Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that pulls back the curtain no global business so you
Speaker 1: can invest better across the Pacific rim. I'm Tom Corbett
Speaker 1: in Hong Kong.
Speaker 2: And I'm John Lee. Chinese shopping apps are shaking up
Speaker 2: online retail, with upstarts Sheen and Timu emerging as two
Speaker 2: of this She's Hottest success stories.
Speaker 1: Sheen has powered past into textas Zara and h and
Speaker 1: M to become the world's largest online fashion retailer.
Speaker 2: Meanwhile, Timu has exploded into a viral sensation with an
Speaker 2: app surpasting one hundred million US downloads in just the
Speaker 2: past year.
Speaker 1: Their success has come at breakneck speed, powered by a
Speaker 1: mix of flashy websites, fast fashion bargain buys, savvy social
Speaker 1: media strategies, and relentless marketing.
Speaker 2: Could Timu be the killer app that drives Amazon from dominance?
Speaker 2: What explains she AND's sudden success and can both Chinese
Speaker 2: apps keep winning the hearts of gen Z consumers.
Speaker 1: Let's click by now with Katherine Lim, Asia research director
Speaker 1: at Bloomberg Intelligence.
Speaker 2: And Tatiana Lisitsina, Bloomberg Intelligence e commerce analyst.
Speaker 1: Katherine joins us from Singapore. Tatiana is in Milan, Italy.
Speaker 1: Both of you welcome, Thank you, Tom, Katherine.
Speaker 2: Timu made a huge splash in this year's Super Bowl,
Speaker 2: where it spent almost fourteen million US dollars to feature
Speaker 2: its ad shop like a Billionaire, and sales have gone
Speaker 2: viral ever since. How has Timu become so successful so quickly?
Speaker 3: Right, John, It's all about prizing, free shopping and zero
Speaker 3: cost returns. That's what Timu is offering the US shoppers
Speaker 3: right now, and we did our comparison. They are literally
Speaker 3: giving very attractive offers to the US shoppers to buy
Speaker 3: on their platform and no minimum spend required. So that's
Speaker 3: how you know. Timu has gone from just three percent
Speaker 3: of Amazon's am US at the beginning of the year
Speaker 3: right now to thirty six.
Speaker 1: Percent, Catherine Tachiana. If you look at Timu's website, it
Speaker 1: reads as though it's a Boston based startup. There's very
Speaker 1: little mention of the fact that it's part of PDD
Speaker 1: Holdings and backed by Pinduo Duo, the Chinese retailer. Is
Speaker 1: that an accident or is that part of their strategy?
Speaker 3: Well, I would say that that's part of their strategy.
Speaker 3: And really, I think when you actually go into a
Speaker 3: different market such as US itself, it's better to be
Speaker 3: closer and you know, more direct with the customers without
Speaker 3: emphasizing too much on where your products are coming from,
Speaker 3: because all you want is shoppers to focus on is
Speaker 3: the low price proposition that you're offering and the value
Speaker 3: for money products that they are able to get when
Speaker 3: they shop with you.
Speaker 2: Hey, Catherine, how much cheaper is Team? Then say you
Speaker 2: know comparable websites like maybe Amazon?
Speaker 3: Right, I'll give you a few numbers, John, we just
Speaker 3: did our mets just two days ago. And if you
Speaker 3: buy a pair of flip flops on Amazon's you are
Speaker 3: gonna pay sixty seven percent more on Amazon versus when
Speaker 3: you buy for a similar product on TMU. And guess what,
Speaker 3: tm is not expecting you to actually join any memberships.
Speaker 3: You don't have to be an Amazon Prime members to
Speaker 3: enjoy free deliveries as well as you know the returns guarantees. Now,
Speaker 3: one little upset. If you are in urgent need of
Speaker 3: your flip flops, then you might still want to concern
Speaker 3: Amazon because it will just take you five days versus
Speaker 3: up to twelve days for t MoU slippers to be
Speaker 3: delivered to you. So that's the only downside.
Speaker 1: You know, both of these retailers have fairly substantial AD budgets.
Speaker 1: I've read that Temu has an annual AD budget of
Speaker 1: one point four billion dollars. Obviously there's a lot of
Speaker 1: aggressive marketing. So how do they make money?
Speaker 3: Well, you know, the one point four billion budget that
Speaker 3: they have allocated to expand their reach to more consumers.
Speaker 3: We don't know at this point in time how it's
Speaker 3: being allocated. Part of it will likely go to merchants,
Speaker 3: part of it will go to shoppers in the form
Speaker 3: of coupon's rebates as well as discounts. But key question
Speaker 3: is are they gonna spend everything this year? No, it
Speaker 3: is likely that they will be spending this one point
Speaker 3: four billion in stages and as far as we I
Speaker 3: can see right now from pdd's number, which is the
Speaker 3: parent of Temu, it seems like, you know, the expenses
Speaker 3: are still fairly under control.
Speaker 2: And Catherine, I know you mentioned that there's definitely a
Speaker 2: pricing advantage, but when I go to the Temu site,
Speaker 2: it just seems a lot more fun than say, like
Speaker 2: an Amazon. Like I went in there and there was
Speaker 2: this like wheel that was spinning around and I won
Speaker 2: one hundred dollars coupon if I signed up. Like that's
Speaker 2: pretty successful.
Speaker 3: Right right, Lucky you, John. And you know, watch out
Speaker 3: for more of these online games that will come through
Speaker 3: as we go into Black Friday, because Black Friday Sale
Speaker 3: will be something that you will see TEAMU Shin coming
Speaker 3: in very aggressively to try and secure more spending from
Speaker 3: the US shoppers in particular into the holiday season.
Speaker 1: Tatiana Lisit Sina in Milan, Shean and Temu were relatively
Speaker 1: unknown until maybe a short time ago, a couple of
Speaker 1: years ago. What explains their rapid rise and how did
Speaker 1: they manage to get such traction in global retail so quickly?
Speaker 1: What are your thoughts?
Speaker 4: Thanks Tom Well. I think she In in particular has
Speaker 4: three key competitive advantages. One of course, low prices. They're
Speaker 4: very competitive on that, and this is helped by the
Speaker 4: tax advantages from shipping to the end consumer directly from China.
Speaker 4: The low prices of the goods allow for the parcels
Speaker 4: to be treated as individual imports to avoid import duties
Speaker 4: as long as the value is below a certain threshold.
Speaker 4: And in the EU, for example, it's one hundred and
Speaker 4: fifty euros. So this gives them the price advantage. Number two,
Speaker 4: they have a very wide choice. She In has a
Speaker 4: very short and efficient supply chain with a data driven planning,
Speaker 4: design and demand forecasting function. That means that they produce
Speaker 4: styles in small batches of maybe a couple of hundred items,
Speaker 4: they test that demand for a few weeks for those styles,
Speaker 4: and then they repeat the popular designs in much larger quantities.
Speaker 4: And this allows Shean to have a very large choice
Speaker 4: of items on their websites. That's six hundred to seven
Speaker 4: hundred thousand stock keeping units versus, for example, only thirty
Speaker 4: five thousand at Boohu, and that also allows them to
Speaker 4: launch styles more frequently.
Speaker 1: So do they compete on price or do they compete
Speaker 1: on differentiation?
Speaker 4: Then I would say it's a mixture of everything. Price
Speaker 4: is not their only advantage. The differentiating factor is also
Speaker 4: the amount of choice items that they have and the
Speaker 4: frequency that those items get updated. And then a third
Speaker 4: point is also their strong social media following, particularly among
Speaker 4: young consumers. Agen zs with user engagement on TikTok ahead
Speaker 4: of any other brand, even Nike, and they seem to
Speaker 4: use also social media, not just for marketing but also
Speaker 4: to test what consumers want.
Speaker 2: So yeah, and Tatiana, you know, Shean's rise was accompanied
Speaker 2: also by the rise of TikTok, and you know you
Speaker 2: saw these ads like you know, I guess like a
Speaker 2: Shean hall. Is that what you're talking about? The close
Speaker 2: relationship between both platforms.
Speaker 4: Yeah, I mean, I think Shean is the most popular
Speaker 4: brand on TikTok. It has the hashtag Shean has over
Speaker 4: seventy five billion cumulative use versus only twenty four billion
Speaker 4: for Zara and two billion on eight Parrass for example,
Speaker 4: So that gives you an idea. It's less dominant on Instagram.
Speaker 4: I think it has half the following of Zara, for example.
Speaker 4: But the key difference is that on Instagram the content
Speaker 4: is mainly driven by the brands themselves or by influencers maybe,
Speaker 4: but on TikTok, most of the engagement is usually driven
Speaker 4: by the user, so they're following has grown much faster
Speaker 4: and much more organically. TikTok users are younger, They're similar
Speaker 4: to Sheen customers. Content is more video driven, which I
Speaker 4: guess is sort of a trend now and turns of
Speaker 4: how people interact with content, and what is very popular
Speaker 4: on TikTok are those sheen halls. So you can imagine
Speaker 4: like an influencer buying huge amount of clothes and showing
Speaker 4: them off, reviewing them in videos, and the lower the prices,
Speaker 4: the bigger those holes are. And this is driving also
Speaker 4: a lot of the engagement. I can tell you she
Speaker 4: Hall has, for example, thirteen billion cumulative views on TikTok
Speaker 4: right now versus Bizara Hall with only eight billion.
Speaker 2: Catherine, how big can team become in the US?
Speaker 3: Right That's a good question. Do you know, bearing bearing
Speaker 3: unforeseen circumstances whereby do you know we're they actually heard
Speaker 3: about ongoing lawsuits, discussions about you know, potential violations of
Speaker 3: certain policies, etc. Not to go into the details, John,
Speaker 3: but you know, assuming that they are able to operate
Speaker 3: in an open market like any other players in US,
Speaker 3: I do think that, you know, there is potential for
Speaker 3: them to actually get much bigger than where they are
Speaker 3: right now. Can they double their MAU from where they
Speaker 3: are right now to the equivalent of what we are
Speaker 3: seeing from the Amazon shopping platform? Possible? I wouldn't rule
Speaker 3: that out at all, John.
Speaker 1: And Katherine Linn John's question raises another interesting point. How
Speaker 1: afraid should retailers be in the US of Timu and Chian.
Speaker 3: Well, this is something that you know is applicable for
Speaker 3: a lot of the categories of products that's coming from
Speaker 3: a big manufacturing hub such as China, whereby you know,
Speaker 3: they do actually have cost advantage and once you are
Speaker 3: able to actually the bridge the logistics inefficiencies and be
Speaker 3: in a position to bring goods fastest across different continents itself. Well,
Speaker 3: there is absolutely retailers in US should fear Timu the
Speaker 3: way I see it, because you know, for consumers, particularly
Speaker 3: as we all get more conscious about our spending uncertainties
Speaker 3: and economies out there, they are definitely the force to
Speaker 3: be reckoned with. Into twenty twenty.
Speaker 2: Four, Catherine, Tinu's very different from Sheen when I look
Speaker 2: at you know, she and she doesn't actually you know,
Speaker 2: sell anything in China but just exports, you know, all
Speaker 2: its goods overseas. In the case of Timu, it's owned
Speaker 2: by Pindodo or PDD, and they were very successful in
Speaker 2: disrupting the highly competitive Chinese you know, online retail space.
Speaker 2: Can you talk about some of the strategies of why
Speaker 2: they were so successful and they can they replicate that
Speaker 2: in the.
Speaker 3: US, right, So I guess before we get there, that
Speaker 3: was something that John we had discussed about PDD and TAMU.
Speaker 3: I think the companies would like us to actually keep
Speaker 3: the two platforms apart, but there are definitely lessons to
Speaker 3: be learned from the sister platform whereby social media is
Speaker 3: something that we have actually talked about in China. As
Speaker 3: we all know, social influence is a very big forced
Speaker 3: and makes a very big impact to retailers and brands.
Speaker 3: So being able to actually leaveaged on the one point
Speaker 3: four billion population and get them to think about your
Speaker 3: campaigns and get them to shop and browse through your platforms,
Speaker 3: that is something that social media and if you actually
Speaker 3: leaveage it right, tim can leverage on that in US
Speaker 3: as well. And you know, as Tatiana had earlier shared,
Speaker 3: TikTok is definitely a place to actually look into the
Speaker 3: wing in China, the equivalent of TikTok, you know, in China.
Speaker 3: It's also a place that PDD has worked with some
Speaker 3: of the other brands and manufacturers to actually sell the goods,
Speaker 3: particularly agricultural goods. So it's actually interesting, you know, you
Speaker 3: can sell all kinds of things on social media, and
Speaker 3: really it's up to you to actually create that content
Speaker 3: to bring the shoppers in.
Speaker 1: Do either of you think that TMU could be the
Speaker 1: killer app that drives Amazon from dominance?
Speaker 3: Right, I'll take that first term. I guess you know,
Speaker 3: the killer app and whether it is that super app.
Speaker 3: Lots of jargons out there as to what is the
Speaker 3: next app in the market, but to go actually get
Speaker 3: to where Amazon is, I think what what I would
Speaker 3: be looking out for for TMU will be, you know,
Speaker 3: the sustainability of their low price strategy and whether they
Speaker 3: are constantly able to understand what consumers in the US
Speaker 3: and around the rest of the world excluding China. Once
Speaker 3: now social media in China has been a big force
Speaker 3: in helping PDD back in China understand very quickly what
Speaker 3: is popular and what is the flavor of the month,
Speaker 3: and if they can actually replicate that in the US.
Speaker 3: I do think that, you know, they have you know,
Speaker 3: bulk of the success in their pockets.
Speaker 2: Already and Tatiana for she and it's already the largest
Speaker 2: online fashion retailer, right, so is the growth to super
Speaker 2: far so they sort of slowing down?
Speaker 4: Yes, I think it's certainly Sheen is not immune to
Speaker 4: the well global e commerce slow down overall, and I
Speaker 4: think growth is likely to slow further. But let me
Speaker 4: let me explain. I think I believe Sheen was valued
Speaker 4: at about sixty six billion US dollars in the latest
Speaker 4: founding round, and that's down a third by a third
Speaker 4: from the year before, but the still about ten times
Speaker 4: more than the Zalando, Aesos and Boohoo combined in Europe.
Speaker 4: Such an eye popping valuation obviously demands aggressive growth targets.
Speaker 4: Sales need to be prioritized over profit, and this is
Speaker 4: what she In right now seems to be doing. There
Speaker 4: was a Financial Times report saying that she and is
Speaker 4: targeting to grow it's gross merchandise volumes by forty percent
Speaker 4: each year to twenty twenty five to reach eighty billion
Speaker 4: US dollars that would outpace eBay, and already this target
Speaker 4: looks like a stretch if we look at European retailers,
Speaker 4: all online rivals have shifted from burning cash in pursuit
Speaker 4: of growth to focusing on profit and cash preservation, and
Speaker 4: the reason for that is that over the past years
Speaker 4: there has been a step up in capital spending across
Speaker 4: the industry, building new warehouses, doing automation projects. So e
Speaker 4: commerce became very capital intensive, and as online growth slowed
Speaker 4: in the last two years, the return on capital has collapsed.
Speaker 4: And now on top of that, the cost of capital
Speaker 4: has jumped for some retailers two to three times for
Speaker 4: others such as TG even nine times since the end
Speaker 4: of twenty twenty, and this has added the urgency to
Speaker 4: generate profit. So she And must also be seeing the
Speaker 4: rising cost of capital. It seems to have invested a
Speaker 4: lot of new infrastructure like warehouses in Poland, manufacturing in
Speaker 4: Turkey and Brazil, so there is there has to be
Speaker 4: a moment and likely soon when it has to focus
Speaker 4: on profit as well. If it was already profitable, it
Speaker 4: would probably not need to keep raising funds. So yeah,
Speaker 4: I think she won't be able to avoid those same
Speaker 4: dynamics that are hitting the ass Boho of Europe, et cetera.
Speaker 4: And she And and Timo are really the last online
Speaker 4: retailers that are really still focused on growth.
Speaker 2: Tatani, you just mentioned that she's building up these retail
Speaker 2: warehouses in Europe are the sort of you know, moving
Speaker 2: away from the traditional sort of made to order strategy.
Speaker 4: Yes, that is one of the sort of key shifts
Speaker 4: and their business model that we're observing. It's moving exactly
Speaker 4: away from its China supply chain towards sort of regional
Speaker 4: hubs in order to also reduce the delivery times. Similar
Speaker 4: to TIMO, their delivery times right now about eight to
Speaker 4: twelve maybe business days for standard delivery, depending on the region.
Speaker 4: It can vary a little bit. So yeah, it has
Speaker 4: begun manufacturing elsewhere in the world open distribution centers, et cetera.
Speaker 4: And now this is interesting because the direct from China
Speaker 4: distribution model gave it a competitive advantage and now she
Speaker 4: and will likely have to pay import duties which will
Speaker 4: hurt profitability, and it could also force them to raise prices,
Speaker 4: which is another key advantage and also a Caser mentioned
Speaker 4: the manufacturing concentration with I think over three thousand suppliers
Speaker 4: based in China has been one of the its key advantages.
Speaker 4: Having multiple warehouses around the world requires more stock planning
Speaker 4: means it has to have more inventory at each at
Speaker 4: each stage. And this is a deviation from the short
Speaker 4: lead made to order model, and it raises the question
Speaker 4: to what extent will be added complexity of diversifying and
Speaker 4: expanding its supply chain result in a loss of productivity
Speaker 4: and flexibility.
Speaker 1: Tachiana and Catherine, do you think that there's a kind
Speaker 1: of addictive quality to the online shopping experience at either
Speaker 1: Shean or Timu? And if yes, what is that? Precisely,
Speaker 1: how does that so called entertainment factor play into their
Speaker 1: sales growth strategy?
Speaker 3: The shopping experience that consumers are now looking for goes
Speaker 3: beyond do you know what we typically look for, because
Speaker 3: really it's an integration of social commerce, life streaming. You know,
Speaker 3: it's always something that now pops up when you actually
Speaker 3: browsed for a product. I don't see much of it
Speaker 3: on the Timu website yet, but again, you know, keeps
Speaker 3: your fingers crossed because it's become such a big phenomenal
Speaker 3: having short videos and live streaming to help better explain
Speaker 3: and tell the story behind the product itself. So that
Speaker 3: entertainment content will definitely be the next add on that
Speaker 3: we will probably see on top of what John has
Speaker 3: highlighted about. You know, games that we're now seeing as
Speaker 3: we browsed for products on Timu. You know, on these
Speaker 3: shopping websites.
Speaker 2: What are the some of the downside risks for both companies,
Speaker 2: you know, like the US regulators are looking at TikTok
Speaker 2: and trying to ban that in certain states. Do you
Speaker 2: think some of the regulators could go after potentially Shean
Speaker 2: or Timum.
Speaker 4: I mean for for she and I would say the
Speaker 4: key concern is ESG, So I'd say probably scores worse
Speaker 4: than many other fashion companies, but.
Speaker 2: They're pretty bad anyway, right the fashion companies.
Speaker 4: That's true. Fast Session is certainly not viewed well. However,
Speaker 4: I think the perception on Sene is even worse. So
Speaker 4: we have survey data. According to survey data from WGS
Speaker 4: and Barometer, Chiann has more negative buzz so sort of
Speaker 4: negative press in the UK compared to other online retailers
Speaker 4: and also in Germany compared to the Zealando about you
Speaker 4: for example. But the question is I suppose how much
Speaker 4: consumers or influenced by that. And there's rising awareness obviously
Speaker 4: among consumers around and environmental issues, and there are also
Speaker 4: studies showing that gen z care increasingly about the environment
Speaker 4: and social conscience. Nonetheless, there's also evidence that sustainability is
Speaker 4: not the main factor in fluencing shopping decisions. Price seems
Speaker 4: to be the main motivation, especially in the current in environments,
Speaker 4: and we have seen this also with Booho. In twenty
Speaker 4: twenty they got in the spotlight for modern slavery allegations
Speaker 4: occurring in one of their factories in the UK. It
Speaker 4: was a big scandal and bo Who has addressed that
Speaker 4: later on. But the point is that despite the scandal
Speaker 4: and the initial protests to boycott boo Who, consumers did
Speaker 4: not really stop shopping with them, and similar with Shean,
Speaker 4: it doesn't seem to have lost a lot of this
Speaker 4: image of being exciting and value good value in European
Speaker 4: in European countries at least, and I mean, of course,
Speaker 4: for it from an investor perspective, and ESG concerns are
Speaker 4: likely to be much higher, and there has been investigations
Speaker 4: into Sheine's business practices with alec issues of garment exploitation,
Speaker 4: working hours breached, et cetera, et cetera, and is Shein
Speaker 4: has pledged seventy million US dollars towards improving its supply
Speaker 4: chain conditions over the next five years. So clearly ESG
Speaker 4: remains a difficult issue for the fast session player to tackle,
Speaker 4: and is G scrutiny continues to grow, especially if it's
Speaker 4: going to pursue.
Speaker 1: An IPO so Tatiana. If price is driving all these
Speaker 1: millions of online consumers online buyers, how does customer loyalty
Speaker 1: fit into the bigger picture here?
Speaker 4: Yeah, that's a good point. I think gen Z are
Speaker 4: generally very open to experiment with other with other brands
Speaker 4: and to switch to switch to other brands if something,
Speaker 4: if they don't like something, So if prices increase or
Speaker 4: perhaps also ESG becomes just the more important concern. I
Speaker 4: can definitely see customers switching away from Sheen and growth
Speaker 4: flowing significantly. So I think it's quite a bit concern
Speaker 4: that gen Z is not necessarily a loyal customer.
Speaker 2: Just talking about gen Z. Look, Catherine, do you think
Speaker 2: Americans actually know that teaming was actually owned by a
Speaker 2: Chinese company?
Speaker 1: Right?
Speaker 3: I guess, John, hopefully I've got your question right. Well,
Speaker 3: I don't think they do, because nothing on the website,
Speaker 3: do you know, not anything telling that you know, as
Speaker 3: you click into getting your Purchases, et cetera, actually tells
Speaker 3: you that it is a Chinese company, and you know notwithstanding,
Speaker 3: of course, you know if you actually look at the payments,
Speaker 3: et cetera. It's very international and global friendly.
Speaker 1: And among you as consumers, there might be some skepticism
Speaker 1: about doing business with a Chinese company, So that strikes
Speaker 1: me as perhaps being part of their strategy. Is that
Speaker 1: how they intend to overcome that skepticism.
Speaker 3: Yes, I do think that you know, that is a factor,
Speaker 3: and you know, and I'm sure you know most of
Speaker 3: the audience would also agree that. At the end of
Speaker 3: the day, I think, you know, putting a site some
Speaker 3: of the geopolitics issues that you know comes up every
Speaker 3: now and then. Consumers ultimately, they are after one thing
Speaker 3: and that is, you know, to actually have the best
Speaker 3: value for money products. And do you know if it
Speaker 3: is pencils coming from China that's a fraction or just
Speaker 3: a quarter of the cost of what you get in US.
Speaker 3: Why not?
Speaker 4: Right?
Speaker 2: Okay, I'd love to you know, wrap up with you know,
Speaker 2: a question of personal question, Tatiana Catherine. I have to
Speaker 2: ask have you recently purchased anything from Shean or Timu?
Speaker 2: And if so, what was it?
Speaker 3: Right? John? You know, I'm just gonna jump in on
Speaker 3: that because I'm waiting for Singles Day here in Asia,
Speaker 3: and you know that's gonna come to like hopefully next
Speaker 3: week I will know what's the bargains that's up for
Speaker 3: grab here in Asia, So not so much on Timu
Speaker 3: and Shin yet. And as I've mentioned that I will
Speaker 3: save it for next month when Black Friday sale comes.
Speaker 4: On, I will admit that I have bought on Shean
Speaker 4: before and it was like the typical I wouldn't call
Speaker 4: it a whole, but certainly multiple items and mostly summer dresses.
Speaker 4: And I guess I was quite surprised that some of
Speaker 4: the things were much higher quality than I would have expected.
Speaker 4: So yeah, I was a positive surprise.
Speaker 2: I saw a fifteen dollar electronic massage gun on Timu,
Speaker 2: so I think that's gonna be my next purchase.
Speaker 1: All Right. We've been talking Sheen and Timud, China's two
Speaker 1: online shopping juggernauts, with Catherine Limb of Bloomberg Intelligence in
Speaker 1: Singapore and Taciana Lisitsina in Milan, Italy. It's been a
Speaker 1: great discussion, very enlightening, and we thank you both for
Speaker 1: your insights.
Speaker 4: John, thank you.
Speaker 1: I'm Tom Corbett in Hong Kong
Speaker 2: And I'm John Lee, and you've been listening to the
Speaker 2: Asia Centric podcast