Temu and Shein, two discount shopping apps, have gained traction in the U.S. through aggressive online marketing and offering low-cost products directly from China. Their success, along with TikTok Shop from ByteDance, presents fresh competition for established U.S. e-commerce giants like Amazon, eBay, and Etsy. Industry experts attribute part of their growth to a trade loophole, the de minimis exception, which allows packages valued under $800 to enter the U.S. duty-free. Amazon’s top public policy executive, David Zapolsky, described this trend as “concerning” and suggested that global regulators should examine the business models of these Chinese companies, particularly regarding pricing rules.
U.S. Tech Giants Brace for Impact as Chinese Rivals Enter Market with Competitive Prices
The impact of Temu and Shein is expected to be a focal point during this week’s tech earnings reports, with Amazon, Meta, eBay, and Etsy providing updates. Investors are keenly observing whether these platforms are affecting U.S. e-commerce and how their substantial ad spending has influenced Meta’s recent expansion. Notably, Temu and Shein’s rise has prompted discussions on the sustainability of their business models, given their reliance on direct-from-factory sales and slower shipping options to keep prices low.
Last week’s earnings reports from tech companies like Alphabet and Tesla highlighted concerns in the sector, with Alphabet missing YouTube ad sales estimates and Tesla experiencing a significant drop in shares. This week, other tech giants, including Apple, Microsoft, Intel, Qualcomm, Block, and Snap, will release their results, with Amazon’s report particularly anticipated. Amazon is projected to show 11% revenue growth, reaching $148.6 billion, though net income is expected to rise 63% year-over-year due to significant cost-cutting measures.
Temu and Shein’s market strategies, including bypassing intermediaries and leveraging the de minimis exemption, have enabled them to offer competitive prices and gain market share in the U.S. Temu, owned by PDD Holdings, launched in the U.S. in 2022, and Shein entered the market in 2017. Both companies have heavily invested in marketing, with Temu’s “Shop like a billionaire” campaign gaining particular visibility during the Super Bowl. However, there are signs that Temu might be reducing its ad spending, focusing more on retaining existing customers rather than acquiring new ones, as noted by Barclays analysts.
Meta, facing its challenges, reported a deceleration in ad revenue growth, partly influenced by a potential slowdown in ad spending from Chinese advertisers like Temu. Meanwhile, eBay and Etsy have downplayed the threat from Chinese competitors, emphasizing their unique product offerings. The Bank of America analysts suggested that Amazon and Walmart are relatively insulated from this competition, citing the slower shipping speeds of Chinese platforms as a limiting factor.
Amazon continues to dominate the U.S. e-commerce market, expected to account for 40% of sales this year. However, the company is not complacent; it is reportedly planning to launch a discount store featuring low-priced, unbranded items, potentially leveraging the same de minimis rule utilized by Temu and Shein. Zapolsky noted that while Amazon hasn’t taken a position on regulating de minimis shipments, the company remains focused on winning over consumers with quality and price.
Featured Image courtesy of Tech Wire Asia
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