TEMU Challenges Amazon’s E-commerce Dominance

Over a decade ago, Amazon, the behemoth of e-commerce, faced a formidable challenge in China as it grappled with fierce competition from local giants like Taobao and JD.com. Ultimately, in 2019, Amazon made the difficult decision to shutter its e-commerce operations in the Chinese market. This move signified not just a retreat but a critical moment in the ever-evolving landscape of global online shopping.

However, just as Amazon thought it had freed itself from immediate threats, the international e-commerce scene shifted once again. In a stunning turn of events, Pinduoduo's TEMU emerged, rapidly establishing itself as the world's second most-visited e-commerce platform, trailing only behind Amazon. This growth trajectory is projected to see TEMU's user numbers surpass those of Amazon within the same year, giving rise to a fierce new rivalry.

TEMU is now honing in on Amazon's core market. The platform is aggressively expanding its strategy to include local suppliers in the U.S. and Europe, an approach that could significantly disrupt Amazon's operations. Originally supported by full-service management, TEMU is now contemplating a third-party platform model that would entice an even broader array of merchants.

The very foundation of Amazon's global e-commerce dominance is facing a real threat. Since the latter half of this year, the company has begun to mount a counter-offensive, launching its budget store, Amazon Haul, which was recently made available on mobile platforms. This strategic decision could be viewed as an acknowledgment of a shifting power dynamic.

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As the past year has unfolded, it has become increasingly evident that both TEMU and Amazon have begun to imitate one another, vying for dominance in each other's territories. This intense competition has matured into a direct confrontation, signaling a new phase where both companies are not just interchanging tactics, but are becoming much more alike in their operational strategies.

We are witnessing a fresh wave of skirmishes in the global e-commerce sector, where the founder and the disruptor are now in a full-blown arms race. The competitive landscape of the e-commerce market is poised for a complete overhaul. This battle shows no signs of retreat; all players involved must pursue every opportunity with fervor or risk being relegated to the sidelines as the industry undergoes significant transformations.

The contest for supremacy in the overseas e-commerce arena is clearly on the countdown.

As TEMU and Amazon continued their competitive dance over the past six months, the tension has mounted. Both companies are strategizing to poach merchants from one another, leading to intense tussles over partnerships and supplier relationships.

This past June, Amazon convened a closed-door meeting in Shenzhen for sellers, during which it unveiled its upcoming project: the budget store initiative. This initiative has been interpreted by market analysts as a reaction to the potent challenge presented by TEMU, representing a significant shift in Amazon's approach to maintaining its market share.

According to cross-border e-commerce specialist Lin Zhiyong, prior to this, Amazon sought to distance itself from TEMU and Shein by promising expedited shipping, urging Chinese merchants to utilize its U.S. warehousing and distribution services. In an emergency Measure, the company also slashed fees for merchants selling clothing at prices below $20.

Amazon Haul recently hit the market on November 13, targeting U.S. consumers and showcasing products priced at $20 or less. The focus on affordability includes trendy clothing, furniture, and household items—most items are priced under $10 and come with free return policies. It is reportedly filled with products from Yiwu—known for its cheap household goods—as well as affordable fashion accessories and consumer electronics reminiscent of those found in Huaqiangbei, essential categories for TEMU and Shein.

This shift indicates that Amazon now needs the support of Chinese white-label merchants more than ever, a key advantage that has powered TEMU's rise. In this context, Amazon has noticeably ramped up its recruitment efforts in China since last year.

For instance, Amazon held its first seller conference in Shenzhen in nearly four years at the end of last year, the 2023 Amazon Global Store Cross-Border Summit, unveiling comprehensive solutions for Chinese sellers. The company also added new locations in various Chinese cities like Wuhan and organized more seminars dedicated to sellers. Recently, on November 8, Amazon inaugurated its first innovation center for the Asia-Pacific region in Qianhai International Talent Port, Shenzhen, aimed at attracting more Chinese e-commerce sellers.

On the very day Amazon's innovation center opened, TEMU positioned recruitment signage nearby, openly inviting those attending Amazon's inauguration to consider joining TEMU. Interestingly, various departments of TEMU have also relocated from Guangzhou to Shenzhen's Qianhai International Talent Port this year.

While TEMU continues to recruit in China, it is also launching a full-scale invasion within Amazon's territory, significantly ramping up its efforts. Over the last six months, TEMU has sought to recruit American merchants, initially limited to those with exclusive invitation codes. As of November, however, TEMU has dropped this gatekeeping, allowing any American brand or individual seller to register and begin selling on the platform.

A TEMU spokesperson confirmed in an email that the platform is now welcoming American sellers. They can ship directly from U.S. warehouses and deliver products to customers in as little as one business day.

Beyond the American market, TEMU's localization strategy is also gaining traction. Reports from December 3 indicate that TEMU is actively courting new sellers in the U.K. to hasten its expansion into that market.

Along with expansion efforts, TEMU is diversifying its business model. Unlike the previous full-service model, TEMU introduced a semi-managed model earlier this year, and new reports suggest it is considering launching a third-party platform model. This new model would allow merchants to choose their products and set prices independently, opening their own stores and shipping internationally, with the platform taking a commission on transactions.

The third-party platform model is something Amazon has successfully leveraged over the past five years, contributing to a staggering growth in its Gross Merchandise Volume (GMV), which increased from $335 billion in 2019 to over $700 billion by the end of 2023. Currently, third-party sellers account for more than 60% of Amazon's platform GMV.

The competitive landscape is shifting, with Amazon now launching low-priced offerings while TEMU advances its third-party platform model. This trend highlights how both companies are unapologetically adopting each other’s competitive strategies, continuously morphing into more similar entities.

In the last two years, the meteoric rise of Chinese cross-border e-commerce platforms like TEMU has compelled Amazon to confront the reality that its reign as the global e-commerce leader is no longer unquestionable.

Data released by SimilarWeb in October revealed that TEMU had surpassed eBay to become the second most visited e-commerce website globally, just behind Amazon, after only two years of operation.

Moreover, according to Sensor Tower, TEMU’s app ranked third among major e-commerce platforms in terms of user base during August, reaching 91% of Amazon's user base. At this growth rate, TEMU's user count is likely to eclipse Amazon’s, which has been operating for 30 years, by the end of the year.

TEMU has injected itself into the cross-border e-commerce arena like a catfish, capitalizing on advantageous pricing strategies and a pioneering full-service model. Outstanding statistics suggest that TEMU is now operational in 89 countries and regions, double its footprint from the previous year.

In the face of TEMU’s aggressive expansion, an Amazon spokesperson remarked that the company is continuously exploring new avenues for collaboration with its selling partners. The introduction of Amazon Haul can be viewed as a direct response, potentially reinforcing Amazon's position.

However, challenges abound for TEMU as well.

Revenue figures suggest a significant slowdown in growth from TEMU for Pinduoduo. In the third quarter of this year, transaction service revenue driven primarily by TEMU increased by 72% to 50 billion yuan compared to the previous year, a reduction from previous quarterly growth rates of 327% and 234%.

During a recent earnings call, Pinduoduo's executive director and co-CEO Zhao Jiazhen voiced concerns about the intensifying competition faced by Pinduoduo's global operations, stating, “We are experiencing more severe competition, and it will inevitably impact our business in light of the complex external environment we face.”

As TEMU's operations rapidly scale, it has also attracted the watchful eye of regulatory bodies in various countries. Entering new markets poses not only localization challenges but also necessitates adjustments to navigate geopolitical pressures such as investigations, tariffs, and bans.

In this context, if TEMU hopes to overcome the hurdles of overseas expansion, a robust localization strategy will be essential. The semi-managed model launched earlier this year is one such attempt to provide diverse business methodologies catering to a broader range of merchant needs.

Insiders close to TEMU suggest that the semi-managed model allows it to maintain competitive pricing while ensuring swift delivery. In the future, if merchants continue to enhance their operational capabilities, TEMU may provide them with even greater autonomy.

This means that with the prospective introduction of a third-party platform model, TEMU will host three operational paradigms: full-service, semi-managed, and third-party platform, mirroring the models already embraced by Amazon, Shein, and AliExpress.

The strategy of “following” is a route chosen by many companies when they encounter growth constraints. However, it often fails, as evident from past examples where domestic platforms like Taobao and JD attempted to emulate Pinduoduo’s low-cost strategies and ultimately refocused on their respective strengths.

The narrative is now repeating itself in the global e-commerce landscape, albeit with all entities actively venturing beyond their comfort zones in search of fresh breakthroughs. The expansion phase of cross-border e-commerce platforms is undoubtedly drawing to a close, leaving the question of who will emerge as the ultimate victor still shrouded in mystery.