Many cross-border e-commerce platforms, like Wish.com and Tophatter, have attempted to dominate with low-price strategies, but why have these efforts ultimately failed? The reason is simple: While attracting low-price sellers creates competitive pricing, it also leads to a downward spiral in both price and quality. Sellers, unable to make a profit, compromise on product quality, leading to dissatisfied customers who eventually leave the platform. When that happens, the platform tries to impose stricter controls on sellers, but the low-margin environment makes it unsustainable for them to stay.
With 25 years of experience in cross-border e-commerce and having worked on multiple marketplaces, I’ve seen this cycle repeat itself over and over. But why haven’t Shein and Temu fallen into this trap? Unlike traditional marketplaces, they operate as direct sellers, deeply involved in the entire supply chain—curating products, ensuring quality control, managing logistics, and even handling returns. Essentially, they function as “fully managed vendors,” consolidating many aspects of the supply chain that other platforms rely on third-party sellers for.
This model sounds perfect, so why hasn’t Amazon adopted it? The answer lies in Amazon’s Vendor Central (VC) model, which is similar but ultimately less effective than its Seller Central marketplace. Even when managed internally, the inefficiencies and high costs associated with VC make it less profitable for Amazon.
Shein’s success has been built on years of refining its supply chain, tapping into the advantages of Guangzhou’s fashion industry, and using digital innovation to streamline operations. Temu, leveraging its parent company Pinduoduo’s supplier resources and management strategies, has followed a similar path. While replicating their success is no easy feat, there are key lessons in their supply chain management that can be applied. For instance, focusing on smaller factories from industry clusters, rather than large suppliers on platforms like Alibaba, can provide flexibility in the supply chain that’s crucial for e-commerce. Additionally, AI-driven content generation and algorithms, like those used by Shein and Temu, offer opportunities for optimization.