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The Rise of Discount Shopping Apps Challenges U.S. E-commerce Giants

Discount shopping apps like Temu and Shein have emerged as strong competitors to U.S. e-commerce giants Amazon, eBay, and Etsy, offering affordable products from China. Their success is attributed to the de minimis exception, allowing duty-free entry of packages valued under $800 from China. Concerns about this trend have been raised, prompting discussions among global regulators. The impact of these apps is closely watched during the tech earnings season, with investors interested in their influence on e-commerce marketplaces. While Temu and Shein's growth faces potential challenges from regulatory changes, Amazon plans to launch a discount store to compete with them.



Temu and Shein, two online shopping platforms, have experienced explosive growth in the United States by offering consumers affordable products from China. From inexpensive shoes to budget-friendly smartwatches, these apps, along with TikTok Shop from ByteDance, have become formidable competitors to Amazon, eBay, and Etsy, the leading U.S. e-commerce companies.

 

Industry experts attribute much of Temu and Shein's success to the de minimis exception, a trade loophole that allows duty-free entry of packages valued under $800 from China into the U.S. David Zapolsky, Amazon's top public policy executive, expressed concern about this trend and called for further examination by global regulators. He raised questions about the potential subsidization of Chinese companies' business models and the enforcement of pricing rules.

 

The impact of Temu and Shein's growth is a topic of interest during the tech earnings season, as companies like Amazon, Meta, eBay, and Etsy report their second-quarter results. Investors are eager to learn about the influence of these emerging platforms on e-commerce marketplaces and the advertising spending that has contributed to Meta's recent expansion.

 

The tech earnings season began with some challenges, as Alphabet and Tesla faced setbacks due to missed revenue estimates. However, Amazon is expected to show revenue growth of approximately 11% to $148.6 billion in their upcoming report, reflecting the company's cost-cutting measures and the elimination of thousands of jobs.

 

Although retail is no longer Amazon's primary growth engine, it still constitutes a significant portion of their revenue, with third-party sellers accounting for over 60% of goods sold on the platform. Temu and Shein play a crucial role in this aspect, providing merchants with new avenues to reach American consumers. Their direct-from-factory model, bypassing intermediaries, allows them to offer competitively low prices, albeit with slower delivery options.

 

Shein, valued at $66 billion, entered the U.S. market in 2017 and has aggressively expanded its customer base through extensive advertising on Google and Facebook. Temu, owned by PDD Holdings, made its debut in the U.S. in 2022 and invested billions in marketing, including a notable TV spot during the Super Bowl.

 

In response to concerns about the economic advantage enjoyed by Temu and Shein, officials in the U.S., the European Union, and other regions are considering closing the trade loophole and increasing duties on low-cost goods. These measures could potentially impact the future growth of these platforms.

 

Temu defended its growth, stating that it is not solely reliant on the de minimis exemption. The company attributes its competitive prices to its direct-from-factory model, eliminating middlemen and associated costs. Shein did not respond to requests for comment.

 

Meta, the parent company of Facebook, has its own concerns, as there are indications that Temu might be reducing its advertising spending. Barclays data suggests a decline in the number of new shoppers on Temu in the past two quarters, possibly due to a shift in marketing efforts towards existing customers.

 

While eBay remains unfazed by the Chinese competition, highlighting its differentiated selection, Etsy has taken steps to emphasize its sellers' role in sourcing or creating artisan goods.

 

Temu and Shein's success in the U.S. market may be a short-term phenomenon, as seen with the rise and subsequent decline of Wish, another platform offering affordable goods from China. Amazon and Walmart are considered the most resilient against Chinese competitors, according to Bank of America analysts. They emphasize that reducing shipping times will be crucial for long-term competition, as Temu and Shein currently have longer delivery windows compared to industry leaders.

 

Despite its dominance as the largest online retailer in the U.S., capturing around 40% of e-commerce sales this year, Amazon acknowledges the growing popularity of Temu and Shein. In response, Amazon plans to launch a discount store featuring mostly unbranded items priced below $20, leveraging the same de minimis rule used by its competitors.

 

Amazon's Zapolsky stated that the company hasn't taken a definitive stance on whether lawmakers should tighten regulations on de minimis shipments. Regardless, Amazon recognizes the need to compete with these platforms and convince customers that they can find the best quality and prices on its platform.

 

 

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