Extremely low prices for goods on Temu and Shein are a big problem for Amazon and other e-commerce websites.
Shopping on affordable e-commerce websites like Shein and Temu (the PDD investments owns) can be tempting for bargain hunters looking to save money. When you only pay a few dollars for clothes and other items, it is easy to justify waiting for a package rather than paying more money for faster delivery Amazon (AMZN -2.21%) or another dealer.
Chinese e-commerce sites have achieved impressive sales numbers thanks to their extremely low prices and are among the most popular shopping sites in the U.S. But changes could soon make it harder for these sites to continue offering extremely low-priced goods. That would be welcome news for Amazon and companies that may struggle to compete with Temu and Shein.
New bill could close important legal loophole for Chinese websites
Many Chinese e-commerce platforms and retailers have taken advantage of a legal loophole that allows them to bring low-cost goods into the U.S. without paying expensive tariffs. This allows them to keep their prices low, often much lower than Amazon and other sites. If packages cost less than $800, they can avoid the inspection and tariffs associated with more valuable shipments. This is known as the “de minimis” rule.
But for many products, this could soon be over. Lawmakers are aware of these problems and recently introduced a new bill to prevent companies like Temu and Shein from exploiting this loophole for imported textiles, clothing and leather products.
But this is not the first time regulators have considered this issue. Last year, U.S. senators introduced the De Minimis Reciprocity Act of 2023, which targets countries like China that they believe are exploiting the legal loophole to avoid tariffs.
Whether this new bill will ultimately become law is uncertain, but as Temu and Shein grow in popularity, their activities are bound to come under greater scrutiny. And if the companies continue to be successful and achieve impressive sales figures, in part because they were able to avoid tariffs, it may only be a matter of time before regulators close this loophole.
The impact could be significant for Amazon and Temu
The threat posed by sites like Temu and Shein to Amazon is undeniable. For shoppers willing to wait and don’t need fast delivery, using cheap Chinese sites can result in drastic cost savings, and that may be more important now than ever as costs have risen significantly in recent years. Tariffs can vary significantly depending on the type and value of the item, ranging from just a few percentage points to more than 20% plus government taxes.
However, any increase in costs may require Chinese retailers to raise their prices accordingly. The smaller the gap between the products one can buy on Amazon and Temu or Shein or another website, the easier it is for customers to justify buying from Amazon, using a Prime membership and potentially faster shipping speeds. Amazon is reportedly trying to target price-conscious shoppers more specifically by opening a new discount store that would more directly compete with Shein and Temu.
Amazon’s growth rate has slowed
One challenge Amazon is currently facing is that its growth rate is not as strong as it has been in the past. And with the U.S. and other countries potentially heading into recession in the near future due to slowing growth and falling consumer spending, things could soon get even worse for the e-commerce giant.
AMZN revenue data (quarterly year-on-year growth) by YCharts
One way for Amazon to turn things around is to find a way to accelerate its growth, such as by appealing to price-conscious shoppers who are increasingly turning to Chinese e-commerce sites. That’s why a law closing a tariff loophole and news that the company is opening a discount store could be good news for investors.
Is Amazon stock a buy?
Amazon shares have performed quite well this yearan increase of 17%, comparable to the S&P500 and its previous earnings in 2024. But with a With a price-earnings ratio of 42, investors are paying a lower premium for Amazon shares than in the past (previously the ratio was well over 60 or even over 70 times earnings).
Because Amazon is a leading e-commerce company and one of the biggest names in the technology sector, it can be beneficial for investors to buy Amazon stock at any discount. The company may face headwinds in the near future due to the potentially weakening economic situation, but in the long term, it is still an excellent growth stock to buy and hold.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski does not own any of the stocks mentioned. The Motley Fool owns a position in Amazon and recommends the company. The Motley Fool has a disclosure policy.
