the platform handles logistics fulfillment, on-site and off-site advertising, and commission collection.The Citigroup report points out that if Amazon's low-price store succeeds in the future and opens up to other Chinese sellers offering more product categories, it may reduce Temu's attractiveness to sellers, especially those who prefer to retain pricing power rather than being squeezed by Temu.Besides pricing power, warehousing costs are also a key factor for sellers to consider. Citigroup believes that Chinese sellers may welcome an alternative e-commerce platform that retains pricing power, selection rights, and saves on cross-border logistics costs.Temu recently launched a semi-warehousing and local warehousing model. Temu has started allowing sellers to store inventory in local warehouses in the United States instead of shipping from China. In contrast, Amazon's Low Price Store ships directly from Chinese warehouses without the need for merchants to ship to FBA warehouses (overseas Amazon warehouses, with Amazon handling subsequent delivery and after-sales service).Citigroup points out that warehouse costs in China will be significantly lower than FBA warehouses, with an expected cost savings of 45%. In terms of saving warehousing costs, Amazon's Low Price Store seems to have the advantage.However, according to Yicai, Amazon has not yet publicly disclosed related preferential policies for &#34;low-priced goods&#34;, and some merchants are still adopting a wait-and-see attitude on whether to join the project. &#34;As merchants, we are concerned about what kind of preferential policies products sold on the Amazon platform in the past will have when they enter the Low Price Store, whether the commission to be paid is lower than before, how marketing costs are accounted for, whether logistics costs are discounted, etc.,&#34; one merchant said.However, merchants of low-priced goods are often quite sensitive to operating costs. &#34;Assuming a product is priced at $10, a commission of 15% would be $1.5, and shipping costs could be $3.5, adding up to 50% of the selling price. If promotional traffic costs account for 15%, then the proportion of production costs to the selling price is very small, and merchants are more concerned about operating costs.&#34; One merchant believes that whether Amazon can successfully attract merchants to join the project still depends on the subsequent release of its fee details.<h2>Citigroup raises Pinduoduo's target price to $198, about 51% upside potential</h2>Temu is a cross-border e-commerce platform under Pinduoduo, and since its launch in the United States in 2022, Temu has been making great strides in overseas markets.Citigroup remains bullish on Pinduoduo. Citigroup has raised Pinduoduo's target price for its US stock to $198, implying about 51% upside potential for the company. Citigroup expects Pinduoduo's P/E ratio to be 0.5 times and a compound annual growth rate of 24% from 2024 to 2026.In addition, Citigroup rates Pinduoduo as &#34;Buy&#34; but &#34;High Risk&#34;. Citigroup's analysis states that Pinduoduo's platform user behavior changes faster than expected, with an increase in user churn rate, a slowdown in user growth momentum; at the same time, industry competition intensifies, putting pressure on Pinduoduo's profit trend.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/151ad893-25a3-4268-8e59-dec38ad29034.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/151ad893-25a3-4268-8e59-dec38ad29034.png"/>Recently, Morgan Stanley analysts, including Eddy Wang, calculated Temu's global expansion potential in their research report.Morgan Stanley pointed out that Temu's global expansion strategy is at a critical stage, with remarkable market potential and profit prospects. The platform is expected to achieve profitability as early as 2025, with significant GMV growth potential, and is expected to reach $130 billion by 2030

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Temu's pricing power and warehousing model are completely different from Amazon's low-price store. Citigroup believes that if Amazon's low-price store succeeds, it may reduce Temu's attractiveness to sellers, especially high-quality sellers who prefer to retain pricing power rather than being squeezed by Temu. However, Citigroup still remains bullish on Pinduoduo, raising its target price to $198, with approximately 51% upside potential

- Amazon plans to launch a "discount/low-price store" selling cheap products directly from Chinese warehouses to overseas consumers, aiming to counter the rapid overseas expansion of Temu, a platform under Pinduoduo. The new Amazon section will offer fashion, home goods, and essentials under $20, with delivery in 9 to 11 days, impacting Temu's operations minimally in the short term, according to Citigroup.
- The battle between Amazon and Temu intensifies as Amazon's low-price store challenges Temu's market share. While Amazon's strategy may reduce Temu's appeal to sellers, especially those valuing pricing autonomy, the success of Amazon's initiative remains to be seen, with a focus on pricing control and warehouse costs highlighted by Citigroup.
- Amazon's low-price store competes with Temu's platform, offering similar white-label low-cost products but differing in pricing control. While Amazon's cost-saving logistics approach may give it an edge, the impact on seller adoption hinges on Amazon's fee structure and operational details, crucial for attracting businesses sensitive to operating costs.

Amazon battles Temu! Citigroup remains bullish on Pinduoduo