It's time for Temu and SHEIN to reduce their dependence on the U.S. market

As the world's largest market, the U.S. market has always been a must for all overseas brands. For the two pioneers of e-commerce going overseas, SHEIN and Temu also attach great importance to the US market. However, there are also some problems at present, in addition to policy uncertainty and value conflict, Temu and SHEIN's strategies may need to be more cautious.

If you want to talk about the two pioneers of Chinese e-commerce going overseas, it must be SHEIN and Temu.

SHEIN, with its fast-fashion positioning and social media marketing strategy, has successfully captured the hearts of American millennials and Gen Z consumers, accounting for about 40% of the U.S. fast fashion market.

As a latecomer, Temu quickly occupied a place in the U.S. market with its highly competitive prices and rich product variety.

China's first-generation e-commerce platforms such as Taobao and JD.com have not made waves in the United States, but Temu and SHEIN have done the unfinished business of their predecessors for the following reasons:

• Temu's marketing budget in 2023 is about $1 billion, and advertising spending in the fourth quarter has increased by 280%, making it the fifth largest digital advertiser in the United States, including the much-watched Super Bowl commercial, which was broadcast twice during the game. And SHEIN's ad spend increased by 120%, ranking 16th in overall spend. Meta, the parent company of Facebook and Instagram, said on a conference call with analysts that Chinese advertisers such as Temu account for 10 percent of its revenue, almost double what it did two years ago.
• The lower price is a powerful and sticky temptation. Inflation remains a top concern for price-sensitive U.S. consumers. Prices on Amazon have also increased due to the higher costs that sellers face in the marketplace (50% or more of their revenue). The top-of-the-line appeal of low prices for e-commerce apps like SHEIN and Temu, with significant savings compared to competitors. A March 2023 survey by McKinsey & Company revealed that four out of five U.S. consumers are saving money by cutting prices. Among Gen Z (18 to 25 years old) and Millennials (26 to 41 years old), the percentage is close to 90%. But these groups are also the most likely to spend on non-essentials like clothing and accessories. Gen Z is shopping more online and on mobile apps, which makes them a perfect fit for Temu and SHEIN.
• U.S. consumers have become accustomed to buying Chinese goods. In social discussions on Facebook and Instagram, it is not difficult to find that comparing the price of the same product with Temu and Amazon has become an online shopping habit for many North American consumers. According to Da Mo's research, 62% of Temu's users are female, 78% of users are between the ages of 18 and 54, and 55% of users have an annual income of less than $50,000. Temu has catered to the price-sensitive consumer base through a low-price strategy, especially under the influence of the economic downturn, the demand in the sinking market in the United States has increased.

Cross-border e-commerce has become a trend, and new platforms such as Cider, Cupshe, Zaful, and Byte's If Yooou have all followed the growth strategies of SHEIN and temu to seize market share. Low price strategies and fierce competition have further depressed profits.

SHEIN's report said that the net profit margin in 2022 will only be 3.5%, which is 1/3 of the profit margin of Spain's Inditex, and SHEIN currently has several measures to improve the profit margin:

1. Opening more distribution centers in major markets, such as the United States, where the previous delivery time was 10-15 days, will eventually result in three or four days of orders being received, which can help increase the willingness and frequency of orders. According to the Financial Times, 60% are first-time consumers
2. Increase high-quality, high-order value SKUs. In addition to purchasing the retailer's own high-end MOTF brand, SHEIN shoppers can now purchase products from luxury brands such as Stella McCartney and Coach.

After launching in the U.S. in September 2022, Temu followed a strategy of large marketing spend to acquire customers and also achieved high customer retention rates. According to Earnest Analytics, more than a quarter (28.2%) of Temu shoppers make repeat purchases within 16 months of their first transaction, more than double the rate of repeat purchases at two large retailers, Walmart and Target.

For most of this year, Temu has topped the U.S. mobile app download charts, with data showing that 10% of U.S. consumers have used Temu and another 11% have expressed interest in using it. According to The Information, SHEIN expects these efforts to help it achieve $58.5 billion in revenue by 2025, more than double its 2022 revenue.

The biggest problem faced by SHEIN and Temu is the uncertainty of market regulation in the United States and the conflict of consumer values brought about by cultural differences.

1) Uncertainty at the policy level.

Although Temu has been the subject of scrutiny by the U.S. government, the experience of the TikTok ban bill has put Temu and SHEIN's situation in a precarious position. Another key variable is the U.S. "de minimis clause" tariff exclusion policy, which essentially means that users in the U.S. can be exempted from tariffs on imports of less than $800. Because both Temu and SHEIN are the biggest beneficiaries of this exemption rule. SHEIN's goods are mainly clothing, with a unit price of about $80, and temu is dominated by department store standard products, with a lower unit price of about $30-50 US Customs data shows that up to 1 billion packages will enter the United States through "minimum terms" in 2023, one-third of which come from Temu and SHEIN. This policy is now subject to cancellation at any time.

2) Conflict of values brought about by cultural differences.

After experiencing the impact of the new crown, the consumer values of the United States have undergone a lot of changes, and they are becoming more and more sensitive to values. More and more U.S. consumers are aware of the environmental and social impact of their personal consumption behaviors, and they are beginning to seek out environmentally conscious and socially responsible products and brands. If the product and the company behind it undermine mainstream values, consumers will voluntarily abandon consumption.

The communication labels of apps such as Temu and SHEIN are playing a sideball with American culture, such as the conflict with "copycats" and American intellectual property culture, the gap between "frequent advertising bombardment" and "personalized advertising" and the privacy protection that Americans pay attention to, and the possibility of falling into a public opinion crisis is extremely high.

Taking TEMU's Super Bowl ad as an example, Temu's slogan "shop like a billionaire", like Pinduoduo's early brainwashing advertisement, is in the United States, but it has also aroused the disgust of many people. "It's horrible, as if we should praise billionaires for everything they do, but encourage consumerism by assuming that people want to be like them."

Therefore, an important move by Temu and SHEIN in 2024 is to reduce their dependence on the U.S. market. Temu will reduce the share of GMV in the U.S. market from 60% in 2023 to 30% in 2024.

In order to achieve this goal, Temu and SHEIN are accelerating their regional expansion outside the U.S. market.

temu has opened 47 sites around the world, covering North America, Europe, Southeast Asia, the Middle East, Africa, Japan and South Korea. In different countries, temu has different operational strategies to increase market investment.

For example, in Japan, Temu has made a big move in logistics, providing free shipping for orders, quick resolution of delivery problems, and free returns within 90 days, according to the Nikkei News, temu's strong investment in marketing and promotion has paid off particularly well in Japan, and since its launch in Japan in July 2023, the number of monthly users has grown at 2.2 million, and Temu currently has 15.5 million monthly active users in Japan, surpassing Amazon, Rakuten and Yahoo Shopping.

According to an analysis by investment bank Bernstein, half of Temu's GMV in the fourth quarter of 2023 has come from outside the United States. According to Sensor Tower data, the app has surpassed U.S. consumers in the number of non-U.S. monthly active users since the third quarter of 2023.

Temu and SHEIN are also building a local supply chain system to win the support of the local government, manufacturers, and the public.

Following Walmart and Amazon's lead, SHEIN has added local third-party sellers, such as in the United States, Mexico and Brazil, to reduce overhead costs by reducing inventory purchases and shortening delivery times, while also increasing revenue through seller spending and advertising.

Some time ago, SHEIN announced plans to invest 750 million reais (about 149 million US dollars) in Brazil to cooperate with 2,000 local textile manufacturers, and it is expected that by the end of 2026, about 85% of Brazil's sales will come from local manufacturers and sellers.

SHEIN has also produced goods in Turkey and opened warehouses in Poland to supply to the Western European market, which shows that SHEIN is reducing delivery times and logistics costs through supply chain localization.

Temu has also launched a "semi-managed" function, allowing merchants to prepare and deliver overseas warehouses by themselves, which significantly shortens the delivery time, from the previous cross-border air freight at least one week or sea freight at least half a month, to 2-7 working days to receive the goods.

This paradigm shift in Temu has provided merchants with a higher level of service, increased order volume, and a local sales channel for merchants who also open Amazon stores.

As the world's largest consumer destination, the U.S. market remains very important. However, as a cross-border e-commerce company committed to global layout, eggs cannot be put in one basket, and while replicating China's successful experience, how to find a balance between local consumer values and the red line of supervision is also related to the ceiling of TEMU and SHEIN.

This article was originally published by @刀客 on Everyone is a Product Manager. Reproduction without the permission of the author is prohibited

The title image is from Unsplash and is licensed under CC0

The views in this article only represent the author's own, everyone is a product manager, and the platform only provides information storage space services