Anamika Dey, editor
Brief news
- Temu and Shein have experienced significant growth in the US by utilizing internet marketing and selling cheap Chinese items.
- Etsy, eBay, and Amazon are facing increased competition from China’s ByteDance and TikTok Shop.
- The de minimis exception, which allows duty-free entry for shipments under $800, has contributed to the growth of Temu and Shein, leading to concerns from industry professionals and calls for exploration by regulators.
Detailed news
Temu and Shein have grown exponentially in the US by using internet marketing and selling cheap Chinese items like $3 sneakers and $15 smartwatches.
Etsy, eBay, and Amazon face increased competition from China’s ByteDance’s bargain shopping applications and TikTok Shop.
Industry professionals say the de minimis exception, a trade exception, drove their growth. Under this exemption, shipments under $800 can enter the US duty-free. Amazon’s senior public policy executive, David Zapolsky, calls it a “concerning trend” that worldwide regulators should explore.
Zapolsky told CNBC, “I believe there is a question about the extent to which some of their business models are subsidized.” There are tactical restrictions regarding the difference between the listed price and the sale price, but I feel they are not regularly implemented.
Temu and Shein’s rise will be a major subject in tech earnings this week when Amazon, Meta, eBay, and Etsy post second-quarter results. Investors will watch Temu and Shein’s influence on e-commerce platforms and their ad expenditure, which has helped Meta grow.
Technology earnings season began a gloomy tone last week. Alphabet’s shares fell 5% on Wednesday after the firm announced a slight revenue gain late Tuesday but missed YouTube ad sales projections. Tesla’s shares fell 12% that day, the most since 2020, due to disappointing results and a second straight quarter of falling vehicle revenue.
The week’s calendar includes Intel, Qualcomm, Block, Snap, Apple, and Microsoft reports.
Amazon’s Thursday report is expected to show an 11% sales growth to $148.6 billion, according to LSEG. The company’s cost-saving efforts, which include reducing tens of thousands of jobs, are expected to boost net income by 63% from last year.
Amazon still makes most of its money from retail, even if it’s not its key growth driver. More than 60% of platform stuff comes from third-party retailers. Merchants now have new ways to distribute things to American consumers thanks to Temu and Shein. They sell straight from Chinese factories to consumers worldwide and employ delayed delivery alternatives to keep prices low.
Shein, which launched in the US in 2017, has started advertising on Google and Facebook to expand. It is reportedly worth $66 billion. PDD Holdings’ Temu debuted in the US in 2022. After spending billions on marketing, the company’s “Shop like a billionaire” Super Bowl commercial was the most memorable.
Amazon has prioritized speed and delivery to compete with Temu and Shein. Amazon CEO Andy Jassy said in February that its delivery network changes have allowed the business to invest in faster deliveries and economically increase its inexpensive product offering.
In the fourth-quarter results call, Jassy said, “We have a saying that it’s not hard to lower prices, it’s hard to pay for lowering prices.” “Combining selections is equivalent.” A lower average selling price selection is easy to implement, but maintaining a positive economic model is tough.
Because Temu and Shein have an economic edge, officials in the US, EU, and other nations are considering shutting the trade exemption and raising charges on cheap items. This might slow platform growth.
A Temu spokeswoman told CNBC that the de minimis exemption does not affect the company’s expansion. As a direct-from-factory strategy avoids “numerous middlemen and their associated costs,” the site’s rates are competitive, according to the spokesman.
Shein declined comment.
Is the advertising campaign ongoing?
Meta is concerned that Temu may be cutting advertising spending. The number of new Temu users peaked in the third quarter of 2023, according to May Barclays data. New consumers have declined in the prior two quarters. Temu may have biased its marketing toward existing customers over new app metrics, the business said.
Meta investors worry about a US slowdown from outbound China advertising like Temu. According to Barclays’ May client note, new buyer activations support these anxieties and are likely anticipated in the 2Q forecast, which predicts a six-point fall in ad revenue growth. The business advises Meta stock purchases.
After a disappointing projection in April, Meta’s shares fell. Susan Li, the company’s finance leader, said China’s contribution was not quantified in the quarter during the results call. She noted that Asia-Pacific advertising revenue rose 41% year over year, making it the fastest growing market. Online shopping and gaming helped this increase, she said.
A Meta representative declined to comment.
In May, eBay CEO Jamie Iannone told analysts that its distinct selection sets it apart from Chinese competitors, rejecting claims that they are stealing market share. Etsy emphasizes its merchants’ role in handcrafted goods buying and creation.
In the US, Temu and Shein may be transitory. Wish, founded in San Francisco in 2010, rose to fame with its low-cost, direct-from-China items. This gave it a $14 billion valuation at its 2020 IPO. Consumers left, causing financial problems for the company. This year, Singapore-based Qoo10 bought Wish for $173 million.
“Amazon and Walmart are the most “insulated” from Chinese competitors,” Bank of America analysts said in May.
“The analysts wrote that the shipping speeds of Temu/TikTok/Shein are behind those of industry leaders, which could potentially restrict their growth over time,” based on delivery delays. “We believe that shipping times will be a critical factor in the long-term competitive landscape.”
Bank of America reports that Temu goods ship in four to 22 days and Shein items in three to 14 days. Amazon has reduced shipping times from two to one day.
EMarketer predicts that Amazon will account for 40% of US e-commerce sales this year and remain the leading online retailer. Amazon claims to be the “lowest-priced U.S. retailer.” However, Temu and Shein are increasing in popularity.
Amazon unveiled its cheap shop plans in June, according to a CNBC presentation. The store will sell mostly unbranded items under $20.
An insider told The Information last month that the shop will use the same de minimis rule as Temu and Shein.
Alex Zapolsky of Amazon said the business has not yet commented on whether legislators should restrict de minimis shipping. Amazon must win customer support, he said.
Zapolsky said “We are aware that we must compete with them in order to persuade customers that Amazon offers the highest quality and most competitive prices.”
Source : CNBC News
