Good opportunity for CCX; supplier issues building for...

Good opportunity for CCX; supplier issues building for competitor Shein, a chance to accelerate differentiation?
WSJ

“Dongguan Michun Clothing, a maker of children’s apparel near Shenzhen, has been supplying Shein for about two years, but in recent months has essentially halted work with the platform, said Zhang Qingwei, the general manager of the factory. A worker at Zhejiang Maibo Industrial, a factory in Wuyi that produces water bottles and tumblers. When Zhang’s factory suggests products, Shein might express interest in purchasing a certain amount, possibly several hundred. But if the product doesn’t sell well, Shein only takes a small share, leaving Zhang’s factory to deal with the rest, but doesn’t let him sell the items on other platforms, he said.Such scenarios have led Zhang’s factory to swim in Shein inventory, he said. “The risk is too great for the factory,” he said. Revenue from Shein at its peak accounted for some 10% of the factory’s overall revenue, but is now down to around 1%. Shein said that its system gives suppliers insight into what customers want as well as capacity, inventory levels and demand. Shein and Temu, which have been competing for suppliers, also increasingly target the same customers overseas.China-founded Shein, which is now based in Singapore, soared to American fame first, becoming a fast-fashion juggernaut over the past eight years. PDD launched Temu a little over a year ago, which quickly put pressure on Shein. For most of 2023, Temu has been the second-most popular e-commerce app in the U.S. measured by monthly users, behind Amazon, according to estimates by SimilarWeb, a digital data and analytics company.By July, Temu’s sales in the U.S. were bigger than Shein’s, data from Earnest Analytics show. In recent months, Shein has forayed beyond fashion into the marketplace model, allowing third-party merchants to sell a variety of goods, putting it into more direct competition with Temu. Zhang Qingwei, the general manager of Dongguan Michun Clothing, checks its inventory. Shein and Temu each ship an estimated one million packages a day, according to parcel-shipping consultant ShipMatrix. Shein, for its fashion business, works directly with factories and said it has about 5,400 suppliers, primarily in China. Temu didn’t disclose how many suppliers it has, but also said most are in China.Six sellers told the Journal they have stopped doing business with Temu because of its strict pricing policies. Temu typically sets the lowest price offered by all suppliers as a benchmark, leaving sellers with tiny profit margins. Shein allows suppliers to set their price within a certain range. One Temu seller said that if he doesn’t reduce prices to match those set by other suppliers, Temu wouldn’t allow him to replenish inventory in its warehouses, effectively cutting him out of doing business with the platform. The seller said he has decided to stop selling on Temu.Others say Temu has helped them increase profits. Huang Yilun in Huizhou, a city near Shenzhen, has been making Christmas decorations for export for nearly a decade. Desperate for new channels after the pandemic, which nearly obliterated his business, he started selling on Temu in June. Of 10 samples he sent in, Temu accepted two and told him to drop the price another 20% on one of them.Even so, he said he was still making better profits than before. For example, he had been selling a Santa Claus cloth decoration that cost him around 14 cents to make for around 40 cents to an exporter. On Temu, he could sell it for at least $1, more than tripling his profit. But he is struggling to hire workers, whose wages have gone up. Meanwhile, Temu is asking for more price cuts for several items. “Temu is an attractive platform for me, but pressure has started mounting,” Huang said. Since Temu’s debut, many other platforms, including TikTok, Alibaba Group’s AliExpress and Shopee by Tencent Holdings-backed Sea, have also leveraged the Chinese supply chain to give global shoppers more and cheaper options. Amazon also has attempted to revive and expand its global selling program, with Chinese vendors a major target. As the market gets crowded, sellers are testing which platform can bring them the best sales and profits. Shenzhen-based Bai Yu turned to e-commerce after getting laid off from a private tutoring school in 2021. A few months after she set up an Amazon store for the U.S. market, selling battery chargers for golf carts, Temu called. She started selling a few hundred golf-cart battery chargers a month on Temu, more than she sold on Amazon, though prices on Temu were often as low as half those of the same charger on Amazon.Soon, Temu asked her to trim prices further to match other sellers. “I feel like I have been pushed ahead and I have no choice,” she said about her price cuts. She is now considering trying out TikTok’s new program to sell in the U.S., she said.“Some suppliers that spoke with The Wall Street Journal said they were grappling with razor-thin profit margins and intense pressure to cut prices. Others said they were drowning in unsold inventory and were questioning whether dealing with Shein and Temu would be sustainable in the long run. “