Last year, we first looked at Temu's disruption to the U.S. retail category ahead of the Halloween season. We also offered some comments on Temu's $40M Super Bowl ad campaign (or offense). Since then, politicians have been on offense against Temu. The Information notes that Temu is shifting its focus away from the U.S. given political backlash including a potential ban on Temu shipments into the country. Even without an outright ban on shipments, changes in U.S. trade policy could also squeeze sellers like Temu. Some U.S. lawmakers have been pushing for an end to an exemption for parcels under $800 in value that sellers can use to make duty-free shipments directly from China to U.S. shoppers.
This week, we came across an excellent podcast by the Jason & Scot Show which focuses on the U.S. consumer and e-commerce. The net takeaway from the podcast was that Temu is now representing third-party sellers to U.S. buyers, they top the list of shopping apps, and they have an incredible 18% penetration of U.S. households. While they breached SHEIN’s U.S. gross merchandise volume (GMV) in size--$16B--which was the result of robust month-over-month growth during all of 2023 until December when it declined. Alternatively, Temu flattened out in January and fell in February. Additionally, the Temu shopper is more likely a customer has more than $130K in household income with discretionary dollars to burn and who enjoys being gamified. This implies to us that these customers having fun versus being a long-term loyal buyer. However, the podcast’s expert did call out competitive encroachment by Temu on Dollar General, Family Dollar, Oriental Trading, Party City, and Hobby Lobby--especially for party supplies and decorations. That aligns with our comments last Halloween. The impact on Hobby Lobby, Michaels, Joann--shown below--comes from professional crafters making fewer sales on Etsy and eBay, as these marketplaces can’t afford to compete against Temu for leads on Instagram, Google, and TikTok. This means crafters need less supplies for their wares, and that results in less revenue and store traffic for arts & crafts retailers.
Of note, Joann declared bankruptcy this week to restructure their balance sheet as sales and profit render the retailer unable to secure inventory and service its debt. Chain Store News reported that Joann expects to exit bankruptcy next month; the article also cites Joann CFO Scott Sekella saying, “This agreement is a significant step forward in addressing Joann’s capital structure needs, and it will provide us with the financial resources and flexibility necessary to continue to deliver best-in-class product assortments and enhance the customer experience wherever they are shopping with us. This includes our more than 800 stores across the United States, 95 percent of which are cash flow positive.“ (Of note, the statement doesn’t apply to the business with advertising, supply chain, central costs, are also considered).
At an investor conference earlier this month, Etsy CEO Josh Silverman said, “I think Temu is a sign of the times. The times are that people are right now incredibly focused on getting deep discounts on essentials. And even when they're shopping, if they have money left over for discretionary products, for discretionary products as well. It's a sign of the times. But the idea that Temu is somehow a direct competitor and the biggest bet to Etsy feels vastly overstated to me. One thing to consider, the purchases on Etsy are highly considered purchases. When you're buying on Etsy, you're buying for a special occasion. You're buying a gift for someone else you care about, you're buying some jewelry or a dress for yourself to go to a special occasion, you're buying something to decorate your home and you want it to feel special. 70% of purchases on Etsy have more than 2 visits required to make that purchase. More than half of our purchases have 3, 4, 5, sometimes 10 visits. These are highly considered purchases. It's not an impulse buy or something that just you bought because it happened to be cheap most of the time. And you're buying on Etsy because it feels special because it's made just for you. If I had to pick a brand that was the polar opposite of Etsy, Temu is the closest I can think of to the polar opposite of Etsy. Now there's no question that they're investing so much that they're having an impact on the entire ecosystem. So for example, they're pouring money into Facebook and Google at such a frenetic pace and with what feels like so little focus on ROI that they are single-handedly changing the cost of the deep part of the auctions in which we tend to participate, the long tail of the auctions in which we tend to participate. And that means it's having at the margin a slight effect on our ability to invest in some of the performance channels at the scale we historically have or would like to. It's at the margin, and we ship to TV where we also see very good performance, where we're very ROI-driven and which are very big channels.”
To conclude, it seems that a broad Temu disruption in the second half of 2024 is unlikely and we’ll learn more about the first half of 2024 trends when Meta and Google report results at the end of April. In our view, Temu is more disruptive to Etsy’s, eBay’s, and other’s click-based customer acquisition than it is to brick-and-mortar retail.
