Temu and Shein – Cheap stores from China are becoming a problem for Amazon

Experts from the Cologne retail research institute EHI expect a nominal increase of 1 percent for the largest 1,000 online stores. Adjusted for prices, retailers should expect a loss. The end of the crisis is not yet in sight.

“Online commerce suffers from the fact that consumers’ money flows elsewhere, for example on trips and concerts,” says EHI e-commerce expert Lars Hofacker. “Many retailers have historically grown in response to high demand and are currently under significant pressure from increased costs.” That does not mean that things are going badly for all stores. Asian online platforms have been among the recent winners.

Fashion retailer Shein, founded in China, increased its turnover in Germany by 30 percent last year and ranks 18th in the ranking of online stores with the highest turnover. This includes marketplaces – i.e. websites where consumers can buy things from more than one company – the Asians are leading the way. AliExpress took fourth place. Temu, which has only been active in Germany since April 2023, narrowly missed the top 10.

Temu and Shein grow quickly
Temu and Shein in particular make a steep climb. According to trade association BEVH, the two providers now account for five percent of orders in German online retail. Within a year they have more than doubled their market share. Temu was already in fourth place behind Amazon, eBay and Otto when it came to orders in the second quarter.

The Asian portals are putting pressure on the established companies. Can they break the dominance of market leader Amazon? “Temu and Shein are forcing Amazon in Germany to adjust its strategies for the first time in almost a decade,” said e-commerce expert Alexander Graf. Amazon has shaped the market so far, but there are hardly any answers to Temu and Shein’s radical business model. This will have an impact on turnover in the medium term.

Temu and Shein offer many items at reasonable prices. Due to the strong price focus of customers, they have recently benefited from poor consumer confidence in the country. According to the German Trade Association (HDE), Temu and Shein together send approximately 400,000 parcels to the Federal Republic every day. Shein disputes that figure.

Shein and Temu have been polarizing since entering the trading scene. They steal sales away from established players like Otto. According to an estimate by the Textile Shoes Leather Goods Trade Association (BTE), Germans will buy around a billion fashion items and shoes from Asian suppliers in 2023. Shein and Temu aren’t just competing with Amazon & Co for buyers. They recently opened their online marketplaces to German retailers.

Industry representatives do not speak well of the new competition. “The market here is often flooded with questionable or inferior goods, some of which are not allowed to be sold in the EU,” says BTE director Axel Augustin. Shein and Temu deny the accusations. Augustin and others are calling for more EU regulation and fairer conditions of competition.

Europe strives for more control
The German government wants to campaign together with other states in the EU for more control over providers. Sanctions should be consistently imposed if online retailers fail to comply with applicable rules and, for example, do nothing if products are classified as unsafe on their sites.

Customers also have concerns. Portals such as Shein and Temu are too unsafe for more than 60 percent of consumers, according to a study by the Cologne retail research institute IFH. Reservations are especially great among higher income earners, men and the over-50s. Many people worry that the items they order are of inferior quality.

Werner Reinartz, professor of Marketing at the University of Cologne, sees this uncertainty as an opportunity. Other traders have been able to stand out and differentiate themselves by relying on platforms like Temu and Shein.

Industry studies can at least give online retail some encouragement. Not only is consumer uncertainty and the focus on prices and offers decreasing slightly. In almost all areas, purchases are increasingly moving from physical stores to the internet.

The BEVH association recently saw slightly positive signals. Between April and June, consumers treated themselves to more. The first market growth in online trading in two years was recorded. But there can be no optimism yet, they say.

The pandemic boom has become a psychological burden for e-commerce. The industry is now measured against this. The general director of the HDE, Stefan Genth, therefore appeals for leniency. “The Corona years with the closed physical stores resulted in large turnover increases in the sector. It is completely normal that further development cannot continue at this pace.”