Just 17 days after its release, Temu surpassed Instagram, WhatsApp, Snapchat and Shein in the U.S. Apple App Store, according to Apptopia data shared with CNBC.
Stefani Reynolds | AFP | Getty Images
Industry experts say much of the increase is due to a trade loophole called the de minimis exception, which allows packages worth under $800 shipped from China to enter the U.S. duty-free. Amazon's chief public policy officer, David Zapolsky, called it a “worrying trend” that should be investigated further by global regulators.
“I think there's a question of the extent to which some of their business models are subsidized,” Zapolsky said in a recent CNBC interview, speaking broadly about Chinese companies. “At a very tactical level, there are rules about what can be shown as list price and sale price, but I don't think those rules are always being enforced.”
Topics of Temu and Shein's growth will likely pop up in tech company earnings this week as Amazon reports second-quarter results alongside Meta, eBay and Etsy. Investors will be watching for commentary on Temu and Shein's impact on the e-commerce market, as well as discussions of the companies' ad spending, which has fueled Meta's recent expansion.
Tech earnings season got off to an inauspicious start last week. Late Tuesday, Alphabet reported slightly better-than-expected revenue, but YouTube ad sales fell short of expectations, sending its shares down 5% on Wednesday. Tesla shares plunged 12% the same day, their biggest drop since 2020, after the company reported weaker-than-expected profits and a second straight quarter of declining auto sales.
This week's calendar includes reports from Apple and Microsoft, as well as Intel, Qualcomm, Block and Snap.
LSEG said Amazon's sales are expected to rise about 11% to $148.6 billion in its report released on Thursday, but net profit is expected to rise 63% from a year ago, reflecting the company's massive cost-cutting measures, including cutting tens of thousands of jobs.
While retail is no longer Amazon's growth engine, it's still a big part of its revenue. And third-party sellers now account for more than 60% of the products sold on the site. That's where Temu and Shein come in: sellers now have a new way to get products to U.S. consumers. They can get such low prices in part because they cut out the middleman by selling directly from factories in China to consumers around the world, and they use slower delivery options.
SHEIN launched in the US in 2017 and has recently been spending heavily on advertising on Google and Facebook to fuel its expansion. The company is reportedly valued at $66 billion. Temu, owned by PDD Holdings, debuted in the US in 2022 and immediately pumped billions of dollars into marketing, the most notable of which was a TV spot airing during this year's Super Bowl entitled “Shop Like a Millionaire.”
Amazon continues to emphasize its strong delivery capabilities and emphasis on speed amid growing competition from Teem and Shein. Chief Executive Andy Jassy said in February that recent changes to the company's fulfillment network have allowed Amazon to invest in faster delivery while profitably expanding its selection of cheaper products.
“The saying goes, it's not hard to lower prices, but it's hard to afford to lower prices,” Jassy said during the company's fourth-quarter earnings call. “The same goes for increasing assortment. It's not hard to lower prices. [average selling price] With limited options, it is difficult to offer lower ASP options and still maintain economics.”
As for the economic benefits of Temu and Shein, authorities in the United States, European Union and other countries are considering whether to close trade loopholes and raise tariffs on cheap goods, which could deal a blow to the continued growth of both platforms.
An Amazon contractor pulls a cart loaded with packages for delivery in New York, USA, Monday, April 22, 2024.
Angus Mordaunt | Bloomberg | Getty Images
A Temu spokesperson told CNBC that the company's growth does not depend on de minimis waivers. Prices on the site are competitive because the company's direct-from-factory model eliminates “numerous middlemen and the costs associated with them,” the spokesperson said.
Shane did not respond to a request for comment.
Meta has other concerns, too, because there are some signs that Temu is cutting back on its ad spend. Barclays data from May showed that Temu's number of new shoppers will peak in the third quarter of 2023, after declining in the past two quarters. The company said Temu may have adjusted its marketing efforts to focus more on existing shoppers rather than new app metrics.
“Meta investors had been concerned about potential slowdown in U.S. activity from international advertisers, particularly from China such as Tem, but this new buyer activation data suggests some of those concerns are likely justified and are already factored into the second quarter guidance, which indicates a slowdown in ad revenue growth of about 6 percentage points,” Barclays wrote in a client note in May. The firm has recommended buying Meta shares.
Meta issued a weaker-than-expected earnings outlook in April, sending its shares plummeting. Financial Chief Susan Li said on the earnings call that the company had not quantified contributions from China in the quarter, but said advertising revenue in Asia-Pacific grew 41% year-over-year, making it the fastest-growing region, driven by online commerce and gaming.
A Meta spokesperson declined to comment on the matter.
EBay has dismissed the notion that Chinese rivals are eating into its market share, with Chief Executive Officer Jamie Iannone telling analysts in May that a differentiated product selection sets the site apart, while Etsy has taken steps to emphasize the role of its sellers in sourcing and creating artisanal goods.
Temu and Shein may just be short-term phenomena in the U.S. Founded in San Francisco in 2010, Wish soared in popularity with its super-cheap goods shipped directly from China and was valued at $14 billion at its 2020 IPO. Users have since fled and business has stagnated. Wish was acquired by Singapore-based Qoo10 for $173 million earlier this year.
Bank of America analysts said in a May report that Amazon and Walmart are the most “insulated” from Chinese rivals.
“Our data on delivery times indicates that Temu/TikTok/Shein's delivery speeds lag behind industry leaders, which may limit their traction in the long term,” the analysts wrote. “We believe that reducing delivery times will be a key competitive factor in the long term.”
According to Bank of America, Temu's delivery time averages four to 22 days, while Shein's products take three to 14 days to arrive. Amazon is moving to increase its delivery speed from two days to one day or less.
Amazon remains the largest online retailer in the U.S., expected to account for about 40% of U.S. e-commerce sales this year, according to eMarketer. But the company, which has long touted itself as “America's cheapest retailer,” has shown it's well aware of the growing popularity of Temu and Shein.
At an event with Chinese merchants in June, Amazon said it plans to open discount stores that mainly sell generic items priced under $20, according to a presentation seen by CNBC.
The store will use the same demi-ministry rules used by platforms such as Temu and Shein, The Information reported last month, citing a person familiar with the company's plans.
Amazon's Zapolsky said the company isn't taking a position on whether lawmakers should regulate the shipping of small packages. Either way, he said, Amazon must have the support of consumers.
“We know we have to compete with Amazon to convince customers they're getting the best quality and the best price with Amazon,” Zapolsky said.
clock: Prime Day is a big marketing event for Amazon.
