MW Chinese e-commerce giants want your business - and U.S. retailers are losing it
By Michael Brush
U.S. sales by Chinese online platforms could soar to $40 billion in 2024 from $15 billion last year
When Amazon.com $(AMZN)$ missed second-quarter sales estimates at the start of August, the culprit was clear. It wasn't Amazon Web Services. That division saw a 19% jump in sales compared with the year-earlier period because of AI-related demand. The problem was the company's core e-commerce business. It grew by just 5% - a slowdown from recent quarters. Amazon's chief financial officer, Brian Olsavsky, blamed the decline on trading-down behavior among consumers.
Translation: Chinese e-commerce giants are competing hard for your business by offering great deals. And they're not letting up. This will weigh on Amazon's e-commerce business going forward. Amazon's stock is down 2.6% in August, compared with a slight gain for the S&P 500 SPX, after an early-in-the-month stock-market washout. This underperformance may continue because of Chinese competition.
China dot-com
Faced with weak domestic consumer sales, Chinese online sales giants including Temu, AliExpress, TikTok Shops and Shein have moved into the U.S. and other markets around the world in a big way. "These platforms leverage China's strong manufacturing capability along with a well-oiled supply chain and logistics network," according to Bank of America analysts.
As Temu and AliExpress ramp up sales in the U.S., Europe, Latin America, South Korea, Japan and elsewhere, that will benefit their parent companies - Temu's PDD Holdings $(PDD)$ and AliExpress's Alibaba Group Holding $(BABA)$. Bank of America analysts estimate that U.S. sales by Chinese online platforms could nearly triple to $40 billion in 2024 from $15 billion last year. That would be a 3% share of what the U.S. Department of Commerce says will be a $1.2 trillion U.S. e-commerce market this year.
Temu increased its U.S. monthly average users by 64% to 48 million in March from 29.3 million a year earlier, according to Bank of America. In contrast, AliExpress increased its user base by 11% to 22.6 million from 20.3 million. Not bad. But Temu is doing better. "Temu is expanding faster and burning less cash than we expected," says Morningstar analyst Chelsey Tam, who has a four-star rating on the stock, out of a possible five stars.
Not surprisingly, TikTok relies heavily on impulse-driven shopping nudged by influencers. "TikTok leverages its social content platform to acquire users and keep these customers hooked on their network," says Bank of America. Its proprietary algorithm, according to B. of A., "plays a big role in pushing users to shop online."
Shoppers like Shein for its low prices and large selection of in-fashion clothing. The company's flexible supply chain speeds up deliveries.
TikTok and Shein are private companies, so you can't buy shares in the stock market.
Amazon and Walmart look safe
If you own shares of Amazon.com and Walmart don't worry. Temu and AliExpress focus on lower-priced items, and Shein specializes in fast fashion. In contrast, Amazon and Walmart sell a wider variety of products across more price points. Many of these products are insulated from Chinese e-commerce competition.
Bank of America predicts that Amazon will continue to take market share in online retail. It estimates that Prime Day could generate $13 billion in sales, up 7% over last year, compared with 2.3% overall retail-sales growth in June.
Etsy and EBay face headwinds
In contrast, Etsy $(ETSY)$and eBay $(EBAY)$ could see sales-growth erosion because they sell a higher percentage of low-priced products, although "Etsy may be somewhat insulated given product assortment," says Bank of America.
Value retailers such as Old Navy $(GPS)$ and Kohl's $(KSS)$ could be at risk because of price competition from Shein and Temu. Shein's fast-fashion offerings also pose a risk to trendy-apparel retailers Revolve Group $(RVLV)$, Urban Outfitters $(URBN)$ and American Eagle Outfitters $(AEO)$. Their core young millennial and Generation Z customers are increasingly likely to shop at Temu and Shein.
While PDD and Alibaba look attractive because of these trends, a risk to owning foreign e-commerce plays is that regulators build barriers. U.S. lawmakers have called for a TikTok ban, for instance, and Brazil has imposed a steep value-added tax on these Chinese exporters. "We expect more protectionist regulatory interventions," says Bank of America.
See: Luxury-goods brands fear their golden goose - China - is cooked
Another risk is delivery times. Foreign e-commerce companies need to step up their game to compete.
More winners: Logistics companies
Speaking of delivery, FedEx $(FDX)$ and United Parcel Service $(UPS)$ could benefit from this battle for your online spending. But the real Chinese e-commerce logistics plays are those specializing in shipping from China to Europe and the U.S. Among them: Deutsche Lufthansa (DLAKY), Cathay Pacific Airways (CPCAY) and Deutsche Post (DHLGY), which operates DHL.
Lufthansa Cargo has said it will benefit from the growth of Chinese e-commerce sales abroad via subsidiaries and partners that offer end-to-end shipping solutions. "Major Chinese platforms are heavily reliant upon air cargo companies like Lufthansa to reduce delivery times overseas," Bank of America says.
Cathay Pacific gets about 10% of its revenue from cross-border e-commerce. DHL offers airfreight via its Express Global Forwarding division, and it has a last-mile business in Germany and elsewhere.
Also consider exposure to Cainiao, a division of Alibaba. Cainiao is actually the biggest player in cross-border shipping by volume - more than UPS, DHL and FedEx.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned AMZN and BABA. Brush has suggested AMZN, BABA and FDX in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks
More: Retailers have pulled back on raising prices. More are now lowering them.
Plus: Walmart sells entire stake in JD.com for $3.6 billion: report
-Michael Brush
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August 21, 2024 07:22 ET (11:22 GMT)
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