Temu’s Meteoric Rise Challenges E-commerce Giants as Amazon Prepares to Fight Back
In just 17 days after its launch, Temu surpassed established platforms like Instagram, WhatsApp, Snapchat, and Shein on the Apple App Store in the U.S., according to Apptopia data shared with CNBC. This dramatic ascent highlights the growing impact of discount shopping apps from China, fueled by aggressive marketing and exceptionally low prices. Temu and Shein’s success has created a significant challenge for U.S. e-commerce giants like Amazon, eBay, and Etsy, prompting concerns about the future of the industry and the potential vulnerability of American businesses to Chinese competitors.
Key Takeaways:
- Temu and Shein’s rise is linked to a trade loophole: The de minimis exception allows packages under $800 shipped from China to enter the U.S. duty free, enabling these apps to offer products at exceptionally low prices.
- Amazon is fighting back with its own discount store strategy: Realizing the threat posed by Temu and Shein, Amazon plans to launch a discount store featuring unbranded items priced under $20, leveraging the same de minimis rule to compete aggressively.
- Tech earnings this week will be closely watched for insights: Amazon, Meta, eBay, and Etsy will report their second-quarter results, with investors eager to hear discussions about the impact of Chinese competitors on their businesses and ad spending.
- Meta faces potential slowdown in ad revenue growth: Temu’s recent pullback in ad spending could negatively impact Meta’s ad revenue growth, raising concerns about the company’s future performance.
The Rise of Discount Apps: A Trade Loophole Opportunity
Temu and Shein have captured the attention of consumers with their ability to offer incredibly inexpensive goods, from $3 shoes to $15 smartwatches. This success, according to some industry analysts, is largely attributed to a trade loophole known as the de minimis exception. This provision allows for packages shipped from China valued at under $800 to enter the United States duty-free, effectively subsidizing the costs for these platforms.
Amazon’s top public policy executive, David Zapolsky, has expressed concerns about the impact of this loophole, calling it a "concerning trend" that needs closer scrutiny from global regulators. Zapolsky argues that the business models of some Chinese companies might be "subsidized" due to the lack of enforcement of regulations related to pricing and sales practices.
Amazon’s Response: A Discount Store Strategy
As the largest online retailer in the US, Amazon has been directly impacted by the rise of Temu and Shein. While Amazon remains the market leader, with projections suggesting it will capture roughly 40% of e-commerce sales in the US this year, its "lowest-priced U.S. retailer" image is being challenged by competitors offering even lower prices.
Amazon has acknowledged the competitive threat by announcing plans to launch its own discount store, offering mostly unbranded items priced under $20. This strategy would leverage the same de minimis rule currently utilized by Temu and Shein, effectively mirroring their pricing approach.
While Amazon has not explicitly stated whether it supports closing the de minimis loophole, it has acknowledged the need to win customers back by offering both quality and affordability.
Meta’s Advertising Revenue at Risk
Meta, the parent company of Facebook and Instagram, is also facing potential challenges from the rise of Temu and Shein. Barclays data suggests that Temu may be reducing its ad spending after witnessing a peak in new shoppers in the third quarter of 2023. If this trend continues, Meta could experience a slowdown in ad revenue growth, particularly from Chinese advertisers.
This is a significant concern for Meta, as the Asia-Pacific region represents its fastest growing geographic market for advertising revenue. However, Meta has declined to quantify the contribution of Chinese advertisers to its overall revenue, making it difficult to assess the actual impact of Temu’s potential ad spending pullback.
The Longer-term Impact: A Short-lived Phenomenon?
Some analysts believe that the success of Temu and Shein might be a short-lived phenomenon. Wish, a similar platform founded in 2010, experienced a rapid rise in popularity and even reached a valuation of $14 billion during its initial public offering in 2020. However, the company eventually faltered, leading to its acquisition by Qoo10 in 2024.
Bank of America analysts argue that the long-term success of Temu and Shein depends on their ability to improve shipping times. Currently, their shipping speeds trail industry leaders, which could ultimately limit their growth.
While Amazon remains the dominant online retailer in the US, the emergence of Temu and Shein has ignited a fierce battle for market share. The outcome of this competition will depend on factors like regulatory changes, evolving consumer preferences, and the continued innovation of e-commerce platforms.
This week’s tech earnings reports will offer valuable insights into the current state of the industry and might provide a glimpse into how these major players plan to adapt to the evolving competitive landscape. This is a battle being fought on multiple fronts, with implications for the entire global e-commerce industry.
