An intensifying fast-fashion rivalry in the United States offers a glimpse of the bigger battles to come. E-commerce app Temu is taking on the larger Shein by selling cheap Chinese-made goods to Western consumers. The company owned by $119 billion PDD (PDD.O) is more like an online dollar store. That puts it on a collision course with $1.4 trillion Amazon (AMZN.O).
At first glance the competing smartphone apps look similar. Both have used speedy product development and supply chains in China to win over young American shoppers with bargains like $5 shirts. The pair also benefit from a trade exemption which allows Chinese packages shipped directly to U.S. consumers to avoid import duties and tariffs provided the goods are worth less than $800. Sales at the more established Shein jumped 46% to $23 billion last year, according to the Wall Street Journal, surpassing fashion retailer H&M’s $22 billion top line.
Yet there are important differences. Shein works closely with a network of small and medium-sized clothing manufacturers, while Temu uses an ultra-competitive bidding system to procure the lowest-cost products from suppliers, an industry insider told Breakingviews. To limit inventory risks the company usually sells unsold goods back to its suppliers. Moreover, Temu offers generous discounts and free or subsidised shipping to users.
Temu only entered the United States in September but has quickly grabbed attention by offering prices as much as 40% lower than Shein. It remains the most-downloaded app in the country and overtook its more established competitor in terms of online traffic and spending in April and May, according to Bloomberg. The rivalry has spilled over into the courts. Last year, Shein alleged Temu had contracted social-media influencers to make "false and deceptive statements" about the company. Last month, the upstart responded by accusing its competitor of using its market power to lock up manufacturers.
Parent company PDD, whose Pinduoduo e-commerce unit competes with Alibaba (9988.HK) and JD.com (9618.HK) in China, discloses little about its overseas business. Analysts at Bernstein in January estimated that Temu loses $25 on every order - worth roughly $30 on average - after factoring in customer acquisition, fulfilment and other costs. The same report predicted the unit will make an operating loss of $1.8 billion on $1 billion of revenue in 2024. By contrast Shein, most recently valued at $66 billion, is profitable.
PDD probably has its sights on a bigger prize. Temu offers everything from home appliances to electronics to toys, making it more of a direct competitor to Amazon. It's still early days, but the upstart’s cut-throat prices and its parent company's track record of taking on larger incumbents make it a force to be reckoned with. Its current skirmish with Shein may be just a start.
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CONTEXT NEWS
Temu, the e-commerce app owned by PDD, on July 14 filed a U.S. lawsuit accusing rival Shein of violating antitrust laws.
The company alleges that Shein has abused its market power in trying to coerce clothing manufacturers in China "to sign loyalty oaths certifying that they will not do business with Temu", among other tactics.
In a statement sent to Reuters on July 19, Temu said it had to take legal measures to defend its and its merchants' rights due to "escalating attacks" from Shein.
A spokesperson for Shein said Temu's lawsuit was "without merit and we will vigorously defend ourselves."
In December, Shein filed a U.S. lawsuit against Temu, accusing it of contracting social media influencers to make "false and deceptive statements" against the company and tricking customers into downloading the Temu app using "imposter" social media accounts. At the time, a Temu spokesperson said the company "strongly and categorically rejects all allegations and is vigorously defending its rights."
