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Push to sell essentials counters Temu, Shein low-cost

strategy

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CFO: Essentials drive bigger baskets, more frequent

shopping

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Local warehouses, cost cuts offset lower average selling

prices

By Arriana McLymore and Ananya Mariam Rajesh

Oct 31 (Reuters) - Amazon's ( AMZN ) push to offer more

everyday essentials like toothpaste is hurting its average

selling prices, but it is also a guard against rivals such as

Temu and Shein who offer rock bottom prices on goods they ship

from China.

People are shopping more frequently at Amazon ( AMZN ), adding more

low-priced items with each checkout, Amazon ( AMZN ) said on Thursday,

after it reported third-quarter revenue and profit that beat

Wall Street expectations.

The e-commerce giant has seen its market share erode in

apparel as Shein and Temu quickly expanded in international

markets with $12 dresses and $10 gadgets. But offering a variety

of everyday products like dish detergent and floss is helping

Amazon ( AMZN ).

"The strength in everyday essentials revenue is a positive

indicator that customers are turning to us for more of their

daily needs," said Amazon's ( AMZN ) Chief Financial Officer Brian

Olsavsky. "We see that when customers purchase these types of

items from us, they build bigger baskets, shop more frequently

and spend more on Amazon ( AMZN )."

In August, Amazon ( AMZN ) CEO Andy Jassy said average selling prices

were falling because customers were trading down to cheaper

items and buying more essential goods, and that sales of bigger

ticket items like computers and electronics were growing "more

slowly" than in a robust economy.

John Belton, portfolio manager at Gabelli Funds which owns

Amazon ( AMZN ) shares, said that he is expecting more pressure on

Amazon's ( AMZN ) selling prices in the fourth quarter because of the

company's mix of products.

LOCAL WAREHOUSE STRONGHOLD

To offset the impact of lower average selling prices, Amazon ( AMZN )

is relying on its deep network of local warehouses that allows

it to ship quickly.

It's "pretty easy to choose to supply" lower average selling

price (ASP) merchandise, but much harder to be able to afford to

supply them, Jassy said on Thursday.

"One of the reasons that we have been so maniacal about

cost-to-serve over the last few years is that as we're able to

take our cost-to-serve down, it just opens up the aperture for

more items, particularly lower ASP items that we're able to

supply in an economic way," he said.

Shein is trying to ramp up selling everyday products too.

Earlier this year, it began courting skincare and personal

care brands such as Colgate-Palmolive ( CL ) to sell more

household names on the platform. It launched a third party

marketplace in 2023 to expand its product selection to include

beauty and personal care products, household items and

furniture.

But companies such as Shein would be less successful in

expanding to day-to-day products, said Gil Luria, head of

technology research at D.A. Davidson.

Shein and Temu have specialized in offering dresses,

accessories and gadgets "that the consumer is less

time-sensitive about," he said.

"They're not in the U.S., so they can't get me toothpaste

quickly," Luria said, adding that any market for shipping

essentials from China is likely to be a small one.

Amazon ( AMZN ) is also facing competition from rivals at home.

Walmart ( WMT ), the world's biggest supermarket chain, and

smaller retailer Target ( TGT ) have both slashed prices on

essentials in a race to the bottom as they each try to woo

inflation-wary shoppers.

Walmart ( WMT ), scheduled to report third-quarter results on Nov.

19, is expected to post a 4% rise in revenue, according to

analysts polled by LSEG, a slightly slower pace of growth than

in the second quarter.

Amazon ( AMZN ) on Thursday reported a 7% improvement in retail sales

in the third quarter. In the second quarter, its retail sales

had risen 5%.

The operating margin for Amazon's ( AMZN ) international business

jumped to 3.6% in the third quarter from 0.9% in the second

quarter. Its North America margin ticked up to 5.9% from 5.6% in

the previous quarter.