Amazon Shares up 81.14% in 12months. Are Shein and Temu Poised To Stall AMZN?

Amazon share price (NASDAQ: AMZN) is up 1.05% in the premarket session, on top of a stellar 2.82% growth to end last week. With a 23.44% rise YTD, and 81.14% growth over the past 12 months, AMZN shares have certainly been on a tear. What hazards lie ahead for the retail juggernaut, and how concerned are shareholders about these developing competitors?

In recent years, two names have become increasingly synonymous with disruption in the global e-commerce and fast-fashion industries: Shein and Temu. With a combined gross merchandise value (GMV) of staggering proportions, these two companies are reshaping the rules of retail and online shopping.

Shein, a fast-fashion powerhouse, has now reached an approximate GMV of $45 billion, while Temu, a newer entrant into the e-commerce space, boasts a GMV of $14 billion. The pace at which these companies have grown is indicative of a consumer shift toward more accessible and affordable shopping options, particularly in the U.S. market. Together, Shein and Temu have generated $25 billion in GMV within the United States alone, with projections showing potential growth to an annual $40 billion—figures that effectively double those of traditional U.S. retail giants like Macy's or Ross.

These impressive numbers are partly attributed to Shein and Temu's aggressive pricing strategies. They rely on ultra-low prices, undercutting many legacy U.S. brands such as H&M, Forever 21, and Zara. Furthermore, these two upstarts have exploited U.S. de minimis duty rules to their advantage, saving millions in tariffs and raising questions regarding fair trade practices.

The rise of Temu, in particular, has caught the attention of market analysts. Amazon share price (NASDAQ: AMZN) is up 2.82% today with a 23.44% rise YTD, the leading online retailer, has the highest product overlap of 25% with companies including Etsy, eBay, Wayfair, and Target, thanks largely to Temu's influence. This signifies an increasing competitive threat to Amazon's dominance in various merchandise categories.

Market Domination Has Not Come Easy for Shein

However, the path forward for Shein is not without potential challenges. The company has faced accusations of intellectual property infringement. A tightening of intellectual property laws could compel Shein to invest more heavily in original designs, potentially reducing its profitability margins.

Temu, on the other hand, has been carving out its niche by sourcing discounted products from China and attracting a significant user base in the United States. The platform reportedly has between 50-120 million active U.S. users and an impressive high retention rate of over 28%. Notably, Temu appears to target upper-income brackets, with around 44% of its sales coming from individuals with annual incomes exceeding $130,000.

Despite their current success, Shein and Temu face some overarching potential threats that could impact their growth trajectory. Escalating disputes between the U.S. and China could affect their supply chains, U.S. legislation could introduce new compliance costs or restrictions on their operations, and there is increased scrutiny over their data collection and sustainability practices.

As the landscape of retail continues to evolve, Shein and Temu stand as two companies to watch. Their business models have already had a significant impact on consumer buying habits and the competitive dynamics within the e-commerce and fast-fashion sectors. Whether they can maintain their meteoric rise and address potential regulatory challenges remains to be seen.