Amazon is worried about newcomers like Temu and Shein. Here’s how it’s confronting them.

Amazon’s ( AMZN ) dominance of e-commerce makes any potential threat hard to take seriously. At least at first glance. But the staggering growth of direct deliverers like Temu and Shein, while small by comparison, has caught the attention of those who run a one-stop shop.

And Amazon intends to confront them directly before they gain more popularity.

Amazon’s reported move to launch a new service focused on shipping affordable fashion and lifestyle products directly from China highlights how outlets have gained popularity among American shoppers and Chinese manufacturers — and how even market leaders are being forced to adapt to stay on top.

“Chinese markets don’t pose a big threat to Amazon right now, but they are growing and gradually eroding its market share,” said Neil Saunders, retail analyst at GlobalData.

The new data underscores how much Amazon dominates the e-commerce market, but it also suggests why maintaining a cheap copycat service seems like a strategic necessity, akin to a major airline launching a low-cost carrier to fend off “small players.”

Of course, looking at the numbers, the emerging companies look more like niche companies compared to the big Seattle retailer.

Amazon is projected to generate more than $360 billion in sales from independent sellers using its online platform in 2025, according to a report released last week by eMarketer. That would be a 10 percent increase from 2024 and 10 times higher than its closest online competitor, eBay (EBAY).

But even though Amazon towers over its rivals, including Walmart (see chart above), and is expected to post solid growth, Temu’s projected results dwarf all others.

Ten — where customers can order shoes for under $10, drones for $15 or mattress toppers for just over $30 — is expected to boost third-party sales by nearly 60% next year to more than $30 billion, according to eMarketer estimates. That’s well above the growth forecasts of other competitors in the space, including Walmart (WMT) and Etsy (ETSY).

Currently, Temu and other low-cost platforms have a catalog limited to more affordable products and consumer staples. “But there’s a danger that overlap could increase as markets round out their offerings and move to higher price points,” Saunders said.

As with other forms of online shopping or shopping in store in search of deals, apparent savings loosen wallets, act on impulse and encourage shoppers to buy products they didn’t know existed.

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Owned by Chinese e-commerce group PDD Holdings (PDD), Temu launched in the U.S. in 2022. The company relied on a blitz of advertising and subsidies to disrupt established players in China and abroad by using ultra-low prices to gain market share, a model that has flourished as consumers become more mindful of their spending. PDD doesn’t disclose Temu’s sales figures. But the parent company reported revenue of $12 billion for the quarter ended in May.

Shein also has Chinese roots but is now headquartered in Singapore. The fast-fashion giant, which sells $5 pajama sets and $7 yoga leggings, does not release its financials. But in the run-up to a potential IPO, estimates suggest the company has annual revenues of more than $30 billion.

Beyond their financial accomplishments, both platforms have drawn political attention for their handling of shipping to the U.S. Shein and Temu both benefit from a tax loophole that exempts shipments from duties if their value is less than $800. Some lawmakers have called for an end to the trade rule that targets Chinese companies. Nearly half of shipments shipped using the duty-free provision come from China, according to a recent congressional committee report.

Cheaper but slower supply chain

Platforms like Shein and Temu have discovered that for some customers looking for a specific set of products, speed matters less than exceptional value.

For years, Amazon has accustomed American consumers to buying off-brand goods from Chinese sellers at low prices. The company has optimized shipping by developing a fulfillment network that can deliver goods in days or even hours. That includes goods already shipped to the U.S. from overseas and domestic sellers. In March, for example, nearly 60% of Prime member orders arrived the same day or the next in the 60 largest U.S. metropolitan areas, the company said.

Customers shopping on discount platforms, however, can buy from sellers who ship directly from China. Because the goods are no longer stored in warehouses in the United States, the logistical journey means delivery times are measured in days and weeks. But what these deals lose in time, they make up for in price. That’s how customers can find a range of goods on Temu that are significantly cheaper than those sold in department stores or even on Amazon. (To beat the heat, an ice maker costs about $50 on Temu, compared with about $80 on Amazon. And a neck fan — who doesn’t need one? — costs about $5 on Temu. Similar items cost between $20 and $45 on Amazon.)

The direct-shipping model works especially well for lower-priced items, because a larger portion of their price is attributed to costs and fees. Removing the fulfillment layer can reduce those significantly. That’s why traditional retailers and Amazon—which offer service, convenience, and speed—generally can’t match the prices of sale apps.

Imitation models

As the number of customers on discount platforms has grown, Amazon has taken notice.

The e-commerce leader shared plans with Chinese retailers to launch a new shopping channel that will appeal to users looking for affordable clothing and lifestyle products, as first reported by Information’s Jing Yang and Theo Wayt. The items, many of which will cost less than $20, will be shipped directly from China and will take just nine days to arrive.

“There is also some risk going forward, as Chinese markets are very attractive to younger generations, which Amazon also wants to attract and retain as future customers,” Saunders said.

But Amazon isn’t just about customers.

In a statement to Yahoo Finance, Amazon said: “We’re always looking for new ways to work with our retail partners to delight our customers with more choice, lower prices, and more convenience.”

Temu told Yahoo Finance in a statement that its direct-to-factory delivery model streamlined the traditional retail supply chain. “By cutting out the middleman, we pass on the savings directly to consumers by offering lower prices without sacrificing quality,” the company said. “Consumers have embraced this approach, making Temu one of the most popular shopping apps in the world.”

Shein did not respond to a request for comment.

Amazon’s planned discount store opening is also an attempt to attract Chinese sellers, increasing their trade flow and advertising money, said Sky Canaves, principal analyst at eMarketer.

“They may sell small volumes individually, but the total is high. If sellers decide to sell elsewhere, on TikTok, Shein and Temu, if they start exploring other platforms, they’re going to spend money on other platforms,” she said. “That’s what Amazon is trying to anticipate.”

But supply chain imitation and encroachment on rivals’ territory work both ways. Just as Amazon is trying to be more like Temu and Shein, discount platforms are trying to be more like Amazon, said Juozas Kaziukėnas, founder of research firm Marketplace Pulse.

Outlet platforms are partnering to create local warehousing programs in the U.S. and recruiting domestic sellers.

Temu’s efforts to recruit more Chinese sellers with American inventory, as well as local sellers, are taking a cue from Amazon. It’s also a way to protect the company if the U.S. government scraps a trade rule that exempts cheap shipping from customs duties, the Information reported Wednesday. While it still ships directly from China, Temu is building a stronger base of independent U.S. sellers.

Ten told Yahoo Finance that qualified sellers can now handle their own logistics from local warehouses in the U.S. and Europe. “This broadens our product selection, reduces shipping distances and shortens delivery times,” the company said.

Amazon’s broad e-commerce success has also encouraged other major players, such as Walmart and Target (TGT), to build their own marketplaces with third-party sellers. And the expansion of supply chain logistics has made it easier for teams outside the U.S. to gain a foothold, said Cayce Roy, founder and CEO of e-commerce fulfillment company Standvast and a former Amazon vice president.

Challenges for Amazon

In an environment where Amazon still has growth potential but is already approaching saturation, experts say creating new revenue streams and taking share from rivals are ways to spur growth.

But new challenges loom for companies that must contend with discount platforms that have carved out a niche for themselves.

If Amazon has built its identity on fast delivery and convenience, how will the company communicate the benefits of slower shipping to shoppers?

“It’s not a natural fit for them. And they don’t necessarily have an advantage,” Kaziukėnas said.

Kaziukėnas also pointed to the upcoming Prime Day to draw attention to many other shopping behaviors that Amazon is trying to address.

“Shein and Temu are not random. That’s the one thing that these apps are focused on, but for Amazon, that’s going to be priority number 17,” he said. “For all of Amazon’s agility and strength, that’s where they start from a point of weakness.”

Hamza Shaban is a Yahoo Finance reporter covering markets and the economy. Follow Hamza on Twitter @hshaban.

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