The first real global breakout competition for Chinese e-commerce platforms.
Text丨Chen Jing
Editor丨Song Wei
The spillover of ability and ambition
Shein employees really realized that the war was burning out because the company hid its organizational structure.
One day earlier this year, Shein employees found that the organizational structure that had been available on the company's intranet was suddenly blank. Some speculate that it may have been because a senior buying director was poached by Temu and took a number of buyers with him.
In order to quickly attract clothing merchants, many employees of Temu's early buying team are from Shein, and its office is located a few hundred meters away from the Shein office building in Panyu, Guangzhou, where Shein employees can walk to the interview.
Temu, which has only been online for a year and a half, is likely to surpass $14 billion in GMV this year and set a target of $30 billion for next year. A person close to Shein revealed that its GMV will still exceed $40 billion this year amid fierce competition, contributed by self-operated goods and third parties. But both sides emphasize that their statistical caliber of GMV is inconsistent.
Temu's takeoff has helped its parent company, Pinduoduo, surpass Alibaba in market capitalization to nearly 4.6 JD.com. Pinduoduo's revenue is less than one-third of Alibaba's, but the market has changed, and investors are voting with their feet.
$0.78 quartz watches, $1 lingerie, Temu's low-priced items have been sold in 48 countries around the world. In the third quarter of this year, it reached 114 million monthly visitors worldwide, fewer than Shein. But Temu is already the second most popular e-commerce app in the U.S., behind Amazon. About 15 percent of Americans have bought on Temu, including both Kentucky working families and middle-class New Yorkers.
The mainland's most ferocious companies cross the ocean, throwing resources into the market at any cost. Pinduoduo spends $2 billion to $3 billion on Temu in a year on marketing expenses alone — a speed and intensity that even TikTok is amazed.
TikTok's e-commerce platform was originally planned to be fully launched in the United States in September this year. Since May, the person in charge, Kang Zeyu, has urged the team at the meeting many times, hoping to go live two months ahead of schedule.
Temu orders were skyrocketing at the time, just three months after it was named the Super Bowl, the annual championship game of American professional football. In July, TikTok e-commerce failed to be fully launched as scheduled, and the technical team leader was replaced in August.
In the third quarter of this year, Shopee, Southeast Asia's largest e-commerce platform, saw a direct 49% increase in marketing spending, but it was not as good as Temu's $14 million in 60-second advertising spent on the Super Bowl. Shein's marketing expenses, which have been declining for years, are in the single digits of sales, rising directly to nearly 10% this year.
Research firm MoffettNathanson estimates that in the first nine months of this year, Shein and Temu contributed nearly one-third of Meta's revenue growth, or nearly $3 billion. Of course, Google is making a similar windfall.
Temu's entry has raised the competitive intensity of global e-commerce to the highest level in a decade, and at the same time accelerated the global expansion of Shein and TikTok e-commerce. TikTok e-commerce will complete $20 billion in sales this year, immediately doubling its target for next year to $50 billion.
The three powers met in the United States, and the war escalated dramatically.
In the first two weeks of November, Shein saw a 60% year-over-year increase in ad spend, while Temu saw a 100% increase. In previous years, "Black Friday" lasted for 5 days, but this year's Temu "Black Friday" promotion lasted for 47 days, TikTok e-commerce promoted for 35 days, and Shein promoted for 26 days, which directly drove Amazon to extend the promotion cycle from 5 days to 10 days.
Li Xiaodong, the founder of Shopee, issued an all-staff letter warning, saying that he was facing a strong challenge from opponents in the high-dimensional world. Even then, Temu had not yet entered Southeast Asia.
Behind this is the spillover of China's involuted Internet capabilities overseas, the spillover of China's supply chain, and the spillover of platform operation and management capabilities.
Shein's success is a full understanding and implementation of China's advantages, which has reduced the turnover of the entire supply chain to a very low level in the industry through scale effect and industrial Internet capabilities, and seized Amazon's undone business in Europe and the United States - non-standard products such as clothing.
TikTok is the first social product made by Chinese people in the world, it breaks through the limitations of the most core unit of the country, divides the market with language, and in the words of founder Zhang Yiming, "make global products, not make products in the world." ”
Before Temu entered, Shein planned to expand from categories such as clothing to a full-category platform, while TikTok explored e-commerce business globally, hoping to replicate the growth miracle of Douyin e-commerce.
But they all encountered Temu in the course of the evolution of the species.
The globalization of e-commerce platforms (marketplaces) is difficult to socialize products, because the expansion speed and ability iteration of atoms are much slower than those of bits. But Temu's sophistication (cruelty) lies in the fact that it controls the supply chain through model innovation - full custody, but does not control the supply chain, and at the same time dares to endure losses and huge investments. This is a strategic all-out offensive, which uses global capital to crush the global market with China's total factor production efficiency.
In 2000, Son proposed an investment idea, the Time Machine Theory, in which he argued that other countries would undergo the same technological transformation as the United States. So if you know what works in the U.S., you should invest in other geographic locations, such as China. It's like going back in time in a time machine.
The essence of this set of theories is a worldview that radiates outward from the United States. And today, Huang Zheng and Xu Yangtian are turning their long-standing brutal tactics to the global market they covet, trying to turn back the clock machine.
Find、Shein、TikTok 电商页面
Temu, a nuclear explosion
It's not hard for Pinduoduo to create a multibillion-dollar business: just have billions of dollars in money and be willing to spend it.
On the eve of the listing in 2018, Pinduoduo's U.S. research team approached Facebook's strategy team, saying that they were going to go overseas next, hoping that Facebook could give some support in advertising.
One Facebook employee who participated in the exchange said that Pinduoduo already has a deep understanding of the U.S. market, but in the early years of the U.S.-China trade war, he felt Pinduoduo's hesitation to enter the U.S. market.
In China, Pinduoduo, which was established three years ago at that time, has developed rapidly, and it has become the third largest e-commerce platform in China. Ali regards Pinduoduo as its number one rival and is preparing to restart Juhuasuan and capture the sinking market together with daily sales.
In July 2020, founder Huang Zheng suddenly announced that he would step down as CEO. In the same year, the community group buying project Duoduo Grocery was launched, and together with rival Meituan, each family burned nearly 10 billion yuan per year across the country. With no hope of profitability in the short term, in less than two years, both companies began to slow down and turn around their losses.
Two years have turned the environment upside down. In the first quarter of 2022, the growth rate of advertising fee and commission income of Alibaba's e-commerce business was 0. During the same period, Pinduoduo's growth rate fell back to 7%. Douyin e-commerce reached nearly one trillion yuan in sales in 2021, the fastest among all e-commerce platforms in China.
At a time when domestic business growth peaked, Pinduoduo relaunched its internal business. In May 2022, the project was officially launched. In the previous four quarters, Pinduoduo has begun to significantly reduce its investment in domestic e-commerce business and continue to make profits.
Pinduoduo once again demonstrated strong execution efficiency. Nearly 80 supply chain employees moved to Panyu, Guangzhou, which was the starting point for Shein to build a clothing procurement supply chain. With the policy of "0 yuan entry, 0 deduction points" to attract merchants, merchants only need to be responsible for putting goods on the shelves, according to the order within 24 hours of delivery to Pinduoduo's domestic warehouse, the platform is responsible for product selection, pricing, logistics, after-sales - this is known as the full custody model.
Full custody is the core of Temu's play. A supply chain source commented that this greatly lowers the cross-border barrier and is particularly attractive to businesses that lack overseas marketing experience, but it also means that sellers "have less control over pricing, return policies and long-term sales growth planning".
The price of the platform is to bear the high cost of the whole link and endure losses. This winter, Temu's packages to the U.S. cost around $15, with free shipping on standard logistics, orders delivered within 11 days, and a 90-day extended return window.
Temu benchmarked against Shein in the early days, and half of the investment team once served the fashion category, and set up a special team to go deep into the clothing production process and make patterns for clothes - this practice was eventually abandoned, because the team realized that Shein's clothing supply chain is extremely capable, and through the full custody model, Temu can also grasp the supply, grasp the pricing power, and give the factory the space to incubate the brand.
After adjusting the strategy, the target object has changed. A Pinduoduo executive once said internally that Temu's ultimate goal is to surpass Amazon.
Pinduoduo has discussed internally whether to go to Southeast Asia first as the first stop. However, after a global research round, the COO led the team and came to the conclusion that the competition in Southeast Asia was too fierce, and the first stop should be directly to the United States.
E-commerce in the U.S. is growing at a compound annual rate of more than 15%, faster than the global market. Despite being the world's largest consumer in terms of total consumption, only 15% of Americans' spending in 2022 was online, compared to 31% in China in 2022. This means huge, clearly visible space. Nearly half of U.S. households pay $139 a year to Amazon as a Prime member, taking advantage of two-day delivery from Amazon's own logistics team. The model determines that Amazon cannot achieve the ultimate low price.
On September 1, 2022, Temu was officially launched in the United States, ready in a hurry.
This does not hinder its growth. A month later, Temu's average daily GMV exceeded $1.5 million, bringing its total to more than $200 million in three months. The number of settled merchants is nearly 30,000, with SKUs ranging from 300,000 to 400,000, covering 24 first-level categories. The prototype of the platform has been formed.
Temu launched the "Chop a Knife" marketing game a little later, and the price can be cut to six decimal places in China, but in the United States, the rules are clearer, and generally invite a few people to receive cash or free goods.
Temu's real turning point came when it landed at the Super Bowl in February 2023 – the annual championship game of professional football watched by 100 million Americans.
Temu paid $14 million for two of those 30-second slots, with the slogan – Shop like a billionaire. On the night of the broadcast, Temu saw a 45% spike in downloads and a 20% increase in daily active users.
A senior executive of a leading overseas brand company said that he was shocked that Temu could appear in the Super Bowl. Because it represents a social and political license to some extent, "we have to be scrutinized by multiple departments if we want to place a billboard in the core location. He said.
This massive marketing campaign is like a nuclear explosion.
"All of a sudden, it all worked. A former Temu employee said that the traffic exploded, and at the same time the domestic epidemic was liberalized, and logistics were no longer restricted.
Since July, Temu has spent more than $10 million on Facebook and Google in a single day. In August, Shein also reached $8 million in a single day on both platforms.
In September, Temu's monthly sales in the U.S. were already close to Shein's, and the U.S. is both Temu's and Shein's largest market.
In October, Temu's fashion products such as shoes, clothing, and accessories accounted for 30% of total sales, tied for first place with lifestyle categories such as home furnishings and department stores, while shoes, clothing, and accessories accounted for more than 60% of Shein's total sales.
A few days before the Super Bowl, Temu entered Canada, the closest to the United States – a submarket that can be considered the United States. A month after the race, on March 13, Temu entered Australia, New Zealand. There are many Chinese immigrants here, and a large number of Asian physical supermarkets have been opened after the epidemic, but the land is sparsely populated and the shipping cost is high, and the local supermarkets need more than $250 to get free shipping, and Temu has a direct 0 threshold for free shipping. On March 15, Temu traveled to the United Kingdom, the country with the second highest penetration of e-commerce in the world. Within a month, sites were opened in Germany, France, Italy, the Netherlands, and Spain.
"I didn't expect Temu to be rolled out in an instant, I thought they would do a good job in one country and then open another. A Wish executive said. Wish used to be known as the "overseas version of Pinduoduo", but it has struggled with growth in the past two years.
In April of this year, a clothing independent station had just turned a profit, and during May Day, the founder was still on vacation, when he received a call from a colleague: TEMU had come to the UK. "The daily activity of the website has not dropped, but the conversion rate has dropped by a third. Four months later, Temu was rolled out across Europe. The daily activity and GMV of this independent station have fallen by half.
In July, Temu entered Japan and South Korea, and in the following three months, the number of downloads quickly surpassed Shein and AliExpress, which had been working in Japan and South Korea for several years. In August, Temu finally entered the highly competitive Southeast Asian market and landed in the Philippines, which is also Shein's largest market in Southeast Asia. In September, Temu was launched in 10 countries at the same time, and is now live in 48 countries.
This speed is even faster than TikTok e-commerce. Behind it are logistics subsidies, deep discounts, coupons, and considerable advertising.
According to a December report by Goldman Sachs, it estimated that Temu's average order loss in the U.S. was around $6 and in other markets at about $18.
The huge Super Bowl investment reflects Temu's strategy to build a presence in the U.S. and other markets with a massive advertising budget funded by Pinduoduo's deep pockets, and ultimately use its customer base to transform a loss-making company into a giant through rapid growth.
It is understood that 60% of Temu's current traffic in the United States is organic traffic, which means that the cost of customer acquisition is decreasing.
In the past, Chinese e-commerce companies going overseas were jealous and fearful of the United States, the world's largest consumer market. They would rather exert their strength in other areas and become the head. Ali founded AliExpress, a cross-border retail platform, in 2010, and the best market was in Russia; Ali invested $5.8 billion in Lazada, which has been fighting with Shopee in Southeast Asia for 8 years, with a market share of only half of its rivals; JD.com went overseas first to the Indonesian and Russian markets, and finally gave up after 8 years.
It is understood that the founding team of Pinduoduo mentioned internally a few years ago that "China second" + "United States second" = "global first".
When Temu decided to make its first stop in the United States, its fate was destined to cross with TikTok and Shein, and a big war was ready to start.
Shein, evolve at a faster pace
Unlike the other two, Shein does not want to challenge Amazon, it hopes to surpass ZARA in the early days, and now hopes to become the world's largest non-standard platform - expanding from clothing to the entire fashion category.
If it doesn't have to face Temu's powerful offensive, Shein can evolve at its own pace – from single category to multi-category, from self-operated to platform, from cross-border to localized – just like in the past decade, growing quietly and steadily.
Shein's founder, Xu Yangtian, is an entrepreneur with a low starting point but a high business talent.
He graduated from Qingdao University of Science and Technology in 2007 and started his sophomore year in the foreign trade business. His career officially started in Nanjing in 2008, Xu Yangtian is good at seizing opportunities, and when he was an independent station, he tried dozens of categories, including cross-border wedding dresses, but unlike most businessmen, he was diligent in thinking and never hesitated to identify the direction - in 2012, he cut all the independent stations and focused on fashion women's clothing. Three years later, Xu Yangtian simplified the website domain name Sheinside to Shein, and moved his headquarters from Nanjing to Guangzhou, the world's most prosperous clothing production base.
One early Shein person said they saw the simple fact that e-commerce in the United States was growing much slower than in China, and that Amazon could make standard products to the extreme, but not the non-standard ones. The largest category of non-standard products is clothing.
Shein grasped two keys, which were what China was best at at that time, one was the Internet, and the other was scale effect. That is, through the scale effect and the transformation of the entire industrial process by the Internet, the turnover of the supply chain will be reduced to a very low level in the industry, so as to achieve cheap and good, because the essence of this is to make turnover money.
With affordable and stylish clothing for young women (including a $6 crop top and a $9 miniskirt), Shein has attracted a large number of social media users in the United States. One Twitter user calculated that spending just $280 on Shein could make a year's worth of clothing.
Shein usually experiments with orders of less than 100 pieces, and if the demand is high, it can immediately organize thousands of supply chain companies to quickly produce and deliver within the week. This greatly increases the certainty of sales. It also makes Shein closer to users and more aware of needs.
Xu Yangtian understands the mentality of small producers. In the early days, Shein hired proofreaders and other professionals to go to small factories to help with production. The pricing is more relaxed, and the supply price will be repeatedly calculated with the factory to ensure that the factory can make money from the first batch of small orders. The account period is also friendly, and the factory can get the payment for the first order. The digital system was also brought into the factory by Shein.
In 2017, Shein went deep into the upstream, integrating fabrics, printing and dyeing. All companies are willing to say that they are deeply involved in the supply chain, but even among the most well-known brands, only a few are willing to integrate resources in China, starting with raw materials.
In eight years, Shein's sales have increased hundredfold, and its relationship with the garment processing industry in South China is no longer that of customers placing orders for factories. Shein has built a supply chain system that goes deep into the processes of garment design, fabric procurement, processing, and ordering, and it also helps suppliers expand their factories, improve equipment, and study how the seaming process evolves.
Shein has become the chain owner of the entire industrial chain, with 5,000 new SKUs a day, and ZARA only launches 20,000 new SKUs a year, with a sell-out rate of 98% and a popular rate of 48%, and its inventory turnover can reach more than 30 days, while ZARA is 120 days.
In 2022, Shein's revenue reached $29 billion, and it is already the largest fast fashion brand in the United States, with a market share of 40%, far exceeding H&M (16%) and ZARA (13%).
And these suppliers who have grown up with Shein, they have grown from small to big, made money, and at the same time formed Shein's moat. This is why Temu has been vigorously poaching Shein's suppliers, because the entire strong supply chain system is the basic plate of Shein.
In the past ten years, Shein has stayed away from the domestic e-commerce Red Sea battlefield and has been able to maintain its own rhythm.
A Shein person said that as early as a few years ago, Xu Yangtian's plan for Shein was to change from a single category to multiple categories, from self-operated to platform, and from cross-border to localized.
In the early days, both Shein and Temu now produced goods domestically, transported across oceans, and the benefit was that they expanded quickly. Temu has a team of 4,000 people and a supply chain in China, and can open 48 countries in a year and a half. However, in the later stage of the business, if you want to enter the markets of various countries with complex environments, localization is an inevitable trend, because it can break the ceiling of cross-border e-commerce.
This is the right business, that is, the goods are shipped locally, and these goods may be produced by local merchants, or they may be shipped to local warehouses in advance by Chinese merchants.
Brazil is the key market for Shein's business, and it is also the third major market it has developed after Europe, the United States and the Middle East. If it doesn't localize, Shein will face high logistical difficulties, slow customs clearance, shipping times that can make it up to a month for consumers to get their goods, tariff rates as high as 60%, and Brazil's protection of local manufacturing with little space for cross-border merchants.
In December last year, Xu Yangtian traveled to Brazil to establish a partnership with a local factory. Over the course of a year, 213 factories in Brazil adopted the Shein model, producing on-demand, ranging from 100 to 200 pieces per product. Shein aims to work with 2,000 Brazilian factories within three years. By 2026, 85% of sales in Brazil will come from locally produced goods.
Marcelo Claure, Shein's partner in Brazil, said that the cost of producing and selling goods in the first factories that Shein cooperated with in Brazil has become comparable to the cost of producing in China and selling them in Brazil.
In an effort to comply, Shein also joined the Brazilian Tax Compliance Program in September of this year, which increased the average price of its products in Brazil by 10%, but it still leads the low-price list at 26% lower than the second-place bidder.
Shein was estimated to have generated $1.4 billion in revenue in Brazil last year, accounting for only about 5% of total revenue, but it grew rapidly, up 250% year-over-year. Shein is currently the second largest e-commerce platform in Brazil.
Brazil's GDP per capita last year was $9,149, almost double that of Indonesia, Southeast Asia's largest e-commerce market. If Shein can replicate the domestic experience here, it means that its cost, quality, and timeliness advantages will be far greater than those of its competitors who need to pay tariffs and spend a month to ship goods to the local market.
In parallel with the Brazilian plan, there is also Turkey, which is 10,000 kilometers away.
Straddling the Eurasian continent, Turkey has an abundance of cotton fabrics, and goods produced in Turkey can be trucked to European countries. Compared to air freight from China to Europe, a single order can save at least $5 in logistics costs. In July 2022, Shein was looking for a partner factory in Istanbul, and the plan was to have 20% of Shein's sales in the EU region come from Turkish factories by the end of 2023.
Localization has allowed Shein to enter large emerging markets with complex tax compliance and high logistics costs. But the price is slow, for example, in Brazil, the local textile industry is far less basic than the domestic one, many fabrics still have to be imported from China, puff sleeves, zippers and other relatively complex processes need to be invited from Guangzhou to train local factories.
Another of Shein's core strategies is platforming. As early as 2015, Shein gradually expanded from clothing to shoes, accessories, beauty, pets and other categories, but last year non-clothing accounted for less than 20% of total revenue.
In March this year, Shein began to speed up, Shein held a number of investment conferences, for Mexico, Brazil of the third-party platform model pilot investment, two months later, Shein announced that it will promote the platform model in the world, that is, the introduction of third-party merchants, on Shein.
The entry of third-party merchants has enriched the ecosystem, and the proportion of Shein's non-apparel category in total revenue has risen rapidly to 40% this year.
From a fast fashion women's clothing brand to a real marketplace, it will be a big leap for Shein, which can allow Shein to break through the ceiling of the clothing category and become a comprehensive e-commerce platform. The management expected that Shein could become the world's largest platform for non-standard products, and Taobao did not succeed.
Shein's development in the past decade has been like a game clearance, starting from a very low starting point, through refined operations, link by link improvement, superimposed product transformation and understanding of China's advantages (the scale effect brought by supply chain clusters). This is a barrier built by time.
Both TikTok and Temu tried to replicate Shein's path in the early days, but they both gave up. Because the two companies are better at "vigorously producing miracles" and "holding high".
After Temu joined the competition, Shein's pace increased significantly. In December this year, Shein has made a secret statement on the US stock market, and the latest valuation is $66 billion.
"If it weren't for Temu, it would be like a paradise. The shift was extended from seven or eight to ninety in the evening, and Shein's employees began to complain at their workstations. But when they leave work late at night and look at the Temu office building a few hundred meters away, they find that the lights are still bright.
In February of this year, Shein's various business teams had to do systematic competitor monitoring on a daily basis, compared to the previous weekly or even monthly monitoring of competitor products. At the weekly management meeting, the management will be concerned about the progress of Temu, down to the number of coupons issued by Temu in different regions.
Shein is the one in the industry where Temu's onslaught is felt the most. In the past, it was in an industry where the opponents were too weak, and "we didn't actually experience a real big fight," said one Shein employee. But now, Shein's entire team is facing Pinduoduo, which has the strongest combat power.
In business competition, when your opponent is faster than you, it's harder than accelerating to make sure you're still on the right track.
TikTok e-commerce, value revaluation and capacity reconstruction
Compared with Douyin e-commerce, which is struggling in China, overseas, TikTok e-commerce has struggled in the past two years.
In August 2020, in an internal meeting of Byte, the core decision-makers listened to the team's report on the potential of the foreign e-commerce market, in which they proposed that within 3 years, domestic e-commerce will complete 1 trillion yuan of transaction volume, and overseas e-commerce hopes to complete 2 trillion yuan, while Amazon's global GMV was only 4 trillion yuan that year.
In the past three years, Douyin e-commerce has exceeded its target - the transaction volume has exceeded 2 trillion. TikTok e-commerce has only achieved 7% of its e-commerce target – with an estimated transaction volume of US$20 billion (142.7 billion yuan) by the end of the year.
At that time, their optimism came from the fact that developed countries such as the United States, e-commerce is very scattered, although Amazon occupies 1/3 of the e-commerce share, but they expect independent stations to take away 20%-30% of the share, and these independent station sellers can open stores on TikTok; Indonesia and other developing countries, the top three e-commerce companies occupy more than 70% of the share, but the penetration rate of e-commerce in the five Southeast Asian countries is only 2.5%. This, they argue, shows that there is more than 90% increment in the market.
The goal is set. In February 2021, the TikTok e-commerce service was launched. That year, more than 800 billion yuan of goods were traded on Douyin e-commerce in China, making Douyin the fastest-growing e-commerce platform in China.
An early TikTok person said that the market that TikTok most wanted to do at that time was the United States. Just as then-US President Donald Trump announced that he was ready to ban TikTok, they were forced to shift the e-commerce pilot market to the United Kingdom and Indonesia.
Entering the UK, there have been internal debates about two routes, using Douyin's mature live broadcast to sell goods, or shelf e-commerce with higher acceptance in Europe and the United States?
At the same time, TikTok also investigated Shein's cross-border model and found that the chain is long and there are many links, making it difficult to quickly increase volume in a short period of time.
In the end, TikTok decided to focus on the basics, supplemented by cross-border, and use the model of live streaming to do e-commerce, hoping to take advantage of the traffic advantage and quickly scale.
They soon encountered difficulties: there was no Xi of live shopping from users to merchants; there were not many local merchants willing to settle in, and finally relied on Chinese merchants to sell goods across borders, and the platform was flooded with various "Yiwu small tail goods" such as crystal stones; cross-border logistics was inefficient, and users needed to wait 10 days or even a month from placing an order to receiving the goods.
The situation is different in Indonesia. Anchors and users have a high acceptance of live broadcasting, the difficulty of attracting local investment is much less than that of the UK, and the abundant business flow of Lazada and Shopee has also driven the growth of logistics companies such as J&T.
However, due to the Indonesian government's local trade protection, local merchants can only open stores on TikTok, and TikTok has to give up cross-border e-commerce and attract local merchants with zero commission. In order to find goods, the TikTok team even went down to the wholesale market to rent stalls and let the stall owners broadcast live, and the TikTok team was responsible for uploading products and placing orders and shipping them - all of which would make it inefficient.
In 2022, TikTok e-commerce completed $4.4 billion in sales, of which about 90% was contributed by Southeast Asia.
Just as it was about to make efforts in Southeast Asia, the situation changed dramatically.
In September 2023, the Indonesian government banned TikTok e-commerce by prohibiting direct sales transactions on social media platforms. Since then, TikTok has been looking for a way out in various ways. It wasn't until December this year that it was able to return to Indonesia by merging its Indonesian e-commerce business with Tokopedia, Indonesia's largest local e-commerce platform, through the mediation of ByteDance's CFO Gove.
TikTok's e-commerce has been slower than expected. In 2021, the GMV of TikTok e-commerce was $1 billion, which was obtained under the premise that the platform heavily subsidized merchants.
The reason for this is that it is trapped in the global supply chain and logistics capabilities that ByteDance almost does not exist. China's private logistics system has been with the development of e-commerce for nearly 30 years, and it has sunk into rural areas, while Alipay and WeChat Pay have greatly simplified the payment process for consumers. These ready-made service supplies are the guarantee for Douyin e-commerce to start in a short period of time.
Douyin e-commerce is on the road paved by Ali and Tencent at an unprecedented speed. But overseas, TikTok doesn't have that infrastructure.
A person close to Douyin e-commerce said that Douyin e-commerce relies heavily on impulsive consumption of live broadcasts, and its competitive price power may be the weakest among several platforms. "The price of some standard products is 50% worse than Pinduoduo", and the return rate of Douyin Live is also higher than that of Taobao and Pinduoduo.
The success of Douyin e-commerce in China is based on its unique form of live streaming, which stimulates the small but huge shopping needs of consumers. However, overseas, commodity power, logistics capacity, including the trust of both supply and demand sides in the brand, must start from scratch.
In other words, the different development speeds of Douyin e-commerce and TikTok e-commerce are essentially different markets and the value of live broadcast e-commerce is revalued.
In addition, it is important to note that TikTok carries the heaviest compliance baggage, which directly affects its business decision-making logic.
At the end of October this year, TikTok e-commerce was launched urgently in the United States. Previously, Temu stormed the U.S. market, and since May, Kang Zeyu, the head of TikTok e-commerce, has urged a rapid launch. In August, TikTok's e-commerce technical lead was replaced.
TikTok e-commerce only recruited local merchants in the United States at the beginning, and the threshold for opening a store was very high, and the e-commerce station opened in the United States for 4 months, and there were less than 100 local American merchants actually selling on it;
At the same time as the launch in the United States, TikTok cut off external links, and big customers like Shein can no longer be diverted through TikTok, just as Douyin cut off Taobao's external links in 2020, and the original partners have become competitors.
In addition, TikTok e-commerce is limited in what it can do. Their every move is monitored by the public, the media, and the U.S. government. This makes it even more important for the team to grow steadily at this stage, and not to be able to hit it off like Temu in one go.
"Landing in the Super Bowl is simply not possible for us. A TikTok employee said that when he saw Temu's movements, he also sighed at the amount of space and investment.
TikTok has over 1 billion daily active users worldwide, which is a huge asset. They have had many options, and TikTok has tried many forms of e-commerce - live e-commerce, short video e-commerce, independent stations, and shelf e-commerce.
But they don't have Shein's time, and they don't have the space for Temu — today TikTok has more than 20,000 employees, more than 4,000 e-commerce employees, or about 20%, while 33% of Pinduoduo's 12,000 full-time employees are Temu, and Temu has been in a fully managed model since the beginning.
They have more concerns. TikTok management needs to balance the growth of e-commerce and the impact on advertising revenue. For example, Amazon is a big advertiser on TikTok, and if the e-commerce conflict is too direct, it may have an impact on TikTok's advertising revenue.
E-commerce is only a big part of TikTok, but it's all for Shein and Temu.
TikTok e-commerce has finally entered the United States after several rounds, and after clarifying the model - shelf e-commerce and live broadcast e-commerce in parallel, some of which do cross-border full custody, and some of which are local to find merchants and develop their own business - have entered the growth channel.
It is understood that during this year's "Black Friday", TikTok completed its previous average daily sales target of $16 million, and on November 24, its single-day sales exceeded $33 million - close to Temu's average daily sales of $40 million in the United States.
E-commerce is still the most important revenue model for TikTok in the next decade, but they can no longer "eat the world with one product", they can only use different models and rhythms in various countries to differentiate, and they are also accepting that they are no longer the fastest and strongest, and they are adapting to the new rhythm.
America, a crossroads of fates
Cross-border women's clothing, short videos, low-cost e-commerce platforms. Many years ago, Xu Yangtian, Zhang Yiming, and Huang Zheng may not have thought that they would meet each other in the same market and become competitors.
In 2010, Huang Zheng founded Leqi.com, and the entire Taobao revenue that year was only 5 billion yuan. He realized that instead of selling foreign goods to China, it was better to sell Chinese goods abroad. Leqi launched the cross-border wedding e-commerce brand JJ'S House, which has directly become the world's largest wedding e-commerce company. But even if it becomes the first, there are only thousands of orders per day, and the industry is too small. So in 2015, Huang Zheng turned his energy to domestic e-commerce and founded Pinhaohao, the predecessor of Pinduoduo.
A person who followed Huang Zheng in the early days of entrepreneurship said that Huang Zheng's time and energy are always invested in the things with the highest returns. Back then, he put down his overseas business because of Pinduoduo, and today the growth of domestic e-commerce business has slowed down, and so is his dedication to cross-border business.
Despite their different business endowments, for this generation of post-80s Chinese entrepreneurs, overseas is their last breakthrough battle, which allows them to break through different bottlenecks and find more space, and they can also learn Xi, integrate into global rules, and unleash all the capabilities accumulated by China.
The previous generation of large domestic companies, Tencent and Alibaba, chose to go overseas after making too much money in China, resulting in people who went overseas feeling that domestic money was more profitable, "Why should I come here?"
After seeing the energy of TikTok two years ago, a person from Tencent sighed, "Only the word energy saving insists on investing regardless of the cost." ”
Shein's growth journey shows a different path - it can win through the evolution of the back-end and through the efficiency of the supply chain.
Temu is kind of a jack of things. Pinduoduo has become the second e-commerce platform in China to go overseas again, and its resources, mature methodology, and team execution are unimaginable for startups. In the third quarter of this year, Pinduoduo had cash assets of 202.8 billion yuan.
The process of e-commerce is also longer, as long as the back-end capability is established, it is difficult to surpass it in a short time, and the growth rate of the superimposed team makes Chinese companies have a great competitive advantage.
When Temu, Shein, and TikTok e-commerce met in the United States, they competed with each other, learned Xi from each other, and joined forces to increase the competitive intensity of global e-commerce.
Shein controls the whole chain from raw materials, design, production, warehousing, transportation, and sales, with 7.3 million monthly active users and a GMV of more than $40 billion this year.
On the other hand, when there is a competitor in the industry who has greater traffic, does low prices in a more extreme way, and is more willing to invest, a large number of users and merchants may be sucked away.
Shein's capital thickness is not as good as the other two. Compared with Pinduoduo, which has more than 200 billion yuan in cash assets on its books, and ByteDance, which has a revenue of $110 billion a year, Shein's profit of $2.5 billion a year is still thin.
Different from all previous cross-border players, Temu has chosen a full-custody model that almost bears the cost of the whole chain and minimizes the entry threshold for merchants, with more than 100,000 merchants bidding with each other and millions of SKUs forming a full-category platform. Temu entered 48 countries and territories and had 15.2 million monthly active users in October, surpassing Shein (7.3 million) and less than Amazon (25.2 million).
Temu's ultimate goal is also to surpass Amazon. In the past year, Temu has generated more than $14 billion in sales with a team of 4,000 people. But at the cost of squeezed margins for suppliers and the neglect of some of the rules in the process.
Temu is about to land in the Super Bowl for the second time. The challenge will be how to reduce its reliance on expensive ads like the Super Bowl and convince established brands to sell products and buy ads on their platforms.
Pinduoduo also faced a similar problem after the rise of China, and then relied on tens of billions of subsidies to attract brands to establish a complete e-commerce platform.
After three years of exploration, TikTok e-commerce finally got a revelation from Temu - to attract cross-border merchants in a fully managed mode, take advantage of the huge traffic advantage, and sell all categories of goods in the mode of short video + live broadcast + shelf. Such a model has been launched in the United States, Southeast Asia, Saudi Arabia, the United Kingdom and other places, and will enter Brazil next year.
So far, the most direct beneficiaries of this "Three Kingdoms" are consumers in the United States, as well as Meta and Google, which control the global advertising ecosystem.
In the first 12 months of this year, 46% of Temu's digital ads went to Facebook, 22% to Instagram, and 15% to YouTube, according to Sensor Tower.
An overseas live streaming platform executive estimates that TikTok spends $10 billion a year on traffic, cloud services, content rights, and more, and that money goes into the pockets of big companies such as Microsoft, Oracle, Google, Meta, and Sony.
And the most immediate risks of these three companies are similar.
After the 2020 crisis, TikTok once again faced the possibility of being spun off or banned. In February 2023, the U.S. House of Representatives and Senate each introduced bills to open a new path for the U.S. government to ban TikTok, which is waiting for both houses to vote on it. Montana legislates, starting January 1, 2024, to ban TikTok from use across the state. Although in November, the district's federal court temporarily banned TikTok on the grounds that it "exceeded the state's rights" and violated users' "constitutional rights." But Montana has undoubtedly taken things one step further.
Shein and Temu are also receiving more and more attention from the U.S. government and the media, including but not limited to data security, procurement violations, intellectual property rights, whether trade loopholes are exploited, and whether there is forced labor. China's Ministry of Commerce responded this year, saying the U.S. accusations were "neither professional nor responsible."
While regulatory risks were brewing, the two companies sued each other overseas. In December last year, Shein accused Temu of trademark infringement, after which the UK and US courts issued a temporary injunction against Temu. In July of this year, Temu accused Shein of getting suppliers to sign exclusivity agreements.
In October, the parties dropped their lawsuit in the United States. Two months later, Temu again accused Shein of anti-competitive behavior and blocked suppliers from engaging Temu. Shein responded, "This lawsuit is unfounded", and they said that they will never compromise on this, and will actively respond to the lawsuit and use legal means to protect the company's rights.
The business war set off by Shein, Temu, and TikTok e-commerce is both a "civil war" and a "foreign war".
The three companies are snatching cross-border transactions such as Wish, AliExpress, and e-commerce independent stations. But they also compete with each other, not only in terms of categories and price ranges, but also for merchants and factories, and blame each other in public opinion. The placement of large amounts of advertising money on overseas social media has raised the unit price of advertising keywords and increased each other's operating costs.
The three are targeting relatively similar markets at this stage – low-priced clothing and a variety of household gadgets, except that Shein is more focused on fast fashion. Their consumers are willing to wait a few days or a week or two to save money.
They all want to surpass Amazon and become a global e-commerce platform. Today, they are still a long way away - Amazon has spent 20 years building a global supply chain, warehousing, and logistics system, and paid members can have orders placed in the United States delivered the next day.
But the ultimate winner of this war will be likely to accumulate enough user scale, and then build a complete global supply chain, truly build a Taobao overseas, and compete with Amazon on a global scale.
In order to accumulate a scale that can challenge Amazon, these three companies need to outperform each other and outperform even more.
An overseas entrepreneur said that he once thought that TikTok was the "uncrowned king" among Chinese overseas companies, and only policies could correct it. Today, this phrase can also be used to describe Shein and Temu.
Image source: Visual China