Amazon Sets up a Rival to Shein and Temu

What do you call Amazon in China? Copycat. 

Amazon is setting up a discounted shop that will fly products to consumers from China, The Information was first to report this week. It’s a move that’s pretty obviously designed to clone the business model of Shein and Temu, two China-born e-commerce companies that have exploded onto the retail scene over the past few years.

Slow and Steady (and Cheap)

You can see why Amazon is rattled. Although legacy retailers like Walmart have now cottoned to the whole sell-things-on-the-internet routine, until recently Amazon practically had the e-commerce space to itself for a decade. Then Shein and Temu came bounding into America with a totally new business model: fly in products from China utilizing a trade loophole called de minimis, which means you don’t have to pay import taxes on any package you ship directly to someone so long as it’s under $800 in value. The packages take longer to arrive than your average turbo-charged Amazon Prime delivery, but the items are startlingly cheap.

Amazon isn’t the only American company to copy this strategy: Business Insider reports various US brands have begun to utilize de minimis. But despite Amazon’s heft (it passed the $2 trillion market cap milestone this week), pitching in to this new territory comes with risks:

• Maureen Hinton, a retail analyst at GlobalData, told The Daily Upside there’s also a risk that Amazon shoots itself in the foot with this venture. “As a laggard, will it convert Temu shoppers to Amazon or just appeal to its existing customers, and cannibalize its own ranges with lower-price products,” she said.
• Robert Khachatryan, CEO at Freight Right Global Logistics, told The Daily Upside that while air freight is not quite as dear as it used to be compared to sea shipping, it’s still about three to five times more expensive. Temu and Shein are already straining the air freight industry’s carry capacity, so adding another huge player to the space could send costs up and cause delays, Khachatryan added.

“For sustainable growth, Amazon would need to invest heavily in securing dedicated cargo fleets and developing infrastructure to support increased air freight volumes without disrupting existing supply chains,” Khachatryan said.

Meeting in the Middle: While Amazon copies Shein’s business model, Shein is starting to hedge against relying on cheap air shipping. The Financial Times reported earlier this month that ahead of its London IPO, Shein has been setting up warehouse storage and cutting its delivery times, essentially a more Amazon-esque business strategy.