The Marketplace Boom   //   December 6, 2023

The new scapegoats: Brands are blaming Temu & Shein for poor business performance

Several fashion retailers and e-commerce platforms are playing the blame game when it comes to Temu and Shein.

Last month, the CEO of announced the marketplace would be shutting down, stating it was “impossible to compete on price” with websites like Temu and Shein that have dominated online shopping. In a recent earnings call, Etsy’s CEO declared that Temu and Shein were “almost single-handedly having an impact on the cost of advertising,” especially when it came to Google and Meta. In August, Gap’s executive vice president mentioned that Shein was one of several competitors “gaining share” and “compet[ing] with our customer.” “I think we have a lot to do there to keep winning in that space,” she added.

For many reasons, these concerns are valid, sources told Modern Retail. Temu and Shein have amassed a huge following and billions of dollars by selling trendy items at ultra-low prices. For many fashion brands, it’s not possible to compete with $3 crop tops or $13 shoes, nor is it practical to mirror Shein and Temu’s strategy of churning out large volumes of products at high speeds. The two companies are also outbidding retailers on advertising and putting pressure on competitors in regards to marketing spend.

At the same time, sources said, not all of retailers’ problems can be attributed to Shein or Temu. Rather, businesses need to take responsibility for certain decisions and find the best way to pivot. As Juozas Kaziukėnas, founder and CEO of Marketplace Pulse, put it, “For brands and retailers that hope to compete with Shein and Temu on price, there is little hope. But price is just one of the variables. Optimizing for those is how they can win.”

The fast-fashion effect

Compared to Shein, Temu is brand new. It was founded in 2022, while Shein was founded in 2008. Together, both have become formidable competitors in the fast-fashion space over the last year. Shein reportedly confidentially filed an IPO last month with an attempted $90 billion valuation (albeit down from its $100 billion valuation in April 2022), while analysts expect Temu to generate more than $16 billion in revenue this year.

Still, neither is without its criticisms; recent reports allege that Shein violated Chinese labor laws, while Temu’s sister company Pinduoduo has been accused of selling counterfeit goods.

Although they are waging legal battles against one another, together, Shein and Temu have gobbled up market share from competitors like H&M, Zara and Forever 21. “Basically all of those players have had to kind of recalibrate their businesses as a result of Shein’s impact,” Sky Canaves, senior analyst at Insider Intelligence, told Modern Retail. “They haven’t really been able to compete on price alone… and their [Shein’s] products come to market so much faster.” Instead, some companies have focused on building retail stores, having good customer service or curating items.

Besides the cost of goods, one way Shein and Temu have gained momentum is by taking advantage of social media trends. Because they add hundreds of items to their sites every day, Shein and Temu can jump on the newest styles or products trending on TikTok and Instagram. Today, Shein accounts for 42% of products listed under the TikTok hashtag #hauls, according to WWD.

Beyond that, Shein and Temu are changing the way that advertising is conducted on those social media platforms. Shein and Temu are outbidding other retailers via low prices, Kaziukėnas pointed out. “The impact to advertising bid prices — the core channel how brands acquire customers — is invisible but the most felt by brands,” he said. “CAC is a key variable, and the presence of Shein and Temu [has] made it a lot more expensive.” According to Business of Apps, Facebook’s average CPM for ads was $14.90 in 2022 and $12.20 in 2020. And TikTok’s CPM grew 12.28% year-over-year, per one analysis.

While Shein and Temu’s ad spending poses a challenge to other retailers, social media platforms stand to benefit. While it did not name-drop Temu and Shein, Meta recently said that “online commerce and gaming benefited from strong spend among advertisers in China reaching customers in other markets.” Shein, which was founded in China but is now based in Singapore, is likely in that group.

Name calling

Not all companies have mentioned Temu or Shein in their earnings calls. At the same time, analysts are starting to ask more questions about the companies during question-and-answer sessions, Canaves said. For instance, during Five Below’s most recent call, an analyst from Goldman Sachs asked how the brand thought about its “positioning in the competitive landscape,” especially against those focused on lower price points. An analyst from Barclays asked eBay if “new competitors like Temu and Shein” were having an impact at the low end of the business.

Sometimes, executives answer the questions outright. The CEO of Lulu’s Fashion Lounge Holdings, for example, said on a recent call that Shein and Temu “probably nibbled on the edges of our customer base” but was firm that “we don’t believe that Shein or Temu or any of the other fast fashion giants that are out there caused our negative comp in the quarter.” Ebay’s CEO said, “We’ve not seen a significant impact from Temu or Shein on our business.”

Some executives dance around analysts’ queries. “What I’ve been hearing so far is a bit more reticence from retailers to really discuss openly what sort of impact Temu in particular is having on their sales or would expect to have on their sales in the foreseeable future,” Canaves said. “What I’m hearing is, more retailers are more trying to differentiate themselves or kind of set themselves apart, and not really address direct questions about impacts on sales.”

For example, Five Below’s CEO said that there are “several retailers doing a great job of trying to communicate value… through price point.” “It certainly, I would assume, resonate with the customer,” he added. “That’s something we’ve done since the day we started this business.”

Even if retailers don’t name Shein and Temu, today’s overall landscape mirrors a blame game waged another e-commerce giant: Amazon. For years, retailers pointed to the low prices, fast delivery and membership perks made popular by Amazon as reasons for their own slumps. But, not everything went back to Amazon. For instance, at Bed Bath & Beyond, it took three years to launch a new e-commerce site. Sears and JCPenney initially treated e-commerce as its own siloed business, not as one that could be integrated with physical commerce.

Years ago, retailers lobbied criticisms at the same fast-fashion businesses now challenged by Shein and Temu. Banana Republic, for instance, suffered plummeting sales in 2015 as shoppers opted for Zara, Forever 21 and H&M. Gap’s sales took a tumble that same year as people looked for cheaper jeans and shirts. “None of us are happy with the performance now,” Gap’s then-CEO said at an investors’ meeting shortly after announcing store closures.

Some retailers have tried to catch up with Shein and Temu by creating new products in new styles and colors. In other cases, they’ve teamed up with them. Forever 21, for instance, is now partnering with Shein to sell co-branded goods in stores and online. Not only does this arrangement expose Forever 21 to Shein’s customer base, Canaves said, but it also allows Forever 21 to take advantage of Shein’s manufacturing capabilities.

This is a strategy that other retailers have also used with Amazon. Retailers like Kohl’s started working with Amazon in 2021, and Amazon will soon bring its Just Walk Out technology to apparel retailers. In addition, more brands (especially beauty brands) have started selling items on Amazon.

Ultimately, retailers can’t afford to stay complacent when it comes to Temu or Shein, sources said, and need to shift strategy to set themselves up as the strongest competitors possible. This becomes crucial as customers watching their budgets decide where to funnel their money.

“The market is not static,” Marketplace Pulse’s Kaziukėnas said. “It swings every year to close some opportunities while opening up new ones. It’s a game of adapting.”