Amazon was the most famous online retailer. Past tense. From being a household name and ‘the’ online retailer, it has now dropped down to the position of ‘an’ online retailer amidst other available choices such as Temu and Shein. While the advent and immediate rise to fame of Temu was viewed by Amazon as two’s a crowd, with Shein in the picture, they have lost the steel grip that they had as a monopoly power in the game of online shopping. But the stories around these three names are many, especially because there are fault lines in all three of their frameworks. However, the controversy that has the world up in arms these days is the face-off between Amazon and Temu.
Competition is nothing new for Amazon. In their entire lifetime thus far, they have had to face rivals such as Walmart and Target. However, Temu has entered the list of competitors through an entirely different premise. It is effectively addressing a specific niche market- the demand for low-cost products that may not necessarily be delivered quickly. Products that customers believe will be worth the wait, especially for dirt-cheap prices. This (not so) out-of-the-box positioning has allowed them to carve out a distinct presence in the e-commerce landscape, which we know is not an easy thing to do. Especially when the contender is Amazon.
Temu?
Temu by now needs no introduction. Temu and its orange packaging has become a frequent sight in couriers’ delivery consignments as consumers who are battered by inflation imbibe the unbelievably low prices that it offers for budget shopping. As an e-commerce platform developed as the Western counterpart to China’s Pinduoduo, it has exhibited a unique ability to keep its users engaged by enticing them with continually evolving and irresistible products. Its competitive pricing is made possible by a factory-to-consumer business model, and its interface prominently displays enticing offers, such as 70% discounts, alerts about low stock levels, and updates on recent purchases and ratings by other users. It was initially launched in the US before expanding to Canada, then to several European countries, Australia and New Zealand in recent months.
Remarkably, Temu has risen to become the most downloaded app in some of the world’s largest economies, a trend supported by an uptick in social media mentions. During the period from April to July 2023, Amazon experienced a significant decline in its daily user numbers in the US, plummeting from 54 million to 46 million users. In contrast, Temu welcomed nearly 10 million new daily users since the beginning of the year, positioning it as the second most popular shopping app alongside Walmart, with around 17 million users. What’s more, Temu outshines Amazon in terms of user engagement, with its users spending an average of 20 minutes on the app compared to Amazon’s 12 minutes. Numbers that highlight Temu’s growing presence and appeal in the global e-commerce landscape.
Is Temu a fad?
Amazon thinks so. Even Though they have not explicitly spelt out these words, the way that they are going about things is an indication that they do not believe that Temu will stand the tests of time. Especially not to their business model. While Amazon is undoubtedly rattled by the turn of events that stole its limelight, it remains unfazed on several fronts. For instance, in June 2023 they made a call to leave Temu out of its price-checking algorithm claiming that Temu is a far cry away from meeting its fair pricing policy standards in light of copyright infringement accusations.
Several legal disputes between Amazon sellers and Temu are currently pending in the United States. Additionally, these two e-commerce giants may cater to different customer segments. Amazon specialises in offering higher-priced, branded, and high-value products, while Temu primarily features unbranded items, often priced under £20. In terms of customer service and reputation, Amazon is known for its super-efficient and customer-centric approach, whereas Temu has faced criticism on platforms like Trustpilot for issues related to data privacy breaches, incomplete orders, challenging return processes, extended delivery times, and subpar product quality.
There are also questions about the long-term sustainability of Temu’s success. Part of its recent growth can be attributed to its gamified advertising strategies and substantial marketing expenses, which include multi-million dollar investments in Super Bowl ads with the slogan “Shop like a billionaire.” The way that the app is structured and the frequency with which the user is bombarded with advertisements is at times an assault on the senses. Furthermore, Temu has been operating with significant losses as it aims to attract more buyers. According to calculations by China Merchants Securities, even with conservative assumptions based on a $2.5 billion gross merchandise volume, Temu’s annual losses could reach $0.56 billion. It is a fact that Temu has been gaining popularity since its launch in 2022 where it has become one of the most popular online marketplaces in the United States; however, it is also a fact that some of the products that it delivers lack quality.
While this is a calculated inference that Amazon has drawn about Temu and its longevity, it could also be a claim that springs from the monopolistic agenda that Amazon drives. One that they have been accused of time and again. It is not a secret that Amazon is infamous for keeping the world of online retailing to themselves. Because of this, in June 2023, The Federal Trade Commission (FTC) accused Amazon of employing a series of interconnected strategies that are both anti-competitive and unfair, leading to higher prices and a suppression of competition. In response, Amazon has stated that the lawsuit is factually and legally incorrect and looks forward to presenting its case in court. This lawsuit against Amazon is the most recent legal action taken by US regulators against major technology companies.
All in all, despite the exchange of ideas and Amazon’s current stance, Temu is undeniably a threat. While Amazon goes about their day with a cool demeanour, that is not to say that they have not felt the heat of its competitor’s presence. The rivalry is still in its embryonic stage. Therefore we will have to wait until it reaches its peak to tell whether Temu will be the ultimate contender to enfeeble the Bezos monopoly.
(Sandunlekha Ekanayake)