How Shein and Temu Snuck Up on Amazon

In the fall of 2020, Amazon looked unstoppable. The pandemic lockdowns had supercharged its e-commerce business, and executives were busy hiring an army of new workers and expanding the number of Amazon fulfillment warehouses across the U.S. But the tech giant would soon face the biggest threat to its online shopping empire in recent memory, and it would come from an unlikely place: China.

Over the last few years, two Chinese-owned e-commerce platforms — Shein and Temu — have quietly become some of the most popular shopping websites in the U.S. Shein specializes in low-end women’s fashion, while Temu focuses on home decor and household items — the same type of affordable, made-in-China products that many American consumers have come to associate with Amazon.

Temu had 47 million U.S. monthly active users in April, while Shein had 29 million. Amazon clocked in at 66 million, down from almost 70 million in September of 2022 when Temu launched, according to estimates from the market intelligence firm Sensor Tower.

Shein and Temu’s users aren’t just browsing. Shein reportedly earned roughly $45 billion last year, and is currently trying to go public. PDD Holdings, Temu’s Chinese parent company, reported earlier this week that its revenue surged more than 130% in the first quarter. PDD is now the most valuable e-commerce company in China.

The two startups are sending so many orders from China to the U.S. that it’s causing air cargo rates to spike, and USPS workers have said publicly that they are overwhelmed by the sheer volume of Temu’s signature bright orange packages they have to deliver. “I’m tired of this Temu shit, ya’ll killing me,” one mailman said in a TikTok video last year with over two million likes. “Everyday it’s Temu, Temu, Temu — I’m Temu tired.”

Everyday it’s Temu, Temu, Temu — I’m Temu tired.

a mailman on TikTok talking about Temu

Amazon has taken notice of its competitors’ swift rise. In meetings related to its retail business, the company has shifted focus away from traditional rivals like Walmart and Target and toward Shein and Temu. In December, Amazon announced it was sharply reducing the fees it charges sellers for clothing items under $20, a move that appeared designed to ensure its prices were competitive with Shein.

I’ve been following Shein for over four years and was one of the first reporters to cover Temu when it launched in 2022. But even as the two platforms exploded in popularity, I noticed that Silicon Valley seemed largely oblivious to their success. That may, in part, be by design — Temu and Shein are notoriously tight-lipped — but my hunch is that it has more to do with their customer bases.

While a countless number of e-commerce and direct-to-consumer startups went after upper-middle class urbanites in recent years, Shein and Temu deliberately tried to court people outside places like San Francisco and New York, especially women. In other words, the male-dominated venture capital and tech industries may have initially missed these platforms because they were catching on among demographics outside their usual orbit.

The average American Shein shopper is female, in her early 30s, and earns roughly $65,000 a year, according to a report by UBS Securities. Temu’s fastest-growing demographic in March was consumers between the ages of 55 to 64, leading younger people to make fun of their older relatives for becoming “Temu victims.” Morgan Stanley analysts found that the majority of Temu’s customers are also women, and more than half make less than $50,000 annually. That mirrors the consumer profile PDD targeted with its first shopping app in China, Pinduoduo, which launched in 2015 and has more than 750 million monthly active users.

In 2018, PDD’s founder Colin Huang said he wanted Pinduoduo to appeal not just to the urban rich, but also those outside of “Beijing’s fifth ring,” a term that refers to people with modest incomes who live away from major Chinese cities like Beijing and Shanghai. The same year, The New York Times published one of my favorite editorial photographs of all time: A portrait of a 45-year-old street food vendor from a suburban Chinese town surrounded by all the things he had impulse bought on Pinduoduo, including an inflatable raft, a pink keyboard, and a mini motorized toy car for his daughter to ride around in. The accompanying article perfectly foreshadowed the type of customers Temu would seek out in the U.S.

To lure these shoppers to their platforms, Shein and Temu poured billions of dollars into digital advertising. Temu spent nearly $2 billion on Instagram and Facebook advertisements alone last year, according to The Wall Street Journal (Temu disputed the accuracy of the figure). Last February, Temu was reportedly running approximately 9,400 Facebook ads simultaneously, while Shein was running 2,200, according to a Chinese news site. Meta recently reported that its overall revenue from China nearly doubled in 2023 compared to the year prior, while U.S-based revenue rose less than 6%.

Temu made its biggest marketing splash yet when it ran six separate Super Bowl commercials this year, which may have cost PDD tens of millions of dollars in total. It was the second time in a row that Temu advertised during the big game; its sister app Pinduoduo has previously ran commercials during China’s annual New Year’s gala, the country’s most popular annual television event. A recent YouGov survey found that 88% of Americans now say they have heard of Temu, and most found out about the platform after seeing an ad for it.

Aside from their aggressive marketing, Shein and Temu also attract new customers by offering steep discounts or free products, especially in exchange for referring friends and family to their platforms. These promotions can be extravagant — I spoke to one person last year who bought a Nintendo Switch on Temu for $15 — causing U.S. shoppers to sometimes assume they are scams. In fact, the most frequent question I hear from people I know about Temu is, “Are you sure this website is legitimate?”

It doesn’t help that browsing on Shein and Temu often feels more like being inside a digital arcade or casino rather than a shopping mall. Both companies designed their platforms to maximize metrics like time spent, viewing them as a form of entertainment rather than a tool that can save you a trip to a physical store. That’s a fundamentally different approach from Amazon, which has introduced a series of features to help people get their shopping done as quickly as possible, including the “Buy Again” widget on its homepage and the “Buy Now” function that lets consumers check out with a single click.

When I recently redownloaded the Temu app, I was greeted with a spinning wheel game, which allowed me to win “100% OFF For 3 items.” I was then immediately prompted to play a separate “Multiplier Card” game, which gave me “700% OFF valued coupon bundle” that I could use to get a rebate of up to $300, but only on certain items. Lastly, Temu asked me to pick from a selection of free gifts, including a white synthetic tank top, an electric nose hair trimmer, and a baseball cap that said “SHIT SHOW SUPERVISOR” on it.

Shein engages in similar engagement schemes. The fast-fashion retailer has an elaborate loyalty rewards program that allows people to earn points that can later be used to buy free clothes. You can receive points for checking the app every day, leaving product reviews, and making purchases, among other behaviors.

But the real innovation behind Shein and Temu is the proprietary software they use to manage their supply chains.

Shein works with thousands of garment suppliers in China, and it requires them to sign up for its “manufacturing execution system,” or MES, which provides almost instantaneous feedback about which products are hits and which are misses.

Shein operates according to a model it pioneered called “large-scale automated test and re-order,” or LATR. It starts by buying a very small batch of each style, as few as several dozen pieces. It then waits to see how customers respond. If a certain sequin crop top or pair of wide leg jeans quickly sells out, it orders more. LATR is what allows Shein to add thousands of new products to its website every day, each of which serve as a mini A/B test. Unlike traditional clothing retailers, Shein doesn’t need to buy large orders of different styles that could wind up being duds.

Shein’s software has been so beneficial to the company that it is now reportedly exploring licensing it to other brands and designers. Last year, it also launched an Amazon-like marketplace where both Chinese and international merchants can sell their own products. The company has branched out into makeup, electronics, and pet supplies.

Temu, unlike Amazon, uses a “fully managed” marketplace model, according to the research consultancy Tech Buzz China. Merchants agree on a sale price and send their goods to Temu’s fulfillment centers, and it handles all shipments to the consumer. Temu was able to recruit manufacturers and sellers to its platform by promising they wouldn’t need to worry about things like warehousing and shipping costs. About 10% of Temu merchants are also selling on Amazon, Tech Buzz China reported in December.

But that doesn’t mean sellers are necessarily happy with Temu and Shein. Both companies have a reputation for forcing manufacturers to contend with razor-thin profit margins and putting pressure on them to reduce their prices. They have also accused each other of trying to steal suppliers or prevent them from working with one another. In December, Temu filed a lawsuit against Shein, accusing the company of using illegal “mafia-style intimidation” tactics against its sellers, including holding them hostage for hours. (Shein said the claims are without merit.)

The two companies have faced other public scandals, including allegations that they ripped off designs from smaller brands and sold products containing substances that could be harmful or toxic. Federal lawmakers published a report last year raising concerns that Temu and Shein and Temu may be illegally importing goods that were made using forced labor in China’s far western Xinjiang region, where the government has compelled Uyghurs and other ethnic minorities to pick cotton and work in factories for low wages.

In response, Temu began requiring suppliers to certify that their cotton didn’t originate from Xinjiang, but it walked back the policy only a few weeks later, according to The Information. Temu told the news site that it rigorously oversees its supply chain and believes its practices are in line with American competitors like Amazon and eBay. Shein has said previously that it doesn’t work with manufacturers in Xinjiang.

The season finale of “Saturday Night Live” last week included a parody commercial for an ethically dubious fast fashion company called Xiemu, which was clearly meant to sound like Shein and Temu’s names mixed together. “Modern styles, designer dupes, no prisoners involved!” the narrator says. “Did there used to be or something? Why bring that up?” Jake Gyllenhaal replies with a quiver in his voice.

Modern styles, designer dupes, no prisoners involved! Did there used to be or something? Why bring that up?

the narrator on SNL

When I shared the skit on X, a number of people were quick to point out that American brands have engaged in many of the same worrisome practices Shein and Temu are being accused of, not least of which is using prison labor. Some noted that Amazon has faced allegations that it worked with suppliers that rely on forced Uyghur workers in China, too.

But lawmakers and the companies’ critics say it’s relatively difficult to detect issues with packages shipped from Shein and Temu because they are both able to take advantage of a trade loophole referred to as the “de minimis threshold.” It allows companies to ship items from overseas directly to individual consumers without paying tariffs, as long as their value is less than $800.

Shein and Temu often send packages from China to their final destination. Lawmakers say that allows them to use de minimis to undercut the prices of their brick-and-mortar competitors that have to pay traditional tariffs on retail goods. Using the loophole also makes it harder for customs officials to oversee what’s coming into the country, since they now have to monitor hundreds of thousands of tiny packages rather than just large shipping containers. (Shein called last year for the de minimis rule to be overhauled.)

It’s not yet clear if these controversies will prevent Shein and Temu from continuing to grow in the U.S. But both companies are already setting their sights on the rest of the world. Temu has opened up shop in more than 60 countries and is actively trying to lower its dependence on American consumers. Shein is expanding across the globe as well, finding early success in places like Latin America.

Even if Amazon ultimately maintains its grip on the U.S. e-commerce market, its Chinese competitors pose a much more formidable threat in emerging markets. That reality may be part of the reason Amazon is putting greater emphasis on revenue streams like cloud computing and original content, businesses that will remain lucrative in a future where most of the world is buying from Chinese shopping platforms.

Louise Matsakis writes You May Also Like, a newsletter about tech, e-commerce, and China. She’ll be on Big Technology Podcast next Wednesday to discuss this story, you can subscribe on Apple Podcasts, Spotify, or your podcast app of choice.

This article is from Big Technology, a newsletter by Alex Kantrowitz.

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