Temu vs Amazon – According to Wired Magazine Temu is losing hundreds of millions of dollars to send you cheap stuff from China in order to grab Mass market share from USA Shoppers and it’s working check out this growth graph comparing Temu to Amazon in terms of traffic in less than one year Temu already has one third the monthly active users of Amazon from a $3 pair of shoes to just five bucks for a woman’s sweater these prices seem too good to be true and it turns out that they are an analysis of the company’s supply chain cost by Wired Magazine which was confirmed by a company Insider shows that Temu is losing an average of $30 for every order made in addition to the USA Temu also operates in Canada Australia and New Zealand and is estimated to be losing 588 million to 954 million every single year but the real question is whether this is affecting USA businesses read this blog to the end to find out.
Recently I interviewed my friend Sameer who runs an online store selling T-shirts , Jeans and ladies wear both on Amazon and a Shopify store that makes over eight figures per year and according to Sameer he believes that companies like Temu and Shien are taking sales away from his company especially on Amazon now ever since both Temu and Shien burst onto the US scene in 2022 Sameer’s business has go down by nearly 50% now granted Sameer is in the t-shirt business which is one of the most saturated and most competitive niches to sell into so you should probably take his numbers with a grain of salt but according to an Amazon representative the entire apparel category on Amazon is down 30% year-over-year meanwhile other apparel and t-shirt companies and e-commerce communities that I belong to are down year-over-year as well so right now companies like Temu and Shien seem to be mainly hurting lower-end apparel businesses and companies without a powerful brand or intellectual property.
Temu’s Advantages Over Amazon Sellers and Other USA based Businesses
Here’s why both Temu and Shien have two gigantic advantages that USA companies do not when it comes to making and selling apparel now for one thing they have a huge cost advantage over USA sellers because of extremely low labor costs according to the LA Times products made in China’s Western province of sang are being sold to us consumers through Temu in breach of a ban that forbids goods from being imported from the region due to links to forced enslave labor statements from former detainees and reports from an array of researchers and advocacy groups have alleged that the Chinese government put more than 1 million people in detention camps in that region and that laborers and Fields and factories were forced or coerced to make cheap products for Temu now the Chinese government has said that the camps are for re-education purposes but do you believe them no one knows for sure but slave labor could be one way that Temu is commanding such low prices and from Context a blank t-shirt costs about $2 and shipping within the continental US is about $4 this is the rough cost for a business in the United States and in order to make a decent profit after printing a custom design you have to be able to sell that t-shirt for at least 20 bucks meanwhile Temu is selling a printed t-shirt direct from China to a US address for less than $7 which includes shipping so they can literally sell apparel at or below the minimum cost.
The second reason Temu has an advantage is due to the loophole that allows Chinese sellers to not have to worry about paying taxes tariffs or customs duties now the loophole is that any shipment sent into the US that is valued at less than $800 does not have to pay any taxes whatsoever and because Temu is shipping individual products into the United States they don’t have to pay any customs duties or taxes whatsoever meanwhile in order for a US apparel company to get low pricing they have to import a large quantity of t-shirts into the USA and pay both customs duties and tariffs on the products in addition to sales tax now whether this is fair or not is up to you but let me put it in simple words to sum it up product on Temu costs seven bucks no import Duty arrives in one week free shipping wholesale cost for the same item made in the USA is 10 bucks retails for 20 bucks this is a problem because the math doesn’t work out.
At the same time Temu is squeezing small manufacturers in China to cut prices to even lower levels that makes it impossible for even Chinese manufacturers to make a profit one Chinese manufacturer was approached by Temu to sell on the platform when it launched in 2022 now he joined but soon found out that he had little control over pricing Temu will often ask for you to lower prices and if you agree the platform will decide what that lower price is you don’t have a say over your pricing and if you refuse to lower your price you simply won’t be listed on the platform this is their method of operation Temu’s parent company PDDA Holding’s burst onto the scene in China by providing deep discounts to gain market share as well.
Amazon did the exact same thing back in the day and the formula Works offer impossibly low prices to shut everyone out and lose a ton of money for many years and then once you become a household name raise prices and turn a profit this is exactly what temu is trying to do now the difference this time is that Chinese companies like timu have the advantage of favorable Taxation and impossibly cheap labor compared to us-based companies they don’t have to pay taxes at all and they can get away with paying their staff Pennies on the dollar now the real question however is whether they can keep this up as I mentioned earlier teemu’s low prices is costing the company a ton of money and they are estimated to be losing $30 per order and hundred hundreds of millions of dollars per year timu is also squeezing their suppliers to get the lowest pricing possible and many Chinese sellers are leaving temu in rows.
Meanwhile Temu is also Gathering data from millions of US citizens which is attracting the scrutiny of the US government something has got to give eventually but on the flip side we just happen to be living in a very interesting period right now the average American is carrying a record amount of credit card debt and the savings rate is at an all-time low which makes the perfect storm for a company like Temu to thrive now as a small business owner what can you do to fight back.
What you Should Do As a Small Business Owner
Is Temu killing your Business? Well here’s what I have to say and I’m going to be very Frank and honest if you are selling commodity products that do not have a strong value proposition you probably aren’t going to survive regardless of whether Temu or Shien exists for example if you’re selling generic t-shirts that are easily copied by manufacturers from China who have a cost advantage over you you’re just not going to make it but if you can tap into the emotions of your buyer and establish a strong brand you’ll survive regardless of pricing pressure now since we’ve been talking about t-shirts and apparel so far I’d like to talk about a company called true classic tee’s.
True classic tee’s is a company that sells generic solid color t-shirts which is probably one of the most saturated and competitive niches out there but they brought in over 250 million bucks since they opened in 2019 now how does a blank t-shirt company that sells plain shirts for $25 a pop makes so much money it’s all about the marketing and how they make consumers feel about their product now if you’ve never watched a true classic tee’s commercial basically they show a fat overweight guy wearing a shirt with his beer belly hanging out that doesn’t fit at all then they flash forward to a picture of the exact same overweight dude in a true classic t-shirt and all of a sudden he looks buff the T-shirt emphasizes his biceps and hides his fat belly.
Now can temu sell a plain shirt for three bucks yeah but it can’t replicate the Mind share that true classic tee’s has created selling online is all about triggering the emotions of your consumer and it’s not all about the price I’d rather pay 25 bucks for a shirt that makes me look and feel good rather than a cheap throwaway $3 shirt incidentally.
Now what I didn’t tell you about my friend Sameer earlier is that even though his business has dropped around 50% he’s going to be just fine because the other half of his business does not depend on sales from Amazon or being priced competitive the other half of his business is where he does high fashion products for women the other half of his business is where he’s establish a solid customer base and strong relationships with his customers, these are customers that he will never lose his added value is his customer service his attention to detail and the Loyalty he’s built over time this is what it takes to create a lasting e-commerce business
Right now temu is a junkyard that sells cheap generic products from China and their Rock Bottom pricing is affecting the apparel industry the most because apparel is a commodity and most clothing especially on Amazon is generic and unbranded. So while Temu is probably destroying the low-end apparel Market as a small business owner you can succeed by niching down and going for the high end.
If you are competing purely based on price you’ve already lost now as for the unfair advantages that Temu currently possesses that’s up to the US government to decide if you feel as though the dominous rules that prevent Chinese Sellers from having to pay us taxes sounds unfair then you should write a letter to the local representative in your state if you’re against possible slave labor practices in the creation of Temu products then you can show your support by not buying these products as well but for myself and my e-commerce store I’m not worried about Temu at all.
Interested in learning about selling physical products online, feel free to reach me out.
