How Shein and Temu Snuck Up On Amazon — With Louise Matsakis

0:00Let's talk about how Amazon is facing what may be its most serious challenge yet as Chinese retailers Shian and Timu make in the United States and elsewhere. All that and more coming up right after this. Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond today. We're diving deep into Shein and Timo with the author of a great story live on BigTechnology.com right now. Louise Monsakis is here in the house. She's a friend of the show and the author of You May Also Like, which you can find at YouMayAlsoLike.Beehive.com. Louise, welcome to the show.

0:35Thanks for having me, Alex. Great to have you here. Great to be doing this in person, which is cool and a new capability that we have here at Big Technology HQ. So you just wrote this great story for us on Shein and Timu. And these are obviously two retailers that people are starting to hear about. Their name recognition is getting much more out there with big Super Bowl ads and lots of marketing on Facebook and Twitter. And also people are just buying this stuff. Like it's not uncommon now to be like speaking with someone and be like, oh, where did you get that? And it's from Shein. Can we talk a little bit at the start about how big these companies are and whether they're actually posing a real challenge to Amazon?

1:14Yeah. So let's start with Timu or Temu. It's funny, actually. What's the right pronunciation? So there actually is no right pronunciation. So I think a couple of times their PR people have corrected people and said, oh, it's Temu. And then the other day I was listening to another podcast. It was Planet Money, NPR's economics podcast, and they did an episode about Timu. And they asked, and Timu's response was, it's however you feel like you want to pronounce it. That is like some of the weirdest branding I think I've ever heard. Yeah, their PR strategy is a little bit questionable. But so I like to say Timu.

1:46I think that's fine. But so Timu is the sister app of Pinguoduo, which is now the most valuable e-commerce company in China, has about 750 million plus users. So they're a much larger sort of like parent company. And Timu itself has hundreds of millions of users around the world already. They are operating in around like 60, 65 countries. And in the U.S., they have, you know, it sort of fluctuates, but I would say around 40 million monthly active users right now. And then there's Shein, which specializes more in women's fashion, although they've branched out into a lot of other categories as well.

2:26Pet supplies, makeup, small electronics, home goods. So they have about 20 to 30 million monthly active users in the U.S. on any given month. And they're in over 100 countries around the world. And it's interesting, like they did kind of come out of nowhere. and then all of a sudden to be running like what six Super Bowl commercials like you're like oh these things are you know people were like I can't believe Temu or Temu actually has the money to run these commercials but they had actually built big businesses and one of the reasons they've been able to do it is because they've gone to I would say an underappreciated demographic right to start to grow within the United States so talk about that a little bit.

3:04So it's interesting when I first pitched Sheehan was you know earlier than Temu because Temu didn't launch until the end of 2022 too. And I remember pitching Shein and said, hey, I want to run a feature about this big, you know, Chinese online e-commerce company. And I had editors push back and say, oh, that's not a tech story. Like, I don't get it. Who cares what like, you know, 13 year olds are buying$700, buying$7 leggings. Like, why does that matter? You know, like, I don't really see the use case. And I thought that was so interesting because there had been all of these other sort of direct-to-consumer startups that had the same sort of e-commerce model, and they had gone after upper-middle-class urbanites, right?

3:44You know, there were so many of these, you know, I'm thinking of, like, the Soylance of the, like, all the, like, luggage startups. There was all these different types of clothing, you know, the Allbirds, right? There were all these consumer startups that sort of the archetype they were going after was men and women who were making, you know, I would say over like$80 ,000 a year, right? In sort of like New York, San Francisco. And in a lot of ways, Shein and Timu went after the opposite of that demographic. So a lot of times I'll talk to someone in New York City or in Los Angeles where I live, and they'll say, oh, you know, my aunt in Texas loves Timu.

4:20Or my nephew who lives in Wisconsin is obsessed with Timu. My granddaughter who lives, you know, in Iowa is really into Shein. And that is no mistake. They specifically went after sort of lower income demographics outside of major cities. And they often, you know, overwhelmingly both sites are dominated by female consumers. So I think that in Silicon Valley, a lot of these sort of men who were the perfect target customer for the Albers or the Soylent just sort of missed the rise of these companies. Because, you know, while they had these enormous advertising budgets, they were not advertising towards those people because those people are already so well catered to.

5:06Right. That's a really crowded market. And it was already dominated by Amazon. Right. Like all those people already have a prime membership. Yeah. And so some of the demographics you have in the story, the average American Shia shopper is female in her early 30s, earns roughly$65 ,000 a year. T-Moo's fastest growing demographic. This kind of surprised me. Between the ages of 55 and 64, eating young people to make fun of their older relatives for becoming Timu victims. And then also Timu's customers are also women, and more than half of them make less than$50 ,000 annually. Let me ask you this.

5:41There is a sort of agreed upon feature or bug within these platforms that a lot of this stuff is it's low quality. It breaks. you kind of take like a 50 50 chance at like whether this is going to work or not um do you think that our like our society has like pushed people toward these like sort of um low quality sites that have these goods that are not from the u.s because they get paid so little and they sort of almost have no choice but to do that and then doesn't that sort of help like put us in this like almost death spiral, where we pay people less, they buy low-quality goods, eventually they buy those low-quality goods from outside the United States, the economy gets worse, and so on and so on.

6:28Yeah, I think there's a lot to unpack there. So I think to play sort of the devil's advocate here, I do think that the other big sort of category of retail that Sheen and Timor are competing with is dollar stores, right? And in a lot of markets where people are shopping at, They're not shopping on Amazon. They're shopping at sort of the Dollar General or the Walmart. And I would say generally the Sheen and Timu, the quality is actually better than a lot of those retail experiences, because in a lot of cases, Sheen and Timu are working directly with the suppliers. So while the price might be similar to a Dollar General, there's not a middleman in the middle who's even reducing the quality further.

7:09Right. And Timu in particular has a reputation for being incredibly aggressive in terms of quality. They will cut off their suppliers if there's a quality issue or if the return rate is too high. That's not to say these are the most luxurious, handmade, luxurious, you know, handmade artisan goods by any means. But I do think for this demographic, potentially, I would rather shop on Timu if I were, you know, in a rural part of the United States than having to drive the five miles or whatever to the dollar general. that I think the quality is generally going to be worse and there's going to be far less selection.

7:46Right. So I think that that's sort of the devil's advocate argument. But on the other hand, I do think that this is sort of like the hyper rise of this incredible level of consumerism. And I think that there is sort of an inherent darkness and trepidation that a lot of people have. And I think that, you know, as a China reporter, what I've sort of seen is that get tripped up and mixed into sort of like Sinophobia. I write in sort of this like, oh, because it's in made in China, it's inherently bad. And so I think I'll feel better if I shop at this other site where like everything is also made in China, but it has a nice American name that I know how to pronounce.

8:24And they don't remind me that it's made in China and the news doesn't remind me of that. And if I call customer service, they tell me that the executives are in America. Right. And so I think what I worry about is sort of like, do those companies get off the hook for also selling stuff that's like really bad? But because they're not Chinese and because they're not maybe using sort of this low end marketing, they get off the hook for sort of this exact same practices. Right. Absolutely. I mean, isn't that a case with Amazon? Like, they're selling a lot of the same goods from the same manufacturers.

8:55We're going to get into the human rights stuff, but they have the same human rights problems. Totally. I think it's really true that Amazon sort of originally pioneered a lot of what Timu and Sheen are doing in that, like, these are both marketplaces, right, where they're working with thousands of different suppliers. And that's why they're able to have so much selection. That's why the selection changes so often. And that's what Amazon did, right? And a lot of Chinese manufacturing towns and Chinese suppliers learned how to cater to the U.S. market because of Amazon. Right. So like we are all now used to going on Amazon and seeing these like, you know, you could buy a cup or something that would be a sort of weird string of letters.

9:36And it was some like Chinese company. Right. And they sort of took off the veneer of like maybe a few years before that you would go to Target and have some cute name. Right. Because there was a middleman, there was a U.S. middleman that was sort of hiding the reality of the stuff being made overseas. And now sort of that veneer is gone. It's easier to sort of see into like, oh, like this is all coming from China and there's so much of it. And it's under all these weird brand names. And, you know, how do I how am I supposed to feel about that as a consumer? Yeah. Well, we should talk about the human rights thing because it is an issue, right?

10:09Like these there are no noted human rights violations that these companies have been involved with. And it's almost like I think about, OK, so like on one hand, maybe we shouldn't single them out for human rights violation. Like there may be no worse than some of the suppliers on Amazon. On the other hand, like, why is it so freaking hard for us to have a supply chain that like doesn't rely on slavery? It's crazy. Yeah, I think that one of the sort of like fundamental reasons that I get up in the morning and that I want to do this reporting is because I believe that consumers and societies deserve to know more about where the things they buy come from.

10:44from. And I think it is ludicrous that we live in a world where it is now functionally impossible to understand where something you bought actually came from and how it arrived at your doorstep and who was potentially exploited in that supply chain. And I think it's unhealthy for society to have that distraction and to have no connection to sort of like where things come from. I think that like fundamentally as humans, we like, you know, want to know that we can produce things with our hands and like, where does this stuff come from and who makes it? And I think that that's something that we're losing right now.

11:19And that allows sort of these companies to, yeah, you know, exploit people to, I think, engage in sort of practices that are really questionable. I don't know if you want to get into the specifics of what the accusations have been. Yeah, go for it. In this case. So I think just to give people, I think there's sort of like this vague aura of badness. That's exactly the right way to describe it. Yeah. And I think it's worth just sort of like being very specific. So in the Western region of China, there is an area called Xinjiang, where an ethnic minority called the Uyghurs have been persecuted for a long time.

11:55And around, you know, one to two million of them have been put into camps. And as part of sort of that religious and ethnic crackdown, there have been accusations of forced labor. And so in particular, one of the concerns is about cotton. So the majority of cotton in China is grown in Xinjiang. And the concern is that Uyghurs are being forced to pick this cotton and to process it and to make clothes there. So the United States government outlawed basically anything, in particular cotton, being imported to the U.S. that has ties to Xinjiang. So the concern is that Timu and Xi 'an have continued to use cotton from this part of China, despite those accusations.

12:37So I think it's just, you know, important for people to know precisely what the what the accusation is. You know, I think sometimes people say, oh, everything on Shein is made with child labor. And that's not necessarily true. Right. Like, I think it's important to just be specific about what we're talking about. Yeah. And whatever the case, I mean, clearly, like the American consumer is not too worried because this stuff is pouring in through the mail. And you and your article cite this. I think it was a TikTok of a U.S. mail carrier. He goes, every day it's Timu, Timu, Timu. I'm Timu tired. Yeah.

13:11I think they have this tendency to put everything into one package and then kind of wrap it in a bunch of duct tape. So it's like these amorphous big packages that the four mail carriers have to deal with. So it's pouring in through the postal service. Yeah, exactly. And a lot of it is coming in in sort of these small packages and they're going directly to consumers doorsteps, which is a problem in terms of being able to catch whether something was made with forced labor, because we used to have a system where, you know, a big shipping container would come in and we'd be able to say like, okay, all of these t-shirts we can see on the manifest came from Xinjiang.

13:50So, you know, we're going to block this import and we're able to sort of enforce our laws. But when instead of that big shipping container, you have 2000 tiny little packages that are going all over the US, it's a lot harder to sort of do any supply chain policing. So that's another sort of like added, you know, complication to the Xi 'an and Timu story is that a lot of this stuff is coming directly from China to individual people's houses or whatever. And so that makes it a lot harder for the US government to know what is coming? Is it safe? And should we be concerned? Right. And interestingly, they're not sending us these, they're not sending people these packages individually because they want to like, try to get around human rights.

14:36They're trying to get around it because they have a loophole that allows them to send anything, I think under$600,$800 without paying the tariff. So talk about that, this de minimis loophole. Yeah. So the de minimis threshold, which sounds like this sort of obscure thing. If you've ever left the US, you've probably benefited from this. And it allows you to come back into the United States and bring$800 worth of goods and not pay tariffs on it. It's also what allows eBay to thrive. It's also what allows Amazon to thrive. You know, I like to buy vintage stuff from Japan on eBay, and I'm allowed to import it to the US, you know, no problem.

15:15And it ships via DHL, and I don't want to pay any tariffs on it. So this is a huge benefit to consumers. But what Sheen and Timu realized is that they could also use it to avoid the normal tariffs that their competitors have to pay in order to sell, you know, the same type of clothing in stores. So they have to pay retail tariffs because they're sending those shipping containers to go to a Target store or to go to a Forever 21. And so it could be like, you know, a 30 % tariff that they're able to dodge by just sending that stuff directly. And I don't know who in the world is spending more than$800 on Timo or Shein.

15:50And it's only the individual one, right? So let's say you did place some gigantic order, you could just split it up into two parts and you would still be able to avoid having to pay tariffs. So they're always effectively going to be cheaper than going to a brick and mortar store that's selling Chinese made goods and saying, can I just buy this? Exactly. So sometimes people wonder like, oh, why is that skirt that's the same quality, $40 in a local boutique, but it's only$15 on Shein. And that's part of the reason is that they're able to sort of dodge those tariffs. Yeah. Louise Mantakis is here.

16:23She's a friend of the show and the author of You May Also Like. It's at youmayalsolike.beive.com. She also has a story up on bigtechnology.com. Just went up this past week, how Shein and Timu snuck up on Amazon. It's free and available to everybody to read. So I definitely hope you go check it out. On the other side of this break, we're going to talk a little bit about what these companies do to get access to the American consumer. Because they don't have storefronts, they need to go through some other means to find their way to us. And that, of course, is social media advertising. So we're going to talk about how important they are to Facebook's business, a little bit more on their supply chain.

17:01And maybe we can talk a little bit about whether they're going to get banned and whether TikTok is actually going to get banned on the other side of this break. Back right after this. Did you know your credit card points and miles can lose value to inflation? Credit card companies often reduce the redemption value of your points and miles. Now, imagine a credit card with rewards that can grow in value. With the Gemini credit card, you can earn Bitcoin or one of over 50 other cryptos instantly with no annual fee. Every swipe at the store or gas pump earns you instant rewards deposited straight to your account.

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18:09The Gemini credit card cannot be used to make gambling related purchases. What the hell is going on right now? And why is it happening like this? At Wired, we're obsessed with getting to the bottom of those questions on a daily basis. And maybe you are too. I'm Katie Drummond, the Global Editorial Director of Wired. And I'm hosting our new podcast series, The Big Interview. Each week, I'll sit down with some of the most interesting, provocative, and influential people who are shaping our right now. Big interview conversations are fun. I want a shark that... That eats the internet. That turns it all off.

18:44Unfiltered and unafraid. So in a lot of ways, I try to be an antidote to the unimaginable faucet of reactionary content that you see online, to the best of my ability. Every week, we're going to offer you the ultimate luxury of our times, meaning and context. True or false, you, Brian Johnson, the man sitting across from me, one day, at some point, as of yet undefined in the future, you will die. False. Tell me more. Listen to The Big Interview right now in the same place you find Wired's Uncanny Valley podcast. Subscribe or follow wherever you get your podcasts. And we're back here on Big Technology Podcast with Louise Matsakis.

19:27You can find her newsletter at youmayalsoalike.beehive.com. Also her story how Chian and Temu, or Temu if that's what you prefer, snuck up on Amazon, is live on bigtechnology.com. These companies have also, so they don't have storefronts, right? So, okay, we know that they are able to sell items cheaper than your typical retail store with a storefront, cheaper than maybe even the dollar store. But they have to find a way, like they have to set up a digital storefront that has to have traffic. And the way to get that traffic is Facebook ads. So how important are they to the Facebook ecosystem and how have they been able to make this work in their system?

20:05And by the way, as we talk through this, it's just amazing because you think it's like this kind of silly casino-like retail experience, but actually every little intricate piece of their business model is very well thought out and positioned in a way to take advantage of the American system. Totally. So a few things. So one I will say is that Shein does have some retail stores, but they're usually temporary pop-ups. But it's fascinating because I remember they had one in Texas and there were lines down the block and they sort of revitalized this mall temporarily because all of a sudden like the mall was flooded.

20:40Yeah. With girls who were there to go to the Shein store. So I will say that they have tried sort of like experimenting with retail. But generally, yes, they're a digital only experience. And I think the meta point is really important because I think one thing I hear often reporting on China is, oh, the American tech companies have no presence in China. And while that's true, they don't have a consumer presence, they do often have an ads business. So there are a lot of Chinese companies that are advertising to American consumers or to consumers in other parts of the world. And right now, two of the biggest ones are Sheen and Timo.

21:19So they're spending collectively billions of dollars. Yeah, from your story, we have Timo spent$2 billion on Instagram and Facebook advertisements last year. That's a lot of money. It is an enormous amount of money. And it has resulted in Meta's China business growing much faster than its U.S. ads business. So I think, you know, just to take a step back, one way to sort of think about Sheen and Timu and the difference between them and Amazon sort of conceptually is that they are thinking about shopping, online shopping as a form of entertainment. And so they are using these spinning wheels where you can earn a discount.

22:00There are these games, they're incentivizing you to leave reviews. They will give you points that you can use towards purchases if you log into the Shein app every day. And that is such a different type of approach and philosophy than Amazon, which has been, I think, their archetype of their ideal customer is sort of this stressed out, high earning person in a big city who they just want that buy now button. Why don't you put the toilet paper on auto replenish or whatever? Remember when they had those? I was thinking the other day about the dash button. Yeah, really. Don't even log on to our app.

22:39just click the bounty paper towel button, right? Like that was a huge, I think part of the ethos for Amazon was how can we get this to be as convenient as possible? Whereas Sheen and Timo were saying, hey, get on our app, download our app, we'll reward you for that. We want you to come and stay a while, right? I think that's why you're seeing sort of this older demographic, spending a lot of time on Timo because they're like, hey, this is fun. I'm having a nice time. I'm seeing things I didn't expect. And there's a lot more sort of like surprise and delay, you know, pick a free gift of like, you know, from the selection of like, you know, quirky little things that you didn't know you wanted.

23:17And so that is a big sort of, you know, fundamental part of the philosophy is a ton of advertising. We're going to get you on there. We're going to hook you, but then we're going to keep you there in the same way that TikTok is going to keep you there or Instagram is going to keep you there. And it's sort of like this slot machine function of, well, when you refresh it, you never know what you're going to see. Whereas I think with Amazon, it's like, no, we want you to every time you can ensure your Dawn dish soap comes every six weeks, right? That's totally different. Just in terms of the approach.

23:52Yeah. And you mentioned in the story that there's a photo of this guy with all the things that he's bought from Timu, I think, and it's kind of hilarious? Yeah. So, you know, it's important, I think, with Timu to look back to what was Pinduoduo, the parent company, what was their approach in China? And they did the exact same thing. They went after people in China. There's this tier system of cities. So, you know, first tier is sort of like, you know, the Beijing, the Shanghais. And so they went after people in like third, fourth tier cities in these, you know, county level towns who had time on their hands.

24:25And I think it was in 2018, the New York Times took this amazing photo. And it's of a guy who's like, I think, in his 40s. And he's surrounded by all this stuff that he impulse bought on Pinbordwa. And it's like an electric pink car for his daughter. I think there's like a dart game. There's an inflatable raft. It's like all this stuff he didn't really need. But he was like, oh, this is such a good deal. This is so delightful. This will sort of make me happy. This is entertaining. whereas I think you know of course there is sort of that impulse component on Amazon but I think a lot of what you would see is like oh yeah I got like storage containers for to organize my kitchen right or I got like planters you know for for the plants that I got or like it's much more sort of like this productivity efficiency ethos whereas I think with these sites it's much more about like can we get you something funny or that will delight you or that you know you can plan a birthday party or, you know, you can decorate for Christmas.