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Amazon and Temu learn from each other.

By Chen Jing
Editor: Guan Yiwen

After more than a year of fierce fighting, Chinese cross-border e-commerce platforms and Amazon have begun to learn each other's tactics.

On June 26, at a closed-door meeting in Shenzhen attended by more than 300 sellers, Amazon announced that it would open a low-price store on its main site: focusing on white-label products priced below $20 and weighing less than 1 pound. Merchants only need to send the goods to Amazon's warehouse in China, and then they don't have to worry about anything else. Amazon is responsible for promotion inside and outside the site and subsequent logistics, and the products only support refunds - the requirements for sellers are low, as long as there is stock.

Amazon needs to learn from the common model of Temu, Shein, AliExpress and other platforms, and import cheap goods from China in a "full-hosted" model to defend against the attack of Chinese cross-border e-commerce platforms.

At the same time, Chinese cross-border e-commerce platforms have begun to use the "semi-hosting" model commonly used by Amazon's cross-border business - the platform is responsible for selling goods, but the merchants themselves bear the international trunk logistics and delivery costs after arriving at the destination country. This model generally attracts large-scale merchants who ship goods overseas in large quantities to reduce logistics costs and then sell them through e-commerce platforms.

Temu, Shein, and AliExpress mostly recruit big sellers on Amazon through a semi-hosted model. They use the logistics built by Amazon and the merchants they have cultivated to enter the Amazon market. Temu encourages merchants to ship directly with Amazon packages, hoping to leave users with the impression that "the goods are the same as Amazon, but at a lower price."

Temu launched the semi-custodial model in March this year and shifted most of its focus to it. We learned that Temu's semi-custodial investment promotion team has reached 1,000 people, with 7 first- and second-level supervisors leading 7 teams to compete with each other. Of the annual sales target of US$60 billion, semi-custodial is expected to achieve US$20 billion. Temu denied the above data.

A Temu source said that the internal expectation for the business is "only success and no failure, it must be done and will definitely be successful."

Shein and AliExpress also launched a semi-hosted model this year. TikTok Shop, which was launched later in the United States, has given top priority to local goods from the beginning and began to accelerate the recruitment of Amazon merchants in June. Previously, merchants had to have annual sales of more than US$2 million on Amazon to enter its cross-border store, but now this threshold has been removed.

In May 2024, Amazon sent people to investigate more than a dozen top sellers who had access to Temu and found that they were currently only using Temu as a channel to clear their inventory. However, as Temu's sales scale expands and it pursues compliance, it is beginning to attract more and more Amazon sellers.

By leveraging the logistics and warehousing infrastructure that has been built by predecessors, seizing the sellers’ demand for inventory clearance, and providing new channels with lower marketing costs, this is the story of how Pinduoduo was able to grow rapidly in China and grab market share from Taobao and JD.com. Today, Temu, AliExpress, Shein, and TikTok Shop are replicating this story overseas.

The three years after Pinduoduo was founded were the three years when Alibaba promoted consumption upgrades and new retail, which left Pinduoduo with room for growth. Now, one and a half years after Temu was launched, Amazon has begun to fight back.

From full hosting to semi-hosting, it is a solution to move from cross-border to localization

Chinese cross-border e-commerce platforms all started with full hosting, because it has low requirements for merchants and can quickly obtain a large number of cost-effective goods. Now they are focusing on semi-hosting because the ceiling of the full hosting model is too low.

In less than two years, Temu has recruited more than 200,000 merchants, listed more than 2.3 million SKUs, and dispatched nearly 4 million packages from more than 60 warehouses in China every day. It has attracted 467 million global users at a fraction of the price of the same products on Amazon. By June this year, Temu had been rolled out in 71 countries around the world, with an average daily transaction volume of US$120 million in June this year.

Looking only at the user scale, Temu and AliExpress are already the world's second largest e-commerce platforms (excluding the Chinese market). AliExpress has been established for 12 years, but its rapid growth has only occurred in the past two years. With its fully managed model, AliExpress has driven Alibaba's overall international business revenue to grow by 45% in the first quarter of this year.

The reason why full trusteeship can get sufficiently low commodity prices is that the platform takes over multiple links such as warehousing, logistics, and operations, which reduces the threshold for selling goods overseas and involves a large number of merchants in fierce bidding. In the small package direct mail model, users place orders first and merchants then ship, which reduces inventory risks and merchants are willing to sell long-tail and white-label products at lower profits.

These products quickly support the current market of cross-border e-commerce platforms, but also limit their average order value and richness.

The disadvantages of full-service logistics are obvious: it is only suitable for small and light items, the categories are limited, and the speed is not fast enough. Once the specifications of the goods become larger, air transportation loses its cost advantage; copyrighted books and foods that require multiple qualifications and certifications all need to be stocked locally in advance, otherwise there will be compliance risks.

In addition, in response to the large number of small cross-border e-commerce parcels from China, many European and American countries are preparing or have already raised tariffs on small cross-border parcels. Previously, parcels with a value of less than $800 were exempt from tariffs when entering the United States, while the EU tax-free threshold is 150 euros. Starting in April this year, the U.S. Department of Homeland Security said it would strengthen the review of low-value parcels sent directly to the United States in the future, and Europe is also promoting plans to impose tariffs on cheap goods.

Once these preferential policies for cross-border direct mail parcels are cancelled, the price advantage of Temu, Shein and AliExpress's fully managed sales of goods will be weakened. In the semi-managed model, merchants will declare imported goods on their own and will not be affected.

With the help of local inventory, large sellers such as Amazon and independent sites can shorten the delivery time from 2 weeks to 1 week (2-7 days) after connecting to semi-hosting, and expand categories such as food, books, and large household items; after switching from air transportation to sea transportation, the proportion of trunk transportation costs in the sales price of goods will drop from 20%-25% to 3%-5%.

After establishing scale advantages, cross-border e-commerce platforms have imposed stricter timeliness requirements on merchants. In March this year, most of Temu's semi-hosted goods were delivered within 11 days. Four months later, Temu and Shein both required semi-hosted merchants to complete the fulfillment within 7 working days. Once the deadline was exceeded, a fine of US$5 was imposed for each order, which was equivalent to 10% of Temu's average customer unit price.

A merchant who sells on both Temu and Amazon said that 90% of the semi-managed orders he sold on Temu required expedited delivery, and the final fulfillment costs after expediting accounted for 12%-18% of the total cost, which was 5-10 percentage points higher than selling on Amazon.

But big sellers also need new channels. They previously sold their inventory at a loss to channel merchants who specialize in clearing out leftovers, and the goods eventually flowed to Chinese supermarkets, flea markets, etc.; they also sold them at a discount on Amazon's outlet channel. In order to avoid excessive storage and detention fees, merchants advertised and gave discounts to speed up sales, and the fees often exceeded 15% of the product price. Selling on Temu, Shein and AliExpress is more cost-effective than clearing out leftovers at a discount.

For Amazon merchants with US and European trademarks and sales of more than $300,000 in half a year, Temu automatically sets prices at 75%-85% of the price of the same item on Amazon; for merchants with overseas entity qualifications, Temu sets prices at 10% off Amazon; for merchants without trademarks, Temu sets prices dynamically according to the lowest price on the entire network. Shein and AliExpress uniformly set prices at 85% of the price of the same item on Amazon - but the three companies do not charge commissions or advertising fees, so merchants can ultimately obtain profits that are basically the same as on Amazon.

We compared the sales of multiple Amazon brand products on Temu and found that brand direct stores such as Xiaomi and Realme offer discounts on Temu of less than 15%, while cross-border big sellers such as Anker, Zhiou Technology, and Dreame offer discounts of even more than 30%.

In the long run, cross-border e-commerce platforms are not content to be just a clearance channel for large sellers, but hope to become one of the main platforms for merchants to operate. According to Ebrun, brands such as Unilever and Lenovo may open semi-hosted flagship stores on Temu.

AliExpress has made "10 billion subsidies for brands going overseas" its number one project this year. Many brands including Huawei, Lenovo, Xiaomi, DJI, Tineco, etc. have entered its full hosting and platform models, while Amazon brands such as HONEYWELL and VEVOR have entered overseas hosting.

AliExpress was the first to go online, Shein had the highest requirements, and Temu invested the most

We learned that Temu estimates that Amazon, independent website sellers, and offline wholesale traders in the United States have a clearance demand of at least $30 billion worth of goods each year. This is the main market space for the semi-hosted model. Temu's goal is to get $5 billion of it. AliExpress and Shein also saw this $30 billion piece of cake.

AliExpress was the first to recruit merchants to stock overseas, going online on February 29, which was called "overseas hosting"; Temu went online half a month later, and Shein went online 3 months later, which were both called "semi-hosting".

Among the three, Temu has invested the most. The internal judgment is that the longer the delay, the more traffic costs the platform wastes, and merchants are more willing to invest in the fastest growing and most scalable platform.

Three months after going online, Temu's semi-hosted investment promotion team has reached thousands of people, including personnel from the full-hosted investment promotion team (currently the team has less than 200 people), Duoduomaicai and even public relations teams.

Shein's semi-hosted investment promotion team currently has only a few dozen people, but it is still expanding the team; 17,000 merchants have joined the model within one month of its launch.

At least 60,000 merchants have registered for Temu's semi-hosted model, which has an average daily order volume of about 500,000 and generates about 10% of the total sales. In three months, it has covered nine sites in the United States, Canada, the United Kingdom, Germany, France, Italy, Spain, Australia and New Zealand. It was only six months after the full-hosted model was launched that Temu expanded its market outside North America.

Before May this year, Temu's semi-managed recruitment of products was mainly concentrated on large items such as home furnishings, small and light items with a sense of design, and 3C products. During the trial operation, Temu believed that the speed was not in line with expectations, so it formed 7 recruitment teams in May to compete with each other.

One businessman said that at most he received eight calls a day from Temu semi-hosted investment promotion agencies. In his office, as soon as the previous group of Temu semi-hosted investment promotion agents left, the next group came.

Among the three, Temu has the lowest investment threshold, and Shein has the most stringent requirements for merchants.

"Our model is very simple, with only a few dozen words. If you can understand it, then there will be no big problem in doing it." At the FBIF Food Innovation Exhibition, Temu's food category investment promotion manager showed the above model diagram when introducing semi-trusteeship.

Temu hopes to expand the pool and use market mechanisms to screen out top merchants. Individuals only need to provide a photo of their ID card and the name of the store to open a store. In the early days, merchants also needed to pay a deposit of 10,000 yuan before officially starting sales. Now, the deposit is changed to a sales amount of more than 1,500 US dollars or more than 100 sales orders.

Shein chose mature merchants from the beginning, hoping to establish a stable cooperative relationship with them. Only companies can apply for semi-hosting, and merchants need to provide background screenshots of overseas inventory systems to prove that they have goods overseas. The same is true for AliExpress overseas hosting, and a deposit of 10,000 yuan is required. One month after going online, the actual review pass rate of Shein semi-hosting merchants was 50%.

Behind the difference in investment is the different strategic significance of the semi-hosting model to the three companies. Temu regards semi-hosting as a key step in creating the user mindset of "the same goods as Amazon, but at a lower price", hoping to use this to attract consumers who pursue high timeliness and good goods. Shein and AliExpress hope to use this model to supplement local stock, and cross-border is still an important focus at present.

Shein started as a self-operated platform, designing clothing directly and placing orders with factories for purchase, and then shipping them overseas. Clothing and jewelry are Shein's most advantageous categories, accounting for more than 50%, while other categories come from third-party merchants, who mainly airfreight small and light items from China.

In the semi-hosted recruitment, Shein does not recruit clothing, swimwear, underwear and pajamas, wigs, quality jewelry and other advantageous categories under the self-operated model, and requires the weight of the goods to be greater than 400 grams to reduce the cost under the semi-hosted model.

A Shein person said that full-management means purchasing in bulk and selling globally, and only receiving goods when there are orders, which can reduce inventory risks; while semi-management requires preparing goods in the destination country in advance and only selling to the destination country. The order volume is not large enough, and it is difficult to minimize costs.

Previously, AliExpress was the most adventurous and had the most models among the platforms - it offered platforms, direct sales, full-hosting, semi-hosting, and overseas-hosting. By June, AliExpress had sorted out and narrowed down these models to three: full-hosting, semi-hosting, and overseas-hosting. All models were open to all categories of merchants.

AliExpress merged its direct sales model and full trusteeship; the original platform model was upgraded to a semi-trusteeship model, with the platform responsible for domestic and international warehousing and logistics, while other links are still the responsibility of the merchants themselves, in order to improve the certainty of fulfillment; overseas trusteeship is for merchants who have warehouses overseas, and the platform saves the costs of four links: domestic warehousing, international logistics, overseas warehousing, and returns and exchanges.

An AliExpress insider said that the streamlining of models is to help merchants improve efficiency. In the past, if sellers wanted to use five models, they had to connect with five "shop assistants", which was very cumbersome. Now AliExpress has established new rules. A merchant only needs to connect with one "shop assistant" to use all models.

We learned that Temu's semi-hosted model carries a performance target of $20 billion, accounting for 1/3 of its overall sales target. Shein internally expects sales to reach $10 billion one year after the semi-hosted model goes online, and Shein's overall sales target this year is $63 billion.

Temu is accelerating, but semi-hosting is not a panacea

Under the full hosting model, Temu's investment targets are more than 1.5 million active sellers on Pinduoduo's main site and numerous factory sellers. The semi-hosting model targets approximately 400,000 Amazon China sellers and independent site sellers.

The screening pool is smaller and it is more difficult to attract investment. In order to accelerate the development of semi-custody, Temu offers favorable investment conditions and more traffic.

In the early days of the full-hosting service, Temu only required merchants to provide goods at a price lower than that of 1688, Alibaba's wholesale procurement platform. Three months later, Temu made higher requirements, requiring merchants to bear half of the shipping costs when shipping goods to the warehouse. Less than three months later, Temu's merchant bidding cycle was shortened from months to weeks.

Three months after the semi-hosted service was launched, Temu has gradually relaxed its investment conditions. In the early days of the service, merchants were required to pay a deposit of 10,000 yuan when they joined the platform, but in June, the deposit was relaxed to 25% off the price of the same product on Amazon, but around May, the discount was relaxed to 15% off. In June, some merchants said they received 20% more money when they settled the payment.

A seller who has done full-time and half-time services said that in the early days of full-time services, if there were any quality problems, the platform would fine them 5 times the amount of the goods, and there was no chance to appeal. Now Temu has launched a store rating system, and if there are quality problems in stores with scores above 90, there will be no fine, and if the scores are below 60, there will be a fine of 5 times.

People close to Temu said that currently in the US search scenario, 70% of the traffic is allocated to semi-managed products. Even if users choose to sort by sales, "Local warehouse" products with sales of only a few hundred pieces will appear on the first page of search results right after products with sales of tens of thousands.

To encourage merchants to enter, Temu has a policy that Shein does not have - for goods below US$30, the platform subsidizes merchants US$2.99 ​​per order.

The motivation for the 60,000 Temu semi-hosted sellers to try it is that although the gross profit margin of selling goods on Temu (20%-25%) is slightly lower than that on Amazon (30%), there is a shipping subsidy for each order, and having one more sales channel is never a bad thing.

But most of the more than 340,000 active Chinese sellers on Amazon have refused to join or are waiting and watching for the time being.

Part of the reason is that Amazon tracks prices across the entire network through a price comparison system. Once it finds that a merchant's product is much higher than the same product on other platforms, it will remove the product's shopping cart function. Even if consumers can see the product link, they cannot add it to the shopping cart for purchase.

Last June, Amazon removed Temu from its price comparison system because most of Temu's products were priced below $10. If Amazon directly compared prices with Temu, it would make it unprofitable for merchants. If Temu continues to increase its average order value and list more branded products, Amazon is likely to restart price comparisons with Temu.

Secondly, the cost of shipping from Amazon warehouses to other channels is high. Most sellers place their products in Amazon’s own warehouses to gain traffic support. They can also choose multi-channel delivery services to send goods from Amazon warehouses to TikTok, independent sites, and Temu buyers, but the minimum delivery fee in the United States is $7.15 per piece.

It is not easy to attract more Amazon merchants. Temu began to persuade fully managed merchants to try semi-managed services and prepare some goods in overseas warehouses in advance. However, merchants need to pay for the main line, last-mile fulfillment costs and overseas warehousing costs themselves, which is risky for merchants who have no experience in overseas stocking.

A large seller of Temu fully managed service recently sent several containers to the United States, preparing to try semi-managed sales. However, he was not willing to bet everything on Temu, and planned to take the opportunity to accumulate experience and expand sales channels such as Amazon and self-built websites in the future. After working in Temu fully managed service for more than a year, his biggest feeling was "lack of security and living by the weather", and he did not want to continue this insecurity.

In the past two years, Temu has used a full-hosting model to lower the threshold for millions of Chinese sellers to sell goods overseas. It has also used strong execution and a fierce bidding system to create the weapon of extremely low prices, which has opened a gap in the stable US e-commerce market. It has also led Shein, AliExpress, and TikTok to expand full-hosting and quickly sell China's low-priced goods to the world.

However, they can only take away a small number of cost-effective users from Amazon, Walmart and others. Today, Temu and Shein’s combined share of the US e-commerce market is only 2%, while Amazon’s is 36%.

In the first quarter of this year, nearly 60% of Amazon member orders were delivered on the same day or the next day. This is the result of Amazon's investment of more than $100 billion in the past 18 years to build 185 distribution centers around the world. In the past year, Amazon has also been promoting the warehouse distribution service, which distributes the same batch of goods to different warehouses in advance to be closer to users.

If Chinese cross-border e-commerce platforms want to enter more mainstream markets, they must break through the label of "cross-border" and become comprehensive e-commerce platforms that sell goods both locally and overseas. Today, they are more likely to use Chinese supply to meet global demand. Due to cost, supervision, timeliness and other considerations, they will need to be more inclined to use local supply to meet local demand in the future.

Temu, Shein, and AliExpress are taking shortcuts on the infrastructure built by Amazon to leverage its merchants, but in the short term, Amazon's barriers will not be breached.

Fangwei Shen also contributed to this article

Title image source: Visual China