Cross-border e-commerce reaches a "new starting point"

As global e-commerce competition becomes increasingly fierce, cross-border e-commerce platforms are standing at a new starting point. As compliance policies in markets around the world are tightened, low-price strategies are no longer a panacea for cross-border e-commerce.

Since the beginning of this year, the domestic e-commerce industry has begun to reach a turning point. The "low-price strategy" pursued in the past year has been gradually revised, and quality and experience are valued by more and more consumers. In overseas markets, cross-border e-commerce is also facing new trends.

Recently, Temu and Shein have both been put on hold in Vietnam. According to the Vietnamese Ministry of Industry and Trade, Temu and Shein must complete their corporate registration procedures before November 30. Currently, both platforms have submitted their registration applications, but it remains unknown when they can restart their business.

Similar to the United States' "small exemption" policy, Vietnam's further tightening of supervision on cross-border packages may bring greater uncertainty to cross-border e-commerce platforms. The first to be affected is the "low-price strategy" on which cross-border e-commerce platforms rely.

As compliance policies in various markets are tightened, cross-border players have to consider more than just price. What "new weapons" can domestic cross-border e-commerce platforms use to seize the market?

1. Southeast Asia “encountered setbacks”

When cross-border e-commerce leaders Temu and Shein first went global, they both viewed the U.S. market as their first stop for global development. For Shein, which was founded in 2012, the European and American e-commerce markets were already relatively mature at that time, and with the stronger fashion atmosphere in Europe and the United States, Shein was able to leverage the domestic manufacturing dividend and supply chain advantages to leverage the European and American markets with the "small order, fast response" model.

After that, Temu, which emerged in 2022, also directly targeted Shein. Relying on the advantages of its platform, it "worked miracles with great effort" and ran wild with a low-price strategy.

At present, Amazon is still the most popular e-commerce platform in the European and American markets, but Temu and Shein have gradually established their foothold.

In the US market, Amazon and Walmart account for 16% and 15% of the market share respectively, but the three Chinese cross-border e-commerce platforms Temu, Shein and TikTok Shop have a combined market share of 20%. In the European market, Temu and Shein have successfully entered the top ten, ranking fifth and eighth respectively.

During the just-concluded Black Friday, Temu and Shein also saw impressive growth. Data showed that Amazon's sales remained basically flat, but Shein's sales increased by 16% and Temu's sales increased by 18%.

According to Salesforce data, 61% of consumers use platforms such as TEMU mainly because they are cheap, and for this reason they are willing to wait longer to get the product. Some consumers said that they are used to comparing prices of the same product on platforms such as TEMU and Amazon.

But for Temu and Shein, even with their "low-price weapons", they still face many challenges in their development in the European and American markets, such as the uncertainty of US market regulation and the conflict of values ​​caused by cultural differences.

The market predicts that Trump may tighten or cancel the tax-free policy for packages below $800 during his term. In addition, consumers in the European and American markets have stronger brand concepts and environmental awareness, which is also a potential challenge for domestic cross-border e-commerce merchants who mainly focus on "white-label" products.

Therefore, reducing dependence on the European and American markets and accelerating expansion into other overseas markets have also become the goals of Temu and Shein in the past two years. The Southeast Asian market is undoubtedly the next focus of the two platforms.

On the one hand, the Southeast Asian e-commerce market has shown a significant growth trend in recent years, with a growth rate of 18.6% last year, ranking first in the world. It is expected that by 2025, the scale of Southeast Asian e-commerce is expected to exceed US$230 billion.

Taking into account the relatively young population structure in Southeast Asia and the common background of East Asian culture, today's consumption habits and structures in Southeast Asia are very similar to those of China many years ago, which is more conducive to cross-border e-commerce platforms to "replicate" successful experiences.

On the other hand, Southeast Asia’s manufacturing industry is not well developed, and most consumer goods need to be imported from China. This is a natural market opportunity for Chinese sellers.

However, Temu and Shein have successively suffered "frustrations" in Vietnam, which also shows that with the adjustment and changes of trade regulations in various places, the previous "low-price strategy" of the two major platforms may not be easily replicated in the global market.

2. Is the “global money-throwing” strategy beginning to fail?

Therefore, if Temu and Shein want to grab the "new volume", they need to find new ways to play besides the "low price strategy". In fact, the current competition in cross-border e-commerce is already fierce.

According to Pinduoduo's 2024 third-quarter report, although Temu's revenue increased by 44% year-on-year, it was the lowest growth rate since the second quarter of 2022, and its adjusted net profit fell by 22% month-on-month; Shein's revenue in the first half of this year was US$18 billion, and its year-on-year revenue growth rate decreased from 40% last year to 23%, and its profit margin dropped from 8% to 2%.

First, the low-price strategy has compressed the bargaining power and profit margins of various sellers. According to Hugo Cross-border Data, in 2023, only 27% of sellers said that their profits were higher than the same period last year. In the first quarter of this year, 44% of sellers said that their profits declined year-on-year, and nearly 70% of sellers saw an increase in costs.

Secondly, the "low-price strategy" is no longer the "unique weapon" of domestic cross-border e-commerce platforms, and the advantages of domestic cross-border e-commerce platforms have been continuously weakened.

Recently, Amazon launched a new low-price discount store "Amazon Haul" in its application. Most of the products are priced below US$10, and the delivery time is extended to 1-2 weeks.

Foreign media called "Amazon Haul" "TEMU's TEMU". In addition to focusing on low-priced products, the types of products it sells and the design style of its web pages are also similar to TEMU, and it mainly targets the young people's market.

In recent years, Amazon has adjusted the pricing of its products more than once, trying to regain market share through "low prices", including introducing support measures such as reducing commissions and increasing logistics speeds for low-priced goods; launching "product pricing labels" and "price history query functions" on the web page, etc. Amazon has also begun to "become Pinduoduo-like".

Now, the traffic dividend period of cross-border e-commerce has begun to usher in a turning point. In the past two years, cross-border e-commerce platforms have relied on traffic advantages, such as the content ecology of TikTok Shop and the traffic effect brought by Temu's large-scale advertising, to help many fully managed merchants quickly "start up" and successfully intercept a part of Amazon's traffic.

However, as demand in the global consumer market becomes sluggish, the traffic end of the overseas market is also becoming saturated.

Taking this year's "Black Friday" as an example, many merchants said that "sales volume is much lower than last year, more than halved." As the hosting model and "drop shipping" model of cross-border e-commerce platforms gradually mature, more merchants are pouring into the cross-border e-commerce industry. Although the cake has become bigger, there are more people grabbing the cake, and the internal competition is more crazy. In the end, neither the platform nor the sellers are "full."

Of course, the biggest uncertainty lies in the attitudes of various countries towards taxation of small and medium-sized packages. In addition to the possible cancellation of the "small exemption" policy by the United States and the strengthening of supervision in Vietnam, the Financial Times reported that the European Union is preparing to crack down on a large number of packages from cross-border platforms.

3. Find new stories beyond “low price”

Of course, whether for the purpose of trade protection, hoping to protect local businesses through taxation, or to obtain more tax revenue by imposing taxes on imported small packages, it is reasonable for various countries to consider tightening the tax policies on small and medium-sized packages.

However, as countries tighten their policies on small and medium-sized packages, the cost structure of domestic cross-border e-commerce platforms and a number of sellers will inevitably change. Sellers will face the challenges of rising costs and compressed profits, while platforms will have to consider the risks of weakened price advantages and intensified market competition. What new stories can cross-border e-commerce tell?

First, we need to further explore the efficiency of the supply chain. In fact, the rapid development of domestic cross-border e-commerce platforms is indeed inseparable from the support of the "small exemption" policy, but in the final analysis, the rapid response and cost advantages of China's supply chain are the basis for helping countless small and medium-sized sellers enter the global market.

In the context of the possible continuation of the "volume price" trend, cross-border e-commerce platforms will continue to seek profits from the supply chain. In the early days, Shein used technology-driven digital supply chains as a means to predict demand and control production by relying on "small orders and quick response", promoting further improvement of supply chain efficiency, which also enabled it to reap the early development dividends of cross-border e-commerce.

Next, to continue to explore the efficiency of the supply chain, it is not enough for individual companies to fight alone, but to "string together" companies, explore the advantages of industrial clusters, and enable Chinese industries to gain global competitiveness through structural price differences.

Before this, domestic cross-border e-commerce merchants and platforms may need to go through a period of pain. After eliminating some players who cannot adapt to the new situation, the industrial belt supply chain will be expected to form new cost and efficiency advantages.

Secondly, it is time for cross-border e-commerce platforms to make strategic adjustments, shifting from "big and comprehensive" to further seeking differentiated positioning.

Take Shein as an example. Faced with the slowdown in revenue growth and declining profits in recent years, foreign media reported that Shein will refocus on its core fashion business. In December last year, it opened its first offline clothing store in Tokyo.

In addition, Shein has begun to expand the cooperation model with external merchants on the platform. In August this year, Shein's Chief Operating Officer Miao Miao announced a "trial run" of the product center, category operation center, and global operation center to be self-financing. By separating the platform's own and third-party merchants from the factories, it can make the self-operated goods and platform goods relatively fair.

It can be seen that compared to the full sprint for global expansion, Shein, which started out as a clothing company, is also trying to adjust its pace. According to people familiar with the matter, Shein wants to "see clearly" in order to make better decisions.

Finally, it is about looking for added value beyond “low price”, such as services, logistics, etc.

In fact, it is not only Temu and Shein that have benefited from the "small exemption", but also Amazon in its early days. However, in recent years, Amazon has begun to upgrade its branding and has incubated a series of brands that use Amazon as their main sales platform, such as the down jacket brand Orolay and Zhiou Home's SONGMICS.

In addition, Amazon has further enhanced consumers' shopping experience through the establishment of "Amazon Delivery" and "Prime Membership System". For example, "Prime members" can enjoy same-day delivery service in some areas, increasing the stickiness of users and sellers through services.

Recently, Taotian has also launched a "global free shipping plan" for large clothing businesses, using a similar "full trusteeship" model to help more clothing merchants go overseas, and by solving the pain points of returns and exchanges of clothing products, it has made efforts in the cross-border clothing market.

As the competition in the cross-border e-commerce market enters the second half, the "battle" between different platforms is also escalating. For example, Amazon has joined the "low-price war" and Shein is trying to build a new third-party platform. The advantages of different platforms are facing the possibility of being quickly "caught up".

The global e-commerce market holds enormous opportunities, but the situation is more complicated than the domestic market. If cross-border e-commerce players want to continue to stay at the table, they must further recognize their own advantages. Behind the new blue ocean, there are still many "mountains" to climb. The players who can make it to the end must learn to evolve themselves.

Author | Kaikai