If there’s one thing that can attract shoppers, it’s the lure of low prices. Combine that with the endless scrolling and “influencers” promoting items you have on social media, and you end up with the online shopping platform Temu. And there’s always some sort of promotion for an item on Temu.com, which can give consumers an incentive to spend just a little more money once they’re on the platform.
Some Amazon (NASDAQ: AMZN) Investors are concerned about Temu’s growing popularity. While Amazon remains the dominant force in e-commerce, Temu’s owner, PDD companies (NASDAQ: PDD)also operates online retailer Pinduoduo and has deep pockets, which could potentially make Temu a major thorn in Amazon’s growth prospects.
It sounds disturbing, but after using Temu a few times, here are three reasons why I’m not convinced it’s a big problem for Amazon.
1. Shipping speed is becoming more important, not less
The biggest reason why Amazon makes sense for many consumers comes down to shipping speed. Over the years, consumer shipping in some markets has accelerated from two-day to next-day and same-day. But with Temu, you have to sacrifice that speed for lower prices.
And depending on what you order, it could take anywhere from a week to more than a month for your purchase to arrive. Most items I purchased lasted at least 10 days. Of course, there are also third-party Amazon sellers that may have longer shipping times, but users can usually filter those options easily. Temu’s standard shipping can reportedly take between 6 and 22 days, and even if you use express shipping, it’s still possible to wait up to 11 days for your shipment to arrive.
As long as Temu focuses on low prices and free shipping, the shipping speed will probably be much slower than Amazon. That could be a reason for many consumers not to close the deal.
2. Poor quality on Temu only makes matters worse
If you can just wait a little longer for your purchase to save money on Temu, it might be justified to use it instead of Amazon. But if the product quality is poor or inconsistent, then it’s not such a good deal.
On Temu, many merchants sell almost identical products, and I found it harder to differentiate between them than on Amazon. This poses a problem because a shopper can end up with a product of a different quality than he expected. And this on a platform that is already full of low-quality products.
I had to return one item that I bought from Temu and the shipping took the longest (six weeks). Something as simple as the dimensions differing far from what was on the site. I ended up purchasing a similar product from Amazon and got it delivered the next day with no problems. Although it was a little more expensive, the process was a lot easier.
There are more than 20,000 Temu reviews on review site Trustpilot, and almost 40% of them give it a one-star rating. Many of those bad reviews revolve around Temu’s slow shipping speed and/or product quality. It’s a similar situation on the Better Business Bureau’s website, where Temu has a mediocre rating of 2.46, with many consumers complaining about the same types of problems.
There are also quality issues with Amazon products, and many sellers may indeed be the same on Temu. But when you factor in the sheer number of similar products and add in the slower shipping speeds, it can result in a more complex and lengthy shopping experience, especially if you need to return a product.
3. Amazon Prime’s value proposition is simply too attractive
What makes it hard for competing platforms to succeed is Amazon Prime membership. Packed with features including free shipping, video streaming, food delivery, and deals on groceries and healthcare, it’s easy to see why an estimated 230 million subscribers can justify the $139-per-year price tag.
And that subscription gives consumers an incentive to shop on Amazon.com instead of using competing sites like Temu. On average, Amazon Prime subscribers reportedly spend 12% more than non-Prime shoppers on Amazon.
Is Buying Amazon Stock a Bargain?
Amazon’s stock price has already risen nearly 30% this year. The e-commerce giant continues to perform well, generating a net profit of nearly $38 billion in the past 12 months. The company is no stranger to competition, and yet consumers seem to return to the platform time and time again as the go-to option for online purchases. Whether it’s AlibabaWish (which ContextLogical (property), or Temu, Amazon has proven successful despite several low-cost competitors trying to steal market share from the site.
Amazon’s business is broader than that, of course, having dabbled in chatbots and artificial intelligence, and having a hugely successful cloud business with Amazon Web Services. Its strength in many sectors makes Amazon stock a good buy for long-term investors. The stock isn’t cheap, trading at more than 50 times earnings. But with plenty of growth potential, it’s the kind of investment you can buy and hold for decades.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
I Shopped on Temu: 3 Reasons I’m Not Convinced Temu Is a Major Threat to Amazon originally published by The Motley Fool
