How Shein and Temu Snuck Up on Amazon

🌈 Abstract

The article discusses the rise of Chinese e-commerce platforms Shein and Temu, which have become major competitors to Amazon in the US market. It explores how these platforms have gained popularity by targeting demographics outside of the typical tech industry focus, their aggressive marketing strategies, and their innovative supply chain management. The article also touches on the controversies surrounding Shein and Temu, including allegations of design theft, use of forced labor, and regulatory loopholes.

🙋 Q&A

[01] The Rise of Shein and Temu

1. What factors have contributed to the rapid growth of Shein and Temu in the US market?

• The pandemic lockdowns supercharged Amazon's e-commerce business, but Shein and Temu have emerged as major competitors
• Shein specializes in low-end women's fashion, while Temu focuses on home decor and household items
• Shein and Temu have a large user base, with Temu reaching 47 million US monthly active users in April and Shein reaching 29 million
• The two platforms have been able to attract customers outside of the typical tech industry focus, targeting demographics like women and older consumers with lower incomes

2. How have Shein and Temu been able to undercut their competitors on pricing?

• Shein and Temu take advantage of a trade loophole called the "de minimis threshold" that allows them to ship items from overseas directly to individual consumers without paying tariffs, as long as the value is less than $800
• This makes it harder for customs officials to oversee what's coming into the country, as they now have to monitor hundreds of thousands of tiny packages rather than just large shipping containers

[02] Innovative Supply Chain Management

1. What are the key innovations behind Shein and Temu's supply chain management?

• Shein works with thousands of garment suppliers in China and requires them to use its "manufacturing execution system" (MES), which provides instant feedback on which products are hits and misses
• Shein operates on a "large-scale automated test and re-order" (LATR) model, where it starts with small batches of each style and only orders more if a product quickly sells out
• Temu uses a "fully managed" marketplace model, where merchants agree on a sale price and send their goods to Temu's fulfillment centers, and Temu handles all shipments to the consumer

2. How have these supply chain innovations benefited Shein and Temu?

• Shein's MES and LATR model allow it to add thousands of new products to its website every day, with each serving as a mini A/B test
• This allows Shein to avoid the risk of buying large orders of styles that could end up as duds
• Temu's fully managed marketplace model makes it easier for merchants to sell on the platform, as they don't have to worry about warehousing and shipping costs

[03] Controversies and Challenges

1. What are some of the controversies and challenges facing Shein and Temu?

• Both companies have been accused of ripping off designs from smaller brands and selling products containing potentially harmful or toxic substances
• There are concerns that Shein and Temu may be illegally importing goods made using forced labor in China's Xinjiang region
• Shein and Temu have been accused of forcing manufacturers to contend with razor-thin profit margins and putting pressure on them to reduce prices
• The companies have also been involved in legal disputes, with Temu filing a lawsuit against Shein for alleged "mafia-style intimidation" tactics against its sellers

2. How have Shein and Temu responded to these controversies?

• Temu briefly required suppliers to certify that their cotton didn't originate from Xinjiang, but later walked back this policy
• Both companies have stated that their practices are in line with those of American competitors like Amazon and eBay

[04] Future Outlook

1. What are the potential implications of Shein and Temu's growth for Amazon and other US-based e-commerce companies?

• Even if Amazon maintains its grip on the US e-commerce market, its Chinese competitors pose a formidable threat in emerging markets
• This reality may be part of the reason Amazon is putting greater emphasis on revenue streams like cloud computing and original content, which will remain lucrative in a future where more of the world is buying from Chinese shopping platforms

2. How are Shein and Temu expanding their global reach?

• Temu has opened up shop in more than 60 countries and is actively trying to lower its dependence on American consumers
• Shein is also expanding across the globe, finding early success in places like Latin America