Wall Street monitors Temu and Shein’s big influence on the US tech market

Temu and Shein, two discount shopping apps, have gained popularity in the U.S. by aggressively marketing online and offering inexpensive products direct from China. Their success, along with ByteDance’s TikTok Shop, is providing new competition to established U.S. e-commerce giants like Amazon, eBay and Etsy. Industry experts attribute some of their growth to a trade loophole, the de minimis exemption, which allows packages worth less than $800 to enter the U.S. duty-free. Amazon’s chief public policy officer, David Zapolsky, described the trend as “troubling” and suggested that global regulators should examine the business models of these Chinese companies, particularly as they relate to pricing rules.

US tech giants brace for blow as Chinese rivals enter market with competitive pricing

The impact of Temu and Shein is expected to be a focal point in tech earnings reports this week, with Amazon, Meta, eBay and Etsy all providing updates. Investors are closely watching whether these platforms are influencing e-commerce in the U.S. and how their significant ad spending has affected Meta’s recent expansion. Notably, the rise of Temu and Shein has sparked discussions about the sustainability of their business models, given their reliance on direct-to-factory sales and slower shipping options to keep prices low.

Earnings reports from tech companies like Alphabet and Tesla last week highlighted concerns in the sector, with Alphabet missing YouTube ad sales estimates and Tesla seeing its shares fall significantly. Other tech giants including Apple, Microsoft, Intel, Qualcomm, Block and Snap are set to report results this week, with Amazon’s report particularly anticipated. Amazon is expected to show an 11% increase in revenue to $148.6 billion, although net income is expected to rise 63% year-over-year due to significant cost-cutting measures.

Temu and Shein’s go-to-market strategies, including cutting out middlemen and taking advantage of the de minimis exemption, have allowed them to offer competitive prices and gain market share in the U.S. Temu, owned by PDD Holdings, launched in the U.S. in 2022, while Shein entered the market in 2017. Both companies have invested heavily in marketing, with Temu’s “Shop Like a Billionaire” campaign gaining particular visibility during the Super Bowl. But there are signs that Temu may be cutting back on ad spending, focusing more on retaining existing customers than on acquiring new ones, Barclays analysts noted.

Meta, facing challenges, has seen ad revenue growth slow, partly due to a potential slowdown in ad spending by Chinese advertisers like Temu. Meanwhile, eBay and Etsy have downplayed the threat from Chinese competitors, emphasizing their unique product offerings. Bank of America analysts suggested that Amazon and Walmart are relatively insulated from this competition, citing the slower shipping speeds of Chinese platforms as a limiting factor.

Amazon continues to dominate the U.S. e-commerce market, expecting to account for 40% of sales this year. But the company isn’t resting on its laurels; it reportedly plans to launch a discount store offering cheap, unbranded products, potentially taking advantage of the same de minimis rule that Temu and Shein use. Zapolsky noted that while Amazon hasn’t taken a stance on de minimis shipping regulations, the company remains focused on winning consumers over with quality and price.

Featured image courtesy of Tech Wire Asia

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