Temu’s Meteoric Rise: A Challenge to Tech Giants and a Trade Loophole Under Scrutiny
In just 17 days after its launch, Temu surpassed Instagram, WhatsApp, Snapchat and Shein on the Apple App Store in the U.S., according to Apptopia data shared with CNBC. This rapid growth is fueled by Temu’s and Shein’s online marketing blitz and their incredibly low prices – offering consumers everything from $3 shoes to $15 smartwatches – all sourced directly from China. This rapid ascent has thrown down the gauntlet to U.S. e-commerce titans like Amazon, eBay and Etsy.
Key Takeaways:
- Temu and Shein’s success is partly due to the "de minimis exception," a trade loophole that allows goods valued under $800 to enter the U.S. duty free. Some industry experts see this as a "concerning trend" that should be reviewed by global regulators.
- This week’s tech earnings reports will be closely watched for commentary on Temu and Shein’s impact, particularly on advertising spending which has been a driver for companies like Meta.
- Amazon is expected to launch a discount store offering unbranded items below $20, directly competing with the cheap prices offered by Temu and Shein.
## The Trade Loophole Fueling the Boom
Temu and Shein’s aggressive growth has raised eyebrows, with some experts pointing to the "de minimis exception" as a key factor. This loophole allows goods shipped from China with a value under $800 to be imported into the U.S. duty-free. David Zapolsky, Amazon’s top public policy executive, calls this a "concerning trend", suggesting that it allows Chinese companies to unfairly undercut U.S. competitors. He claims that "some of their business models are subsidized" and raises concerns about potential discrepancies in listed prices versus actual sale prices.
## Tech Earnings in the Shadow of the New Challengers
Temu and Shein’s growth will overshadow tech earnings this week. Amazon, Meta, eBay and Etsy will be scrutinized for their responses to these new competitors. Investors are particularly interested in commentary on Temu and Shein’s advertising spending, a key source of revenue growth for Meta.
The earnings season began on a somber note. Alphabet reported a slight beat on revenue but missed estimates on YouTube ad sales, sending the stock down. Meanwhile, Tesla shares plunged 12% on weaker-than-expected earnings and declining auto revenue. The coming week’s reports from Apple, Microsoft, Intel, Qualcomm, Block, and Snap are also likely to be influenced by the growing presence of Temu and Shein.
## Amazon’s Response: Discount Store and Delivery Prowess
While Amazon is expected to report revenue growth of around 11%, investors are more focused on their profitability given the company’s aggressive cost-cutting measures, including layoffs. While retail is no longer Amazon’s primary growth engine, it still accounts for a significant portion of revenue. The rise of Temu and Shein, and the increasing importance of third-party sellers on the platform, highlight the importance of providing competitive prices and fast delivery.
Amazon has been emphasizing its delivery prowess and focus on speed, aiming to outmaneuver competitors like Temu and Shein. CEO Andy Jassy stressed that offering cheap products requires maintaining "good economics."
## The Threat of Regulatory Action
Beyond increased competition, Temu and Shein face a potential regulatory headwind. Officials in the U.S., the European Union, and other regions are considering closing the "de minimis exception" and raising duties on cheap goods, a move that could significantly impact the growth of these platforms.
## Temu Pushes Back: Direct-From-Factory Model
A Temu spokesperson has stated that their growth does not depend on the "de minimis exception", attributing their competitive prices to a direct-from-factory model that eliminates intermediary costs and markups. Shein has yet to respond to requests for comment regarding the trade loophole.
## A Possible Short-Term Phenomenon?
History suggests that Temu and Shein’s success may be a short-term phenomenon. Wish, another platform that rode the wave of cheap, direct-from-China goods, experienced a meteoric rise to a $14 billion valuation at its IPO in 2020. However, user numbers dwindled, and the company was eventually sold for $173 million earlier this year.
Bank of America analysts point to shipping times as a potential weakness for Temu, Shein, and other similar platforms. These platforms typically offer slower shipping than industry leaders like Amazon, which could limit their long-term reach. Amazon, meanwhile, has been working to shorten its delivery times, aiming to further solidify its dominance in the market.
## A New Era of Competition
Amazon remains the largest online retailer in the U.S., projected to capture roughly 40% of e-commerce sales this year. While Amazon has long positioned itself as the lowest-priced retailer, the emerging popularity of Temu and Shein has clearly forced the company to reassess its strategy.
Amazon has acknowledged the threat by announcing plans to launch a discount store featuring unbranded items priced below $20, further intensifying competition in the ultracheap segment. This strategy replicates the "de minimis exception" loophole used by Temu and Shein.
The future of e-commerce is rapidly evolving, with Temu and Shein injecting a new wave of competition into the market. While their long-term success remains uncertain, their arrival has fundamentally shifted the landscape, forcing incumbents like Amazon to adapt and innovate to secure their dominance. The coming months will be pivotal, as we witness the strategies deployed by tech giants and the potential impact of regulatory action on the growth of these new players.
