Temu and Shein aren’t much of a threat to established brands like Nike, Stifel says
The threat to established U.S. footwear and clothing brands from Chinese apps Shein and Temu is overdone, according to Stifel analysts, who are expecting the apps to capture just 1 to 2 percentage points of North American market share in 2024.
That’s based on a survey of 300 18- to 34-year-old consumers in the U.S. who acknowledged they have made purchases on these low-priced platforms recently and said they plan to increase their spending in the next three months.
Temu and Shein are among of group of new platforms that offer deep discounts on clothing and promote their wares on social media such as TikTok. The companies offer items for as little as $1 and are rapidly becoming popular among younger people with limited budgets.
“High rates of substitute purchases suggest market share momentum, though we believe low-ASP (average selling price) consumption is of minimal impact to established brands,” analysts led by Jim Duffy wrote in a note to clients on Tuesday. “Lifestyle brand competitive distinction hinges on quality, performance, and innovation, and this may further reinforce their market position.”
Stifel is expecting Temu and Shein to capture about $7 billion in footwear and apparel share in 2024, concentrated at the low end of the price spectrum.
“We believe undifferentiated brands competing on price are most likely to experience pressure from Temu and Shein momentum,” the analysts wrote.
In the sports and lifestyle category, Hanesbrands Inc.
HBI,
is facing the clearest headwind given that it specializes in basic apparel, sweats and fleeces, the analysts said. Hanesbrands’ stock has fallen 40% in 2023 to date.
Price-sensitive customers trading down could also have an impact on Revolve Group Inc.
RVLV,
which targets millennial and Gen Z customers. Revolve’s stock has fallen 27% in the year to date.
But Nike Inc.
NKE,
Under Armour Inc.
UA,
Columbia Sportswear Co.
COLM,
Lululemon Athletica Inc.
LULU,
and Dick’s Sporting Goods Inc.
DKS,
have less to fear given the level of quality, performance, style and branding distinction of those brands, the analysts said.
“Compared to the combined scale of Walmart
WMT,
($611bn 2023E revenue), and Amazon
AMZN,
($571bn 2023E gross merchandise volume) we measure a -1% potential headwind to revenue, and likely less impactful due to the lower quality goods,” the analysts said.
Still, the survey found a high level of awareness of the Chinese platforms, at 90% for Temu and 86% for Shein.
“Temu, Shein, and other fast-fashion focused digital players such as Cider Urbanic, ChicV, Doublefs, Cupshe, JollyChic, and Trendyol fiercely compete in the lower price tiers of the market with similar business models. Sports & Lifestyle Brands in our coverage are scaled, established, differentiated, and have existing consumer relationships,” the analysts wrote. “Accordingly, these brands are well-insulated from low-price threats that are neither new, nor in direct competition.”
The Wall Street Journal said recently that Shein has filed confidentially for a U.S. initial public offering. The IPO could be one of the biggest in years: Shein was valued at about $66 billion in a fundraising round in May.
Temu is owned by Chinese e-commerce company PDD Holdings Inc.
PDD,
Stifel is not the first to analyze the impact of Temu and Shein on U.S. companies. In September, UBS analysts said the the two could become rivals to hardline retailers, notably to dollar stores and other discounters.
See also: Temu is barely on the investor radar, but it could threaten some legacy retail names, says Morgan Stanley
Read now: Why are Shein’s clothes so cheap? Some shoppers want the answer — and so do a lot of critics.
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