Amazon is worried about upstarts like Temu and Shein. Here's how it's confronting them.

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Amazon’s (AMZN) dominance in e-commerce makes any potential threat hard to take seriously. On the surface anyway. But the staggering growth of direct shippers like Temu and Shein, though puny in comparison, has grabbed the attention of the people who run the everything store.

And Amazon aims to confront them directly before they get much more traction.

Amazon’s reported move to start a new service focused on shipping low-cost fashion and lifestyle products directly from China highlights how bargain platforms have made inroads with American shoppers and Chinese manufacturers. And how even market leaders are forced to adjust to maintain top billing.

“The Chinese marketplaces aren’t currently a huge threat to Amazon, but they are growing, and they are nibbling away at its market share,” said Neil Saunders, a retail analyst at GlobalData.

New data underscores how thoroughly Amazon commands the e-commerce market but also suggests why propping up a bargain copycat service seems like a strategic necessity, akin to a mainstream airline launching a discount carrier to fend off the "little guys."

By the numbers, of course, the up-and-comers look more like niche businesses compared with the Seattle mega-retailer.

Amazon is forecast to generate more than $360 billion in 2025 from sales tied to independent sellers that use the online platform, according to a report published by eMarketer last week. That represents a 10% jump from 2024. And it’s ten times higher than its closest online competitor, eBay (EBAY).

But even as Amazon towers above its rivals, including the likes of Walmart (see above chart), and is expected to post healthy growth, Temu’s anticipated figures, for example, outshine everyone else.

Temu — where customers can order shoes for less than $10, drones for $15, or a mattress topper for a little more than $30 — is expected to grow its third-party sales by nearly 60% next year to more than $30 billion, eMarketer estimates show. That’s well above the growth forecasts of other marketplace competitors, including Walmart (WMT) and Etsy (ETSY).

At the moment, Temu and other low cost platforms have a catalog confined to more affordable products and basic consumer goods. “But there is a danger the overlap could grow as the marketplaces round out their offer and push into higher price points,” said Saunders.

Like other forms of online shopping or walking the aisles for sales, perceived savings have a way of loosening purses, playing off impulses, and convincing shoppers to pick up items they didn't know they needed.

Owned by the Chinese e-commerce group PDD Holdings (PDD), Temu began operating in the US in 2022. The company has relied on an advertising blitz and subsidies to disrupt established players in China and abroad, wielding ultra-low prices to claw away market share, a model that has thrived as consumers mind their spending. PDD doesn't break out Temu sales figures. But the parent company reported revenue of $12 billion for the quarter ending in May.

Shein also has Chinese roots but is currently headquartered in Singapore. The fast-fashion juggernaut, which features $5 pajama sets and $7 yoga leggings, doesn't report its financials. But in a run-up to a potential IPO, estimates pin the company's annual revenue at more than $30 billion.

Alongside their financial accomplishments, the two platforms have drawn political scrutiny over the way they handle sending goods to the US. Shein and Temu benefit from a tax loophole that exempts packages from tariffs if they are worth less than $800. Some lawmakers have called for an end to this trade provision, targeting Chinese companies. Almost half of the shipments that are sent over using the duty-free exemption come from China, according to a recent Congressional committee report.

Shoppers can find items on the Temu website for rock-bottom prices. (AP Photo/Richard Drew)
Is Amazon running scared? The Temu website. (AP Photo/Richard Drew) (ASSOCIATED PRESS)

Platforms like Shein and Temu have discovered that for some customers looking for a certain set of products, speed is less important than extraordinary value.

For years, Amazon has conditioned US consumers to buy unbranded goods from Chinese sellers at low prices. The company optimized for speedy delivery, developing a fulfillment network that can deliver goods in days or even hours. That’s true for goods already shipped to the US from abroad and from domestic merchants. In March, for instance, nearly 60% of Prime member orders arrived the same or the next day across the top 60 largest US metro areas, the company has touted.

Customers shopping on discount platforms, however, can buy from sellers who ship products directly from China. Since the goods aren’t already sitting in stateside warehouses, the logistical journey means delivery times are measured in days and weeks. But what these transactions lose in time, they make up for in price. That’s how customers can find an array of goods on Temu that are much cheaper than those sold by department stores or even Amazon. (To beat the heat, an ice maker costs around $50 on Temu, compared to roughly $80 on Amazon. And a neck fan — who doesn't need one of those? — goes for around $5 on Temu. Similar items range from $20 to $45 on Amazon.)

The direct shipping model works especially well for cheaper items since more of their price is attributed to cost and fees. Removing a fulfillment layer can make them significantly cheaper. That’s why traditional retailers and Amazon — which offer service, convenience, and speed — typically can’t match the prices of bargain apps.

As the discount platforms have grown their customer base, Amazon has taken notice.

The e-commerce leader has shared plans with Chinese sellers to launch a new shopping channel that would cater to users looking for affordable clothing and lifestyle products, as first reported by the Information's Jing Yang and Theo Wayt. The items, many of which will cost less than $20, would be shipped directly from China, with delivery as fast as nine days.

“There is also something of a future threat in that the Chinese marketplaces are very appealing to younger generations, which Amazon also wants to recruit and retain as future shoppers,” said Saunders.

And it’s not just customers Amazon is after.

In a statement to Yahoo Finance, Amazon said “We are always exploring new ways to work with our selling partners to delight our customers with more selection, lower prices, and greater convenience.”

Temu told Yahoo Finance in a statement that their direct-from-factory model streamlined the traditional retail supply chain. "By eliminating intermediaries, we pass savings directly to consumers, offering lower prices without compromising quality," the company said. "Consumers have embraced this approach by making Temu one of the most popular shopping apps in the world."

Shein did not respond to requests for comment.

Amazon's planned discount storefront is also an attempt to court Chinese sellers, their flow of business, and their ad dollars, said Sky Canaves, a principal analyst at eMarketer.

“They may individually sell small amounts, but in the aggregate, they are high. If the sellers decide to go sell elsewhere, on TikTok and Shein and Temu, if they start exploring other platforms, they are going to be spending on other platforms,” she said. “That’s what Amazon is trying to anticipate.”

But the supply chain mimicry and incursion into rival turf go both ways. Just as Amazon is trying to be more like Temu and Shein, the discount platforms are trying to be more like Amazon, said Juozas Kaziuk?nas, founder of the market research firm Marketplace Pulse.

Bargain platforms are setting up partnerships and local warehouse programs in the US and are recruiting domestic merchants.

Temu's efforts to recruit more Chinese sellers with US inventory, as well as local merchants, are taking a page out of the Amazon book. It's also a way to protect the company if the US government eliminates the trade provision that exempts low-cost shipments from customs duties, as the Information reported on Wednesday. While it continues to ship products directly from China, Temu is establishing a stronger base of independent US sellers.

Temu told Yahoo Finance that qualified sellers can now handle their own logistics from local US and European warehouses. "This enriches our product selection, reduces shipping distances, and shortens delivery times," the company said.

The broad success of Amazon’s e-commerce business has also invited other major players like Walmart and Target (TGT) to build their own marketplaces with third-party sellers. And the build-out of supply chain logistics has made it easier for bands outside the US to gain a foothold, said Cayce Roy, the founder and chief executive at Standvast, an e-commerce fulfillment company, and a former vice president at Amazon.

In an environment where Amazon still has headroom for growth but is closer to saturation, experts say creating new revenue streams and claiming share from rivals are ways to boost growth.

But challenges lie ahead for taking on the discount platforms that have fortified a niche for themselves.

If Amazon built an identity based around rapid delivery and convenience, how will the company communicate to shoppers the upside of slower delivery?

“This is not a natural fit for them. And they don’t necessarily have an advantage,” said Kaziuk?nas.

Kaziuk?nas also pointed to Prime Day, just around the corner, to highlight the many other shopping behaviors Amazon is trying to cater to.

“Shein and Temu are not accidental. This is the one thing these apps are focused on, but for Amazon, this is going to be priority number 17,” he said. "For all of Amazon’s prowess and strength, this is where they are starting from a point of weakness.”

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.

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