Where can I buy a $5 pullover? Under inflation, American consumers with shrinking wallets have found the answers they want on China's cross-border e-commerce platforms.
Pinduoduo's cross-border e-commerce platform Temu and fast-fashion company Shein deliver an average of about one million packages a day in the United States, according to ShipMatrix, a parcel shipping consultancy. Although this figure represents only 1.2% of the nation's average daily parcel total, it is a considerable amount of progress considering that Tem only entered the U.S. market last year.
This also makes domestic e-commerce in the United States feel threatened. This month, the U.S. e-commerce platform Etsy announced that it would lay off 11% of its marketing workforce. Its chief executive, Josh Silverman, said earlier that Tem and Shein are grabbing a bigger share of the e-commerce market, "and it is impossible to grow big quickly without snatching share from many people." ”
Behind the competition of e-commerce brands, American consumers are borrowing to spend. As of this year's U.S. online shopping festival "Cyber Monday", U.S. consumers used $67 billion in installment loans, up 16% from the same period in 2022, according to Adobe Analytics, which tracks market consumption data.
Irene Tunkel, chief strategist of U.S. assets at BCA Analysis, an investment consulting firm, recently told the first financial reporter that since the beginning of this year, U.S. consumer sentiment has not returned to pre-epidemic levels, but consumer spending has remained strong. Spending during the recent holiday season suggests that excess savings accumulated during the pandemic have helped spur consumer spending and delayed the onset of the recession. However, the tail effect of excess savings is waning, "suggesting that excess savings will be depleted sometime next year, which bodes badly for the economic outlook." ”
Click on Temu's website to go directly to the coupon wheel
The cost advantage "alarmed" Amazon
Tem has been in the U.S. market since last September and topped the U.S. app store charts two months later. Earlier this month, Apple said that Tem was the most downloaded free app on Apple phones in the US in 2023. According to a report by market analyst Bloomberg Second Measure, Tem's sales jumped 29% month-on-month in November, setting a new record. According to estimates by Business of Apps, a global application industry information platform, Tem's monthly gross merchandise volume (GMV) will reach $1 billion by the end of 2023.
In February, Tem branded the slogan "Shop like a billionaire" in a nationally anticipated Super Bowl final ad, calling on customers to buy whatever they want like a rich man without worrying about the cost. With this in mind, TM has found its target audience. Between September 2022 and August 2023, 40% of Tem's U.S. sales came from households earning less than $40,000 a year, according to an analysis by market research firm YipitData. In contrast, less than 20% of sales for budget clothing brand H&M come from this revenue group.
In addition, Google Trends data shows that Tem has the highest search volume in Mississippi, West Virginia, Arkansas, Kentucky, and Alabama, which also have the highest poverty rates in the country.
China-founded fast-fashion brand Shein has also attracted a large number of young buyers with its cheap and fashionable clothing. The platform introduces thousands of new designs every day, while dynamically adjusting the production of products. According to Sensor Tower, a data tracking company, the app was downloaded 172 million times last year.
This year, Shein is allowing independent merchants to sell products through its website. According to the research firm, thousands of Amazon sellers have joined the new platform, including dozens based in the United States. According to data analytics firm Earnest Analytics, Shein has grown to become the largest fast-fashion seller in the United States.
This has brought "ripples" to the already mature U.S. e-commerce market. Amazon's online prices are often the lowest among major U.S. retailers, and Amazon is working hard to ensure that its online prices are not higher than those of its competitors. But according to people familiar with the situation, Amazon has not been able to compare the prices of some similar products of Tem and Shein. Amazon executives are finding that there is a market for specials that take longer to arrive, but they are weighing how to deal with competition from both platforms, Tem and Shein, the insider said. For example, should low-priced items on Amazon be made more accessible to consumers?
Now, in the face of competition, Amazon finally "can't sit still". This month, Amazon decided to reduce the transaction fee charged to sellers for apparel items under $15 from 17% to 5%. For products priced between $15 and $20, the transaction fee is reduced from 17% to 10%.
Spend money on marketing and R&D, save money on logistics
The "fortune" of the two platforms largely depends on the power of marketing. In August alone, Mr. Tem ran more than 8,000 ads on Instagram, Facebook and Whatsapp, according to Meta Platforms, a technology company. Shein, on the other hand, relies more on viral word-of-mouth marketing in the community and benefits from "influencer" referrals on platforms such as YouTube.
Jacob Cooke, co-founder of marketing agency WPIC Marketing & Technology, said: "TM provides cross-border infrastructure and marketing expenses to facilitate overseas sales for local merchants. Shein, on the other hand, has invested heavily in the development of its own products and brands, and its success has been based on this immediate product development. ”
And the two retailers say they are able to reduce costs for consumers due to the characteristics of their logistics business. According to Shein's website, about 76% of orders arrive within 10 days of U.S. customers using standard shipping methods. According to Tem's website, Tem's packages usually arrive in the U.S. within 5-8 business days of ordering.
Typically, U.S. retailers store imported inventory in warehouses across the U.S., where it is then picked and packed before being delivered to stores or individual customers. But Tem does not have its own warehousing and distribution base in the United States, and only uses third-party suppliers such as the United States Postal Service (USPS), United Parcel Service (UPS) and DHL (DHL). Most Chinese cross-border e-commerce platforms have adopted this asset-light model.
Shein has logistics facilities in Indiana and California to handle its most popular items, but most packages are still packaged locally in China, according to industry insiders.
According to Tem's process description, Tem's merchants located in China will send products to Tem's warehouse for inspection, packaging, and shipping. After the package is flown to the United States, it is trucked to the package carrier. Andy Whiting, founder and chief executive of Better Trucks, a U.S.-based terminal delivery company, said that thanks to this pre-sorting, the delivery company's work is greatly reduced, so it can provide lower delivery costs.
In addition, current U.S. law requires tariffs on goods over $800, and both Tem and Shein only ship small packages below that value. ShipMatrix estimates that the average order value of packages delivered by Tem is $29 and Shein is $39.
Americans borrow money to spend
Americans' growing attraction to cheap goods is also inseparable from the fact that their wallets are shrinking.
According to the latest data from the New York Fed, in the third quarter alone, credit card repayments in the United States increased by about 4.7% to $48 billion, totaling $1.08 trillion, the highest since 2003.
In the third quarter, JPMorgan Chase & Co. credit card loans or account outstanding balances jumped nearly 16 percent compared to a year ago, and Wells Fargo and Citigroup increased their outstanding balances by 14 percent and 11 percent, respectively. Deposits in JPMorgan's consumer division are down 3% compared to a year ago. Deposits in Citigroup's consumer banking division fell 5 percent, while the wealth division fell 2 percent. Wells Fargo's retail banking deposits are down 10% from a year ago, and the wealth management division is down 31%.
Marianne Lake, co-chief executive of JPMorgan Chase & Co. Retail Bank, said at a conference in December that before the pandemic, the bank's lowest-income customer base had an average of cash on hand to support 12 days' expenses. Today, that average is about 15 days. This means that the "excess savings" accumulated during the pandemic have been almost depleted.
Tim Quinlan, senior economist at Wells Fargo, also said that some banks are lowering credit lines and closing unused credit lines, suggesting that consumer debt will no longer play its "locomotive role" in driving consumption in 2024. Quinlan said consumers have accumulated debt not only through credit cards, but also through student loans and car loans, and that the erosion of wages by interest rate costs is the largest since 2008.
Bruce McClary, a spokesperson for the National Credit Counseling Foundation, said: "Consumers are relying on available lines of credit to pay for necessities. We want consumers to be able to pay for these things with the cash they have on hand. But they have run out of options. ”
Column Editor-in-Chief: Zhang Wu Text Editor: Dong Siyun Title Image Source: Shangguan Title Picture Editor: Xu Jiamin
Source: Author: Yicai