WSJ 10/04/24 By Sebastian Herrera
Curtis Yang has sold millions of dollars worth of products on Amazon, but some of his inventory is now listed on rival site Temu.
Temu attracted Yang with low fees, high growth and guaranteed revenue for the furniture accessories and other items he sells. The California-based Yang says Temu could eventually become the world’s biggest e-commerce outlet.
“I’m playing both sides,” he said.
Temu, which is backed by Chinese e-commerce company is coming after Amazon’s consumers, and its sellers. Independent merchants are a crucial source of income, paying Amazon almost a quarter of total revenue for its services.
The battle is changing the way Amazon and Temu do business. The rivals are mimicking each other as they compete for sellers.
Amazon has worked on a new storefront for its site to highlight the kind of low-price items popular on Temu, which has relied on air-shipping products direct from China, is becoming more like Amazon by building local delivery capabilities. It is bringing on American brands and sellers with inventory stored in the U.S.
More brands will continue to switch to Temu, said Jordan Berke, founder of retail consulting firm Tomorrow.
“Sellers will jump at the chance to be able to diversify,” he said.
Temu has become the second-most-visited shopping site in the world behind Amazon, and it is one of the more popular in the U.S., according to web analytics firm Similarweb. Its share of the U.S. e-commerce market is expected to triple from 0.7% last year to 2.3% next year, according to research firm Emarketer.
Temu’s market share is still tiny compared with that of Amazon, which controls roughly 40% of the U.S. market. Still, Temu’s rise represents one of Amazon’s greatest challenges in years. The rivalry echoes Amazon’s battles with Walmart, Target and eBay, which pushed Amazon to lower prices, expand its services and speed up deliveries.
By targeting sellers, Temu is going after one of Amazon’s biggest businesses. Last year, Amazon made about $140 billion in revenue from fees for helping sellers with their logistics, account management and other needs. That total is more than it made from its Prime subscriptions or cloud computing units. Amazon uses the revenue from its seller services business to fund its vast delivery infrastructure.
Delivering results
Temu has been increasingly taking on Amazon in America with faster deliveries.
Temu’s new focus requires sellers to store products in U.S. warehouses and handle delivery. The company is trying to entice merchants to its platform by offering dedicated staff to work with each U.S.-based seller to onboard stores, list items and answer questions.
Amazon sellers who have started working with Temu say one of the biggest reasons they are trying the platform is that it doesn’t charge them fulfillment fees or advertising charges.
The lower fees can enable lower prices on Temu, which requires the same products to be listed at least 15% to 35% cheaper than on Amazon, sellers say. An Anker power bank, for example, recently sold for $40 on Amazon, while on Temu, the same product was listed for $25.
Some sellers say they make more money on Temu because the fees are lower. One merchant made more profit on its printer ink despite its Temu price being lower than Amazon’s, according to documentation provided by the seller. Sellers said they assume Temu, which has guaranteed how much money they will make per product sold, takes a loss on many items.
Temu said that the company and the merchants have healthy margins, but it declined to share specific numbers.
While sellers might complain about Amazon’s fees and restrictions, the company has long been the dominant player in the e-commerce market because it reaches so many consumers and can advertise, recommend and deliver products efficiently.
An Amazon spokeswoman said sellers are incredibly important to the company, which provides end-to-end logistics and an array of inventory management and customer-service tools.
Sellers who are trying Temu see it as a way to diversify from Amazon, not to replace it.
Merchants said Amazon penalizes them if they list products on competing websites at lower prices. To avoid detection, some businesses list on Temu using different names.
“We have our brand names hidden,” said Hsin Cheu, assistant retail director at Kasentex, a bedding company. “We don’t want the information to hurt us.”
Getting on the ground floor
Brandon Fuhrmann plans to list kitchen products on Temu, in addition to Amazon. Temu’s high growth and low fees are too attractive to resist, he said.
“Sellers are going to go where there is volume,” Fuhrmann said. “People view Temu as getting on the ground floor.”
The Amazon spokeswoman said its sellers set their own prices. They are free to offer lower prices elsewhere, though doing so can affect their prominence on its site.
Temu’s home page now promotes products from local warehouses, such as shelves and vacuum cleaners, that consumers can get within four days instead of waiting for the five to 10 days it usually offers.
Sellers say Temu has been splurging on advertising and is trying to scout popular Amazon brands.
Amazon has a mixed relationship with its sellers because it has much control over their profits and selling ability. The company has increased its fees over the years. As the number of merchants on Amazon has swelled into the millions, each individual seller has mattered less to the company, sellers said.
Amazon said its fulfillment services cost an average of 70% less than other two-day shipping alternatives.
Temu’s push to use an increasing number of U.S.-based sellers is happening as the U.S. might make it more complicated and expensive to ship directly to Americans from China.
The Biden administration said in September that it would restrict use of a tax policy called the de minimis rulethat has benefited Temu and others. The policy allows packages valued at under $800 to enter the country without duty or customs screening.
Temu and its bargain competitor, Shein, rely heavily on the provision. Amazon sellers also use it for some deliveries. Companies expect the policy changes to undergo a public comment period before any final decisions are made.
A Temu spokesman said its growth doesn’t rely on the U.S. tax provision and the company is committed to compliance with standards.
Amazon’s options
Amazon could give sellers more options. It has planned a new storefront for its website] dedicated to bargain-priced items like those easily found on Temu. The new storefront would aim to attract consumers who want to save money and are willing to wait longer for products to arrive directly from China.
Amazon has struck deals with Meta Platforms and other social-media sites to allow users to shop on Amazon without leaving the social apps. It lowered some seller fees for apparel items.
Amazon and Temu compete in categories such as household goods, electronics, appliances and clothing. These items work well with direct-from-China deliveries, and customers are more willing to wait for them. Amazon is poised to continue its dominance with toiletries, pet food and other essentials because it can deliver them in hours
Some sellers of products that have sold well on Temu are skeptical about Amazon’s ability to compete on low-cost items. Richard Cai, founder of the vacuum brand Puppyoo, which has sold on both sites, believes Amazon relies too much on fees.
“If you want to be as cheap as Temu and expect Amazon to lower its commissions, how is that even possible?” he said.