Temu’s U.S. Entry Is an Orange Flag for Etsy

Temu sells commoditized discretionary items—anything ranging from electronic accessories to kitchen gadgets.
Temu sells commoditized discretionary items—anything ranging from electronic accessories to kitchen gadgets.


The Chinese online marketplace is taking the U.S. by storm as Etsy and Wayfair are already struggling to expand their audience.

Temu may be going after Amazon’s market share, but other online marketplaces could end up sustaining collateral damage.

The Pinduoduo-backed online marketplace, which made its U.S. debut in September 2022 and a splash with its “billionaire" Super Bowl commercials, raked in roughly $9 billion in U.S. gross merchandise value in 2023, according to an estimate from KeyBanc Capital Markets.

Its next move: opening up its marketplace to U.S. sellers. This will intensify the already-high competition for third-party sellers. Notably, short-form video platform TikTok launched its shopping feature—TikTok Shop—last year and was selling about $7 million worth of products in the U.S. every day, the Journal reported in October.

Given that Temu sells commoditized discretionary items—anything ranging from electronic accessories to kitchen gadgets—its most obvious customer overlap is with Amazon and Walmart. About 92% of Temu’s audience also visited Amazon, while 53% of its audience also visited Walmart from September 2022 to January 2024, according to Similarweb.

Temu isn’t yet a substantial threat to Amazon, which has the advantage of loyal Prime members who value fast shipping. Meanwhile, online marketplaces run by retailers such as Walmart, Target and Macy’s aren’t the main source of revenue for those companies.

Stagnating online retailers such as Etsy and Wayfair look a lot more vulnerable.

Neither platform competes on speed, as Amazon does. Although Etsy is known for being a platform that sells bespoke, handmade goods, it essentially sells unbranded, low-ticket items. That puts it in direct competition with Temu, notes Nikhil Devnani, equity analyst at Bernstein. Etsy Chief Executive Officer Josh Silverman said during an industry conference in December that, while Temu’s entrance isn’t “disproportionately impacting Etsy," it has ramped up competition for online marketing. Temu spent $1.7 billion on marketing in 2023 and is expected to spend $3 billion this year, per JP Morgan estimates cited by the Journal.

Wayfair CEO Niraj Shah said on the company’s earnings call on Thursday that low-cost sellers such as Temu, Shein and TikTok Shop haven’t overlapped much with the company’s offerings, noting that such online stores compete for low-end quality and small ticket sizes. As such, Wayfair isn’t seeing much competition for the same kinds of ad spaces, Shah said.

That could change once Temu starts opening its doors to U.S.-based sellers—a move that would allow it to expand its market to bulkier items such as furniture, Devnani notes. Temu’s deep-pocketed parent has been willing to subsidize its extravagant ad budget, and it could well offer low seller fees to gain market share. This could, in turn, force U.S. marketplaces to adjust their take rates. At a recent panel discussion that Evercore conducted with three top Etsy sellers, two said they would be inclined to sell on Temu if the platform allowed them to maintain prices and implement technology to help sellers migrate listings seamlessly.

The Temu threat comes at an inopportune time for online marketplaces. Etsy’s gross merchandise sales—the total volume of transactions on its platform—shrank for the second consecutive year in 2023, while Wayfair’s declined for three consecutive years. Both have been in cost-cutting mode recently with large-scale layoffs.

So far, both platforms have resisted the temptation to splurge on advertising. Wayfair said it would keep its advertising budget at 11.5% to 12.5% of revenue for the first quarter of this year, within its typical range, while Etsy’s CEO in December signaled that the company “will bid rationally" for advertising where it sees strong returns on investment. But with their share prices already languishing, investors could lose patience if sales continue to stagnate. Etsy and Wayfair’s shares have shed 67% and 82% of their value over the past three years, respectively.

Temu’s success isn’t inevitable. If the platform’s main appeal is that its goods are dirt cheap, then U.S. sellers may find it difficult to compete on the platform to begin with. And while Temu has been effective at capturing U.S. customers, it hasn’t been as successful at luring them back for a second purchase. While over 30% of customers who shopped on Temu in September returned a month later, only 14% of them came back four months later, according to KeyBanc Capital Markets, which also found that churn rates have been increasing over time. And then there are also regulatory risks that could get in the way of its growth.

For Etsy and Wayfair’s investors, though, Temu is yet another thing to add to their basket of worries.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

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