You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain no global business so you can invest better across the Pacific rim. I'm Tom Corbett in Hong Kong.
And I'm John Lee. Chinese shopping apps are shaking up online retail, with upstarts Sheen and Timu emerging as two of this She's Hottest success stories.
Sheen has powered past into textas Zara and h and M to become the world's largest online fashion retailer.
Meanwhile, Timu has exploded into a viral sensation with an app surpasting one hundred million US downloads in just the past year.
Their success has come at breakneck speed, powered by a mix of flashy websites, fast fashion bargain buys, savvy social media strategies, and relentless marketing.
Could Timu be the killer app that drives Amazon from dominance? What explains she AND's sudden success and can both Chinese apps keep winning the hearts of gen Z consumers.
Let's click by now with Katherine Lim, Asia research director at Bloomberg Intelligence.
And Tatiana Lisitsina, Bloomberg Intelligence e commerce analyst.
Katherine joins us from Singapore. Tatiana is in Milan, Italy. Both of you welcome, Thank you, Tom, Katherine.
Timu made a huge splash in this year's Super Bowl, where it spent almost fourteen million US dollars to feature its ad shop like a Billionaire, and sales have gone viral ever since. How has Timu become so successful so quickly?
Right, John, It's all about prizing, free shopping and zero cost returns. That's what Timu is offering the US shoppers right now, and we did our comparison. They are literally giving very attractive offers to the US shoppers to buy on their platform and no minimum spend required. So that's how you know. Timu has gone from just three percent of Amazon's am US at the beginning of the year right now to thirty six.
Percent, Catherine Tachiana. If you look at Timu's website, it reads as though it's a Boston based startup. There's very little mention of the fact that it's part of PDD Holdings and backed by Pinduo Duo, the Chinese retailer. Is that an accident or is that part of their strategy?
Well, I would say that that's part of their strategy. And really, I think when you actually go into a different market such as US itself, it's better to be closer and you know, more direct with the customers without emphasizing too much on where your products are coming from, because all you want is shoppers to focus on is the low price proposition that you're offering and the value for money products that they are able to get when they shop with you.
Hey, Catherine, how much cheaper is Team? Then say you know comparable websites like maybe Amazon?
Right, I'll give you a few numbers, John, we just did our mets just two days ago. And if you buy a pair of flip flops on Amazon's you are gonna pay sixty seven percent more on Amazon versus when you buy for a similar product on TMU. And guess what, tm is not expecting you to actually join any memberships. You don't have to be an Amazon Prime members to enjoy free deliveries as well as you know the returns guarantees. Now,
one little upset. If you are in urgent need of your flip flops, then you might still want to concern Amazon because it will just take you five days versus up to twelve days for t MoU slippers to be delivered to you. So that's the only downside.
You know, both of these retailers have fairly substantial AD budgets. I've read that Temu has an annual AD budget of one point four billion dollars. Obviously there's a lot of aggressive marketing. So how do they make money?
Well, you know, the one point four billion budget that they have allocated to expand their reach to more consumers. We don't know at this point in time how it's being allocated. Part of it will likely go to merchants, part of it will go to shoppers in the form of coupon's rebates as well as discounts. But key question
is are they gonna spend everything this year? No, it is likely that they will be spending this one point four billion in stages and as far as we I can see right now from pdd's number, which is the parent of Temu, it seems like, you know, the expenses are still fairly under control.
And Catherine, I know you mentioned that there's definitely a pricing advantage, but when I go to the Temu site, it just seems a lot more fun than say, like an Amazon. Like I went in there and there was this like wheel that was spinning around and I won one hundred dollars coupon if I signed up. Like that's pretty successful.
Right right, Lucky you, John. And you know, watch out for more of these online games that will come through as we go into Black Friday, because Black Friday Sale will be something that you will see TEAMU Shin coming in very aggressively to try and secure more spending from the US shoppers in particular into the holiday season.
Tatiana Lisit Sina in Milan, Shean and Temu were relatively unknown until maybe a short time ago, a couple of years ago. What explains their rapid rise and how did they manage to get such traction in global retail so quickly? What are your thoughts?
Thanks Tom Well. I think she In in particular has three key competitive advantages. One of course, low prices. They're very competitive on that, and this is helped by the tax advantages from shipping to the end consumer directly from China. The low prices of the goods allow for the parcels to be treated as individual imports to avoid import duties as long as the value is below a certain threshold. And in the EU, for example, it's one hundred and
fifty euros. So this gives them the price advantage. Number two, they have a very wide choice. She In has a very short and efficient supply chain with a data driven planning, design and demand forecasting function. That means that they produce styles in small batches of maybe a couple of hundred items, they test that demand for a few weeks for those styles, and then they repeat the popular designs in much larger quantities. And this allows Shean to have a very large choice
of items on their websites. That's six hundred to seven hundred thousand stock keeping units versus, for example, only thirty five thousand at Boohu, and that also allows them to launch styles more frequently.
So do they compete on price or do they compete on differentiation?
Then I would say it's a mixture of everything. Price is not their only advantage. The differentiating factor is also the amount of choice items that they have and the frequency that those items get updated. And then a third point is also their strong social media following, particularly among young consumers. Agen zs with user engagement on TikTok ahead of any other brand, even Nike, and they seem to use also social media, not just for marketing but also to test what consumers want.
So yeah, and Tatiana, you know, Shean's rise was accompanied also by the rise of TikTok, and you know you saw these ads like you know, I guess like a Shean hall. Is that what you're talking about? The close relationship between both platforms.
Yeah, I mean, I think Shean is the most popular brand on TikTok. It has the hashtag Shean has over seventy five billion cumulative use versus only twenty four billion for Zara and two billion on eight Parrass for example, So that gives you an idea. It's less dominant on Instagram. I think it has half the following of Zara, for example.
But the key difference is that on Instagram the content is mainly driven by the brands themselves or by influencers maybe, but on TikTok, most of the engagement is usually driven by the user, so they're following has grown much faster and much more organically. TikTok users are younger, They're similar to Sheen customers. Content is more video driven, which I guess is sort of a trend now and turns of how people interact with content, and what is very popular
on TikTok are those sheen halls. So you can imagine like an influencer buying huge amount of clothes and showing them off, reviewing them in videos, and the lower the prices, the bigger those holes are. And this is driving also a lot of the engagement. I can tell you she Hall has, for example, thirteen billion cumulative views on TikTok right now versus Bizara Hall with only eight billion.
Catherine, how big can team become in the US?
Right That's a good question. Do you know, bearing bearing unforeseen circumstances whereby do you know we're they actually heard about ongoing lawsuits, discussions about you know, potential violations of certain policies, etc. Not to go into the details, John, but you know, assuming that they are able to operate in an open market like any other players in US, I do think that, you know, there is potential for them to actually get much bigger than where they are
right now. Can they double their MAU from where they are right now to the equivalent of what we are seeing from the Amazon shopping platform? Possible? I wouldn't rule that out at all, John.
And Katherine Linn John's question raises another interesting point. How afraid should retailers be in the US of Timu and Chian.
Well, this is something that you know is applicable for a lot of the categories of products that's coming from a big manufacturing hub such as China, whereby you know, they do actually have cost advantage and once you are able to actually the bridge the logistics inefficiencies and be
in a position to bring goods fastest across different continents itself. Well, there is absolutely retailers in US should fear Timu the way I see it, because you know, for consumers, particularly as we all get more conscious about our spending uncertainties and economies out there, they are definitely the force to be reckoned with. Into twenty twenty.
Four, Catherine, Tinu's very different from Sheen when I look at you know, she and she doesn't actually you know, sell anything in China but just exports, you know, all its goods overseas. In the case of Timu, it's owned by Pindodo or PDD, and they were very successful in disrupting the highly competitive Chinese you know, online retail space. Can you talk about some of the strategies of why they were so successful and they can they replicate that in the.
US, right, So I guess before we get there, that was something that John we had discussed about PDD and TAMU. I think the companies would like us to actually keep the two platforms apart, but there are definitely lessons to be learned from the sister platform whereby social media is something that we have actually talked about in China. As we all know, social influence is a very big forced and makes a very big impact to retailers and brands.
So being able to actually leaveaged on the one point four billion population and get them to think about your campaigns and get them to shop and browse through your platforms, that is something that social media and if you actually leaveage it right, tim can leverage on that in US as well. And you know, as Tatiana had earlier shared, TikTok is definitely a place to actually look into the wing in China, the equivalent of TikTok, you know, in China.
It's also a place that PDD has worked with some of the other brands and manufacturers to actually sell the goods, particularly agricultural goods. So it's actually interesting, you know, you can sell all kinds of things on social media, and really it's up to you to actually create that content to bring the shoppers in.
Do either of you think that TMU could be the killer app that drives Amazon from dominance?
Right, I'll take that first term. I guess you know, the killer app and whether it is that super app. Lots of jargons out there as to what is the next app in the market, but to go actually get to where Amazon is, I think what what I would be looking out for for TMU will be, you know, the sustainability of their low price strategy and whether they are constantly able to understand what consumers in the US
and around the rest of the world excluding China. Once now social media in China has been a big force in helping PDD back in China understand very quickly what is popular and what is the flavor of the month, and if they can actually replicate that in the US. I do think that, you know, they have you know, bulk of the success in their pockets.
Already and Tatiana for she and it's already the largest online fashion retailer, right, so is the growth to super far so they sort of slowing down?
Yes, I think it's certainly Sheen is not immune to the well global e commerce slow down overall, and I think growth is likely to slow further. But let me let me explain. I think I believe Sheen was valued at about sixty six billion US dollars in the latest founding round, and that's down a third by a third from the year before, but the still about ten times more than the Zalando, Aesos and Boohoo combined in Europe. Such an eye popping valuation obviously demands aggressive growth targets.
Sales need to be prioritized over profit, and this is
what she In right now seems to be doing. There was a Financial Times report saying that she and is targeting to grow it's gross merchandise volumes by forty percent each year to twenty twenty five to reach eighty billion US dollars that would outpace eBay, and already this target looks like a stretch if we look at European retailers, all online rivals have shifted from burning cash in pursuit of growth to focusing on profit and cash preservation, and
the reason for that is that over the past years there has been a step up in capital spending across the industry, building new warehouses, doing automation projects. So e commerce became very capital intensive, and as online growth slowed in the last two years, the return on capital has collapsed. And now on top of that, the cost of capital has jumped for some retailers two to three times for others such as TG even nine times since the end of twenty twenty, and this has added the urgency to
generate profit. So she And must also be seeing the rising cost of capital. It seems to have invested a lot of new infrastructure like warehouses in Poland, manufacturing in Turkey and Brazil, so there is there has to be a moment and likely soon when it has to focus on profit as well. If it was already profitable, it would probably not need to keep raising funds. So yeah, I think she won't be able to avoid those same dynamics that are hitting the ass Boho of Europe, et cetera.
And she And and Timo are really the last online retailers that are really still focused on growth.
Tatani, you just mentioned that she's building up these retail warehouses in Europe are the sort of you know, moving away from the traditional sort of made to order strategy.
Yes, that is one of the sort of key shifts and their business model that we're observing. It's moving exactly away from its China supply chain towards sort of regional hubs in order to also reduce the delivery times. Similar to TIMO, their delivery times right now about eight to twelve maybe business days for standard delivery, depending on the region. It can vary a little bit. So yeah, it has begun manufacturing elsewhere in the world open distribution centers, et cetera.
And now this is interesting because the direct from China distribution model gave it a competitive advantage and now she and will likely have to pay import duties which will hurt profitability, and it could also force them to raise prices, which is another key advantage and also a Caser mentioned the manufacturing concentration with I think over three thousand suppliers based in China has been one of the its key advantages.
Having multiple warehouses around the world requires more stock planning means it has to have more inventory at each at each stage. And this is a deviation from the short lead made to order model, and it raises the question to what extent will be added complexity of diversifying and expanding its supply chain result in a loss of productivity and flexibility.
Tachiana and Catherine, do you think that there's a kind of addictive quality to the online shopping experience at either Shean or Timu? And if yes, what is that? Precisely, how does that so called entertainment factor play into their sales growth strategy?
The shopping experience that consumers are now looking for goes beyond do you know what we typically look for, because really it's an integration of social commerce, life streaming. You know, it's always something that now pops up when you actually browsed for a product. I don't see much of it on the Timu website yet, but again, you know, keeps your fingers crossed because it's become such a big phenomenal having short videos and live streaming to help better explain
and tell the story behind the product itself. So that entertainment content will definitely be the next add on that we will probably see on top of what John has highlighted about. You know, games that we're now seeing as we browsed for products on Timu. You know, on these shopping websites.
What are the some of the downside risks for both companies, you know, like the US regulators are looking at TikTok and trying to ban that in certain states. Do you think some of the regulators could go after potentially Shean or Timum.
I mean for for she and I would say the key concern is ESG, So I'd say probably scores worse than many other fashion companies, but.
They're pretty bad anyway, right the fashion companies.
That's true. Fast Session is certainly not viewed well. However, I think the perception on Sene is even worse. So we have survey data. According to survey data from WGS and Barometer, Chiann has more negative buzz so sort of negative press in the UK compared to other online retailers and also in Germany compared to the Zealando about you for example. But the question is I suppose how much
consumers or influenced by that. And there's rising awareness obviously among consumers around and environmental issues, and there are also studies showing that gen z care increasingly about the environment and social conscience. Nonetheless, there's also evidence that sustainability is not the main factor in fluencing shopping decisions. Price seems to be the main motivation, especially in the current in environments,
and we have seen this also with Booho. In twenty twenty they got in the spotlight for modern slavery allegations occurring in one of their factories in the UK. It was a big scandal and bo Who has addressed that
later on. But the point is that despite the scandal and the initial protests to boycott boo Who, consumers did not really stop shopping with them, and similar with Shean, it doesn't seem to have lost a lot of this image of being exciting and value good value in European in European countries at least, and I mean, of course, for it from an investor perspective, and ESG concerns are likely to be much higher, and there has been investigations
into Sheine's business practices with alec issues of garment exploitation, working hours breached, et cetera, et cetera, and is Shein has pledged seventy million US dollars towards improving its supply chain conditions over the next five years. So clearly ESG remains a difficult issue for the fast session player to tackle, and is G scrutiny continues to grow, especially if it's going to pursue.
An IPO so Tatiana. If price is driving all these millions of online consumers online buyers, how does customer loyalty fit into the bigger picture here?
Yeah, that's a good point. I think gen Z are generally very open to experiment with other with other brands and to switch to switch to other brands if something, if they don't like something, So if prices increase or perhaps also ESG becomes just the more important concern. I can definitely see customers switching away from Sheen and growth flowing significantly. So I think it's quite a bit concern that gen Z is not necessarily a loyal customer.
Just talking about gen Z. Look, Catherine, do you think Americans actually know that teaming was actually owned by a Chinese company?
Right?
I guess, John, hopefully I've got your question right. Well, I don't think they do, because nothing on the website, do you know, not anything telling that you know, as you click into getting your Purchases, et cetera, actually tells you that it is a Chinese company, and you know notwithstanding, of course, you know if you actually look at the payments, et cetera. It's very international and global friendly.
And among you as consumers, there might be some skepticism about doing business with a Chinese company, So that strikes me as perhaps being part of their strategy. Is that how they intend to overcome that skepticism.
Yes, I do think that you know, that is a factor, and you know, and I'm sure you know most of the audience would also agree that. At the end of the day, I think, you know, putting a site some of the geopolitics issues that you know comes up every now and then. Consumers ultimately, they are after one thing and that is, you know, to actually have the best
value for money products. And do you know if it is pencils coming from China that's a fraction or just a quarter of the cost of what you get in US. Why not?
Right?
Okay, I'd love to you know, wrap up with you know, a question of personal question, Tatiana Catherine. I have to ask have you recently purchased anything from Shean or Timu? And if so, what was it?
Right? John? You know, I'm just gonna jump in on that because I'm waiting for Singles Day here in Asia, and you know that's gonna come to like hopefully next week I will know what's the bargains that's up for grab here in Asia, So not so much on Timu and Shin yet. And as I've mentioned that I will save it for next month when Black Friday sale comes.
On, I will admit that I have bought on Shean before and it was like the typical I wouldn't call it a whole, but certainly multiple items and mostly summer dresses. And I guess I was quite surprised that some of the things were much higher quality than I would have expected. So yeah, I was a positive surprise.
I saw a fifteen dollar electronic massage gun on Timu, so I think that's gonna be my next purchase.
All Right. We've been talking Sheen and Timud, China's two online shopping juggernauts, with Catherine Limb of Bloomberg Intelligence in Singapore and Taciana Lisitsina in Milan, Italy. It's been a great discussion, very enlightening, and we thank you both for your insights.
John, thank you.
I'm Tom Corbett in Hong Kong
And I'm John Lee, and you've been listening to the Asia Centric podcast