If there's one thing that can attract shoppers, it's the lure of low prices. Combine that with the endless scrolling and the "influencers" promoting items that you have on social media, and you end up with online shopping platform Temu. And there's always some sort of promotion on an item on Temu.com, which can give consumers an incentive to spend just a little bit more money once they're on the platform.
Some Amazon (AMZN 2.04%) investors are worried about Temu's growing popularity. While Amazon remains the dominant force in e-commerce, Temu's owner, PDD Holdings (PDD 0.02%), also operates online retailer Pinduoduo and has deep pockets, which could potentially make Temu a big thorn in Amazon's growth prospects.
It sounds concerning, but after using Temu several 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 big reason Amazon makes sense for many consumers comes down to shipping speed. Over the years, it has accelerated from two-day delivery to next-day and same-day delivery for consumers in some markets. But with Temu, you have to give up that speed for the sake of lower prices.
And depending on what you order, it can take anywhere from a week to more than a month for your purchase to arrive. Most of the items I purchased took at least 10 days. There are, of course, third-party sellers from Amazon which can have longer shipping times as well, but users are normally able to filter those options out easily. The standard shipping from Temu reportedly can 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's focus is primarily on low prices and offering free shipping, its shipping speeds are likely to remain far slower than what Amazon can offer, and that can be a deal-breaker for many consumers.
2. Poor quality on Temu only exacerbates things
If you just need to wait a little longer for your purchase to save money on Temu, it could be justifiable to use it rather than Amazon. But if the product quality is poor or not consistent, then it's not such a good deal.
On Temu, many merchants sell nearly identical products, and I found it more difficult to discern between them than on Amazon. That creates a problem, because a shopper may end up with a different-quality product than they expect. And this is on a platform already full of low-quality products.
One item I purchased from Temu, which took the longest to ship (six weeks), was one which I had to return right away. Something as simple as the dimensions were way off compared to what was on the site. I ended up buying a similar product from Amazon and got it delivered the next day, with no issues. While it was a bit more expensive, the process was a whole lot simpler.
There have been more than 20,000 Temu reviews on rating site Trustpilot, and nearly 40% of them give it a one-star rating. Many of those poor reviews center 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 issues.
There are quality issues on Amazon products as well, and many merchants may indeed be the same ones on Temu. But when you factor in the sheer number of similar products and throw in the slower shipping speeds into the mix, it can result in a more complex and drawn-out shopping experience, especially if you have to return a product.
3. Amazon Prime's value proposition is simply too attractive
What makes it difficult for competing platforms to succeed is the Amazon Prime membership. Since it's packed with many features, including free delivery, video streaming, food delivery, and deals on grocery and healthcare, it's not hard 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 rather than using competing sites such as Temu. On average, Amazon Prime subscribers reportedly spend 12% more than non-Prime shoppers on Amazon.
Is Amazon stock a buy?
So far this year, Amazon's stock is nearly 30% as the e-commerce giant continues to perform well, generating net income of nearly $38 billion in just the past 12 months. The company is no stranger to competition, and yet time and time again consumers appear to go back to its platform as the go-to option for online purchases. Whether it's Alibaba, Wish (which ContextLogic owns), or Temu, Amazon has been able to succeed despite several low-priced competitors trying to wrestle away market share from its site.
Amazon's business is broader than that, of course, as it has gotten into chatbots and artificial intelligence, and it has a hugely successful cloud business in Amazon Web Services. Its strong position in many industries is what makes Amazon stock a good buy for long-term investors. The stock isn't cheap, trading at more than 50 times earnings. But with a lot of growth potential, this is the type of investment you can buy and hold for decades.
