Google input: “buy sweatpants”. The first two results: From Temu. Input: “Remote control car”. Second result: Temu. “Christmas tree baubles”. Three of the first five results: From Temu.

Anyone who shops online these days is almost overwhelmed by Chinese online retailers. No matter which products: Temu, Shein, Wish and co. immediately catch the eye with top rankings. The prices are tempting: men’s jogging trousers for 9.83 euros, remote-controlled cars for less than 50 euros, 24 Christmas baubles for 1.86 euros. How did this happen? And what does this mean for the European market?

“The rapid rise of Temu, Shein, Wish & Co. is essentially based on three factors,” explains Martina Schimmel, Managing Director of the pan-European retailer network zentrada. Firstly, the low price: “Ultimately, the Chinese sell many products at the same or similar prices as they sell them to importers or other resellers.” While European importers and dealers now have to add their own profit margin, the Chinese platforms can trade far below the European sales price.

Factor 2: Growth. Profits are not yet important; going public and a quick rise are on the agenda. “This way of thinking means that companies invest an enormous amount of money in marketing,” explains Martina Schimmel. The Google sample from the beginning illustrates the strategy. This is also the third reason for the market dominance of Chinese online retailers, in particular Temu: “Customers are lured into the app using relatively aggressive methods and also enticed to stay in it for as long as possible.”

What can initially be shrugged off as a clever business tactic is, however, based on questionable competitive practices. For example, the shipping costs of Chinese retailers are subsidized by the Universal Postal Union and Chinese products are partially exempt from customs duties and VAT. The result: even lower prices can be enforced. The quality of the products is irrelevant because the EU customs offices simply do not have enough capacity to control the flood of Asian parcel deliveries, with around 400,000 shipments going to Germany alone every day. The German Tax Union speaks of tax fraud and a tax loss amounting to billions that EU citizens have to compensate for through their taxes.

European retailers in particular are suffering from the methods of competition. A survey by the zentrada network revealed that 65% of retailers are feeling the competitive pressure from Temu and Shein, with 23% even seeing their existence threatened. Even if retailers manage to keep up with prices, they would have to reduce their margins to a minimum.

zentrada recently launched a petition to support European trade by calling for equalizing measures. The central demand is the abolition of subsidies for Chinese deliveries, especially for customs duties and shipping costs. The zentrada petition also calls for products from Chinese direct imports to be checked for conformity with EU directives and for the platform to be held liable for its shipments. Participation in the European disposal concepts should also be just as mandatory for Temu, Shein, Wish and other Asian retailers as it is for companies from the European retail sector. “If these measures were implemented, the conditions between Temu & Shein and European retailers would be somewhat more equal again,” says the zentrada Managing Director.

It will probably be some time before the playing field is fully leveled. So what can European retailers do to keep up with the Asian competition? Zentrada recommends that retailers increasingly focus on branded goods instead of reselling unbranded Chinese products. However, this does not mean the classic and well-known consumer brands: “Most importers have innovative brand lines and own or private labels in every price range,” says Martina Schimmel. “When retailers rely on these brands, they increase customer confidence and quality awareness while remaining within the traditional price range.” Another option is to develop their own brand – a strategy that Amazon retailers have been pursuing for years.

Professional, quality-conscious trade fairs such as the IAW trade fair or zentrada as a virtual trade fair play an important role in this development. If the trade fairs and their participating retailers position themselves even more strongly on brands and continue to maintain a high level of quality awareness through their orientation, it may be possible to strengthen the European trade again. The goal: no more Temu on the first Google page, but quality products from countries with fair competitive conditions.

Visitors to the IAW trade fair will receive further information on this topic on the second day of the fair, 04.09.2024, at the zentrada forum entitled “Cheap always better? Germany’s trade in the sights of Temu, Shein & Co.” Details of the program will be available shortly on the websitewww.iaw-messe.de

Link to the zentrada petition: https://www.change.org/zentrada-petition-gegen-temu

Author: Konrad Schröter, freelance journalist, Leipzig

Co-author: Martina Schimmel, Managing Director zentrada, Würzburg