Amazon’s New Sale Section Challenges Temu and Shein Amid Stock Market Boom

As Amazon joins the $2 trillion club on the wave of AI enthusiasm, the retail giant is not forgetting its roots and is competing in a race to the bottom with Chinese platforms Temu and Shein. According to a CNBC report, Amazon is set to launch a new section of its site that will sell cheap, unbranded products for under $20. The launch is expected to take place in the fall, with products coming directly from suppliers in China.

The move comes amid a 30% gain in the company’s stock since the beginning of the year, which last week pushed its value to $2.01 trillion. It brings Amazon into the small “$2 trillion” club alongside Microsoft, Apple, Alphabet and Nvidia. Amazon founder Jeff Bezos saw his equity increase by $35 billion on the back of the gains, making him the second-richest person in the world with a net worth of $209 billion, according to Forbes. Elon Musk ranks first with an estimated net worth of $219 billion.

Among the giants, Apple has seen the most modest year-to-date gain of about 15% and is trading at about $3.37 trillion. Nvidia has seen the biggest gain, 160%, and is now valued at $3.01 trillion. Microsoft has jumped 23% to a market value of $3.41 trillion, while Alphabet has jumped 33% and is valued at $2.29 trillion.

Amazon, which was founded in Seattle as an online bookstore, has become one of the most influential players in the world’s retail market. Over the years, it has diversified its revenue sources and is now also a dominant player in the IT products market, providing large companies and startups with cloud services, artificial intelligence, and other data management software. In the cloud space, Amazon is the world’s largest provider, and this division represents the highest operating profit of all Amazon business segments. In the first quarter of 2024, cloud services (AWS) revenue accounted for 17% of total revenue and 62% of operating profit.

While all the tech giants are enjoying growing interest from investors who see great promise in AI, Amazon is showing increasing vigilance towards competitors in its core business: retail. Over the past two years, Temu, a subsidiary of China’s PDD Holdings, has grown stronger, aiming to conquer the American and European markets. Young Temu has worked aggressively over the past year and a half to gain market share from a loss. The method worked, and in less than a year, the app has been downloaded by 250 million users worldwide, more than half of them in the United States. Today, Temu is the second most popular shopping app in the United States, behind only Amazon, and is the most popular in Germany. In 2023, Temu was the app with the most downloads worldwide (337 million), followed by Shein (262 million), leaving Amazon (188 million) behind.

Shein, the older of the two, began flanking Amazon during the pandemic. In late 2022, Bank of America called it “the biggest threat to fashion players in online retail.” According to Earnest Research, it now accounts for 28% of the fast-fashion market in the United States, second only to Amazon (33%). The appeal of these companies comes from their vast offerings at rock-bottom prices, made possible by their partnerships with thousands of suppliers across China, some of whom also ship to local customers. Shipping small packages directly to customers from China drives down prices, exploiting a loophole in U.S. import law that exempts packages worth up to $800 as long as they are sent to individuals. Now, one in three packages entering the United States under this exemption comes from Shein or Temu.

Now Amazon is choosing to do the same, relying on Chinese suppliers to ship low-cost products directly to consumers. “We’re always looking for new ways to work with our retail partners to delight customers with more choice, lower prices, and greater convenience,” Amazon spokeswoman Maria Boschetti said.

The move is a departure from Amazon’s dominant approach to its retail operations, which has involved strengthening and closing all parts of the manufacturing and supply chain. Against this backdrop, Amazon has created incentive programs for suppliers to encourage them to use its warehousing and delivery services. The company has developed delivery services that compete with UPS, FedEx and the postal service, allowing it to set a fast and unique standard for delivery. At the same time, it has charged sellers for these services, rather than having the costs go to the shipping companies. These decisions have drawn sharp public criticism about their environmental impact. Now, with the encouragement of mass shipping of single packages from China, that criticism is only likely to increase.