Temu's lesson for Amazon

Hi, it’s Spencer in Seattle. Amazon has a new strategy to compete with Chinese ecommerce upstart Temu. But first...Three things you need to [View in browser]( [Bloomberg]( Hi, it’s Spencer in Seattle. Amazon has a new strategy to compete with Chinese ecommerce upstart Temu. But first... Three things you need to know today: • Samsung reported a huge jump in profit, [powered by AI demand]( • India and Tesla’s relationship is [cooling off after Musk bailed on a visit]( • Canada is investing millions into [building a national chip network]( Patience pays Temu has taught Amazon.com Inc. an important lesson: US shoppers can be patient if it saves them money. News broke last week that Amazon is [planning a low-priced store]( for apparel and home goods shipped directly to US shoppers from China, signaling that the ecommerce giant is taking seriously the threat posed by discounters like Temu and Shein. Amazon helped change the way people shop by building a vast network of warehouses designed to stockpile products and quickly send them to customers. That model requires products manufactured in China to be shipped by sea in bulk to the US and trucked to warehouses around the country. The upside is that products are close to shoppers, enabling delivery in just a day or two. Amazon has been investing in sharpening that delivery advantage over rivals with warehouses closer to consumers to increase the number of products they’ll receive quickly. That’s not what Chinese rivals like Temu have been doing, in part because they can’t afford to compete with such a cost-intensive strategy. Bulk shipments of products from China are typically subject to tariffs, which were increased to about 25% in 2018. And Amazon pays for its warehouses through fees charged to online merchants and customers via the $139 annual cost of an Amazon Prime subscription. Temu and Shein are operating what’s often described as the factory-to-consumer model. Products are shipped in smaller batches from Chinese factories to warehouses close to Chinese airports. When US shoppers place orders, the products are put on US-bound cargo planes and sent directly to customers. But it takes a week or two for shoppers to get what they purchased. The lower delivery costs let Temu and Shein offer prices that Amazon has been unable to match with its costly logistics operation. The consumer packages shipped from China slip into the US without tariffs thanks to a century-old loophole called “[de minimis,](” which essentially means any shipment with less than $800 in products enters the US tax-free. Since small parcels are entering the country addressed to end customers, most packages qualify for the loophole. You’d have to really splurge on Temu or Shein to spend more than $800. The model also largely bypasses higher labor costs in the US since orders are packed in China. What Temu and Shein are proving is that US shoppers are willing to wait for deliveries if it saves them money. And Amazon is smart to be worried. Temu in particular is resonating with younger US shoppers. More than half of online shoppers ages 15 to 42 purchased something on Temu in the past six months, according to a June report by EMarketer Inc., based on a survey of 1,223 online marketplace shoppers. Lower prices were the No. 1 factor drawing shoppers to Temu, according to the survey, which found fast and free shipping was the top draw for Amazon. It's not the first time Amazon has copied an up-and-coming competitor — and not always successfully. In 2022, the company launched [Inspire](, which features assorted products in curated video feeds similar to ByteDance Ltd.’s popular video app TikTok. That effort hasn’t produced the rousing results Amazon hoped it would. Still, Amazon thinks its Temu copycat may be a winner. In its first quarter earnings report, the company had boasted about making customers’ lives better by delivering products faster. Now, in a switch, Amazon’s leaders seem to accept that customers are telling them to slow down and focus on prices, too.—[Spencer Soper](mailto:ssoper@bloomberg.net) Get fully charged Foxconn is investing $551 million in [two new projects in Vietnam.]( Nvidia supplier SK Hynix is set to keep rising in value, [according to Goldman Sachs and Citi analysts.]( Japan’s Orix Group and Ubiden have struck a deal to [install EV chargers at older condos.]( Donald Trump’s lead in the US presidential election is sparking [renewed interest in Japanese stocks.]( More from Bloomberg Get Bloomberg Tech weeklies in your inbox: - [Cyber Bulletin]( for coverage of the shadow world of hackers and cyber-espionage - [Game On]( for reporting on the video game business - [Power On]( for Apple scoops, consumer tech news and more - [Screentime]( for a front-row seat to the collision of Hollywood and Silicon Valley - [Soundbite]( for reporting on podcasting, the music industry and audio trends - [Q&AI]( for answers to all your questions about AI Follow Us Like getting this newsletter? 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