The ecommerce landscape is witnessing a colossal clash for supremacy in the US, as two emerging Chinese ecommerce behemoths, Shein and Temu, lock horns in an escalating rivalry that is shaping the future of online shopping in the United States and beyond.
Shein, a seasoned player has been a dominant force in the fashion sector, known for its trendy offerings, aggressive promotions, flash sales, and incentives and a real knowledge of the influencer arena, is emerging as a formidable competitor to Amazon. Temu, although a relative newcomer, has rapidly gained ground, challenging the status quo with lower prices and a broader inventory beyond fashion and beauty, focusing more on home and décor products.
Both Temu and Shein are highly valued companies with the former valued at over $100 billion and the latter is unofficially valued at $64 billion. This provides both with plenty of capital to pursue their ambitions and is forcing Amazon shifted its strategy. For example, Amazon recently lowered its fees charged for clothing sold on its platform priced below $20, according to Bloomberg. Whereas Amazon previously demanded commissions of 17%, that figure has now been reduced to between 5% and 10%.
A legal war
As The Verge points out, both Chinese giants have collided on the legal arena. In a recent legal move, the online retail platform Temu initiated a lawsuit against the fast fashion retailer Shein. Temu alleges that Shein has engaged in coercive practices that infringe upon the rights of manufacturers and merchants. According to the lawsuit, Shein has been forcefully interfering with Temu’s operations by pressuring merchants who sell on both platforms, wrongfully claiming copyright, and confining Shein merchants to its platform by intimidating them into not collaborating with Temu.
The ongoing legal battle is not the first encounter between these two ecommerce giants. Shein had previously claimed that Temu was behind a campaign of misleading endorsements through influencers. These earlier legal confrontations were resolved after both parties agreed to drop the cases in October.
The lawsuits shed light on the inner workings of Temu’s business, highlighting the sheer volume of activity on its site, with over 100,000 product images being uploaded daily and an average of 170 copyright takedown notices received each day, the majority purportedly from Shein.
The timing of this lawsuit is particularly notable as Shein is gearing up for a potential public offering in the United States, anticipated to occur in 2024. Shein has faced several controversies over the years regarding its labor practices and allegations of copying designs from smaller businesses. In response to some of these criticisms, Shein announced a $15 million commitment in 2022 to enhance factory standards following reports of labor violations. The company has also been actively engaging with U.S. consumers through various events to foster transparency and address concerns directly.
Temu, a meteoric rise in ecommerce
Temu’s entrance into the US market has been nothing short of meteoric. From zero by September 2022 to 44.5 million unique visitors by December 2022, its growth trajectory has set new records in the industry. The surge in traffic and a user base that has already surpassed 100 million active users globally as of April 2023 reflects a strategic masterstroke in market penetration.
As an ecommerce aggregator, Temu operates a business model that aligns with giants like AliExpress and Walmart, but with a deeper focus on delivering affordable goods to a wide audience. This strategy has not only helped Temu quickly snatch nearly 17% of the discount store market share in the US but also to drive strong revenue growth for its parent company, PDD Holdings, which momentarily surpassed Alibaba in market value.
Strategic advertising and market disruption
Temu’s aggressive marketing strategy has been a key component of its explosive growth. With a global advertising budget of over $956.2 million in 2023, up from $140 million in the previous year, Temu is betting big on boosting its brand. This substantial investment in marketing has undoubtedly contributed to its app becoming one of the most downloaded in the US, with sales surpassing Shein in the US by 20% in May.
This significant ad spend reflects a confident yet costly approach to gaining market share. The sustainability of this strategy is an area of intense speculation. While it has propelled Temu to the forefront of consumer consciousness, the long-term viability of such heavy financial outlays remains to be seen.
Implications for the ecommerce landscape
Temu’s strategy challenges the status quo in ecommerce. By offering products at prices significantly lower than similar items on Amazon and other stores, it compels industry leaders to re-evaluate their pricing strategies and market approaches. This has the potential to trigger a pricing war that could benefit consumers but also squeeze margins across the board. In addition, these aggressive advertising campaigns drive up the advertisement rates for all ecommerce sellers seeking to attract the same audience, including Amazon.
Furthermore, Temu’s rise is a testament to the evolving nature of consumer behavior and the increasing importance of value for money in purchasing decisions. While COVID initially resulted in significant accumulated savings, much has now been expended leading to a heightened awareness and sensitivity to prices among consumers. Temu’s ability to offer an extensive range of low-cost alternatives to popular products means that consumers now have more choices than ever before.
As Temu and Shein continue to establish their foothold in the US market, the impact is expected to ripple across the entire ecommerce landscape. Their presence will likely incite innovation among competitors and may even lead to a redefinition of what it means to be an ecommerce aggregator. Whether or not Temu and Shein can sustainably maintain their growth rate is a question that only time will answer.
Temu and Shein’s entrance into the US market is not just the story of new competitors. It’s a narrative of market disruption, strategic advertising, and the undying quest for consumer loyalty. It’s a reminder of how quickly things can change in ecommerce, even for an entrenched and dominant player like Amazon.com.