Race to Displace: How Temu and Shein Are Redefining E-Commerce

Amazon has dominated e-commerce for more than a decade and is on track to overtake Walmart as the largest retailer in the U.S. But Amazon’s massive marketplace, combined with its fast fulfillment and Prime service, has effectively eroded its position.

Now we’re witnessing a new wave of e-commerce in the US, driven by Chinese competitors. Shein and Temu have launched massive advertising campaigns combined with optimized sales tactics to carve out a new niche and redefine the standards of e-commerce success. Finally, TikTok has quickly entered the US e-commerce market with TikTok Shops, offering the most complete social commerce experience to date.

By understanding how these brands use targeted advertising and sales tactics, traditional online retailers can modify their own strategies to achieve higher levels of customer engagement.

How Newbies Gained Market Share

Temu launched in the U.S. in September 2022. In just over a year, the discount retailer boasted more than 50 million monthly active users, a feat that took Amazon nearly three decades to achieve. Both Shein and Temu offer cheap Chinese wholesale goods, but they don’t just win with competitive pricing. Their aggressive approach to marketing and merchandising has allowed them to capture a huge slice of the retail market, and their sales tactics have encouraged rapid customer engagement.

For Temu in particular, building a brand in the U.S. was expensive. The company spent nearly $1.8 billion on advertising in its first year in the U.S. As it entered a new market, it had to build brand awareness and attract customers on a national scale. But that marketing expense came at the cost of profitability, with some estimates showing that Temu loses an average of $30 per order.

Tomu achieves generalized brand awareness through strategically planned ad spend that aligns with the times when the most people are online. For example, it was the largest buyer of Facebook ads in the world during the Super Bowl and has bought Super Bowl ads in each of the last two years. This concentrated effort effectively outshines competitors in the short term, because ad buys like these make advertising on the platform more expensive for everyone.

Like many e-commerce brands, Temu and Shein target users on social media platforms to reach a younger, tech-savvy audience that’s more likely to shop online. Both retailers also make extensive use of influencers to reach established followings and build credibility. Combined with broader brand awareness campaigns, this strategy has catapulted Temu into a household name in just a few months while driving traffic to its storefront. Similarly, TikTok’s retail ambitions are anchored by content (videos) generated by influencers on its platform, who also want to monetize their audiences through commerce.

Customer Engagement Masterclass

What really sets Temu, Shein, and TikTok apart from established retailers like Amazon, Walmart, and Target is their approach to engaging customers. These new platforms are essentially making shopping fun by adding elements of gamification and embedding entertainment into the shopping experience.

Both Temu and Shein bombard users with aggressive promotions and discounts that require some form of active engagement. While Amazon may offer discounts to all customers, Shein and Temu treat sales and coupons as protected assets, with discounts typically available only to shoppers who open an account. Temu takes it a step further, spinning discount wheels and special offers on a ticking timer that encourages customers to act now so they don’t miss out on a great deal.

Personal data is another integral part of Shein and Temu’s success. Both leverage user data and past purchases to present each customer with a personalized shopping catalog. TikTok’s business model also relies on an algorithm that is inherently personalized, tailoring content recommendations based on each user action. By comparison, Amazon and Walmart shuffle sponsored products through their internal retail media advertising platforms and prioritize top-selling products in their catalogs.

User data can also be combined with AI to improve customer service. Shein uses user data insights to predict what products customers will want in the future, effectively taking fast fashion to the next level. By combining these AI systems with Chinese manufacturing partners, Shein is able to add about 1.3 million products to its catalog per day, compared to 35,000 products per year for fast fashion retailer Zara.

All of these engaging elements contribute to establishing a loyal customer base and increasing customer lifetime value, which is essential in today’s aggressive and expensive advertising landscape. Because these companies spend so much on advertising, their customer acquisition costs (CAC) are relatively high, often requiring new customers to make three or more purchases to turn a profit. Using these elements of gamification, personalized offers, competitive pricing, and gated coupons work together to encourage much-needed repeat business.

Emerging e-commerce brands should look to Temu, Shein and TikTok for inspiration

The true test of an online retailer is whether it has a recognizable brand and an established customer base. The most effective way to achieve this is to cultivate long-term customers who make repeat purchases and become brand advocates, rather than relying on advertising spend. At the same time, Chinese retailers have made a number of smart moves to quickly generate brand awareness and reach more niche subgroups.

Gamified sales tactics, tailored offers, a lean toward video, and personalized, AI-powered shopping experiences all encourage customer loyalty, increased conversions, and repeat business. On-site experience and a deep understanding of retail psychology are what set emerging e-commerce merchants apart from traditional retail giants.

In an industry where the cost of customer acquisition is increasingly high, these strategies are crucial for any online retailer seeking long-term profitability and sustainable growth.

Jordan Jewell is the Analyst in Residence at VTEX, where he leverages his deep experience analyzing market trends and data to provide retail brands with the critical information they need to unlock growth and achieve business goals with actionable insights. Prior to joining VTEX, he was an industry analyst at International Data Corporation (IDC). At IDC, Jewell launched and led the Digital Commerce Research Practice, where he analyzed technology markets including digital commerce platforms, product information management, order management, and digital marketplaces. He has authored research including IDC MarketScape assessments for B2B, B2C, and headless commerce.