How China's e-commerce giants reshape the European retail landscape
Authored by HDI
Temu and Shein’s aggressive expansion into European markets draws scrutiny from local retailers and consumer advocates. Substantial investments in marketing and data-driven insights, combined with psychological tactics, keep customers in a shopping mood.
China’s e-commerce giant Alibaba (AliExpress) has been operating successfully in Europe for over a decade. Initially a B2B platform, the company ventured into direct-to-consumer sales to capture a share of the continent’s large e-commerce sector, which is estimated to reach total sales of more than $900 billion by 2029. Recently, newer Chinese players such as Temu and Shein have emerged, and their entry into Europe and subsequent growth have been astonishing.
Temu, known for its vast product range and competitive pricing, entered Europe in 2022 and has quickly gained popularity among consumers. Even though Amazon is by far the largest online marketplace in Europe, with the five largest countries driving 1.2 billion monthly visitors to the site, Temu is now among the Top 5 in Europe, according to ChannelEngine, a marketplace integrator. The company managed to obtain this spot in less than two years. It’s now consistently ranked as the most downloaded app in Germany, the United Kingdom, and Italy. “Temu” has become one of the fastest-rising Google search queries across Europe over the past 12 months– from the Czech Republic and Romania to Germany and Portugal. Shein, a fast-fashion retailer, has captivated a younger demographic with its trendy clothing and highly successful social media marketing, particularly on platforms like TikTok and Instagram. It is already outselling European brands such as Zara and H&M, Politico reports.
Both companies, who primarily reach their audiences via their own apps, have leveraged their robust supply chain networks and data-driven strategies to cater to diverse consumer preferences across Europe. Their expansion is also characterised by a considerable investment in digital advertising, influencer collaborations, and viral content on social media platforms. Temu and Shein’s impact on the advertising space already seems significant – the CEO of US marketplace Etsy recently stated that they are “almost single-handedly having an impact on the cost of advertising,” as reported by CNBC.
Gamification, consumer engagement and legal hurdles
A standout feature of Temu’s approach to capturing the European market is its heavy reliance on gamification to enhance consumer engagement. Temu’s app can sometimes feel like an online game – its variety of interactive elements, such as daily check-in rewards, spin-the-wheel games, and limited-time flash sales, mimic the excitement of a mobile game. These features keep users returning to the app and encourage higher spending through a fun, engaging, and possibly addictive or impulse-driven shopping experience. Gamification strategies can lead to increases in user engagement of up to 48 per cent, according to Similarweb. However, from a European legal perspective, these gamification strategies can quickly turn into a walk on a tightrope. Known as dark patterns, features like fake countdowns or aggressive “Fear of Missing Out” (FOMO) tactics are deemed manipulative and misleading to consumers and are therefore illegal in the EU.
Temu has faced criticism related to the use of such tactics. A 2024 investigation by the European Consumer Organisation (BEUC) highlighted several instances of non-compliance with the Digital Services Act, and subsequently filed a complaint with EU regulators. Earlier this year, the Federation of German Consumer Organisations issued a legal warning and customer caution advisory, stating that the “platform misleads and exploits consumers with discounts that appear arbitrary, questionable reviews, and manipulative designs.”
Temu and Shein have also faced scrutiny over their data handling practices in the EU, with allegations of inadequate protection of customer information. In addition, Temu has struggled with issues regarding product safety. Toy Industries of Europe (TIE), a trade association, recently conducted a product test on Temu, concluding that “none of the toys fully complied with EU legislation and 18 posed a real safety risk for children,” urging national authorities to “explore how they can use existing rules to block websites that continuously enable the sale of dangerous products.”
The potential impact on local economies
The rapid expansion of Temu and Shein in Europe has had a mixed impact on local economies and competition. On the one hand, their presence creates new opportunities for local suppliers, logistics providers, and digital marketing agencies. These e-commerce giants can contribute to job creation and innovation by sourcing products locally and partnering with European businesses.
On the other hand, their aggressive pricing strategies and extensive product offerings have intensified competition for local retailers. Small and medium-sized enterprises (SMEs) have particularly felt the pressure as they struggle to compete with the low prices and massive reach of these companies.
European consumers have generally responded positively to Temu and Shein’s entry into the market. The allure of affordable prices, diverse product ranges, and trendy fashion items has attracted a broad customer base. According to Statista, 45 per cent of European online shoppers have purchased from Chinese e-commerce platforms in the past year, with Temu and Shein being among the most popular choices. However, the EU plans to impose new import duties on cheap products to protect local businesses. Shein, which moved its headquarters from China to Singapore in 2021 to facilitate international expansion, may also face increased regulatory hurdles as the EU wants to reduce the negative impact of fast fashion on the environment.
Prospects and challenges
While Temu’s and Shein’s rapid rise in Europe has undoubtedly shaken up the e-commerce landscape, the long-term success of their EU market expansion will only become apparent in the years to come. With their heavy reliance on gamification and inexpensive products, it could be challenging to foster long-term customer loyalty. National authorities will also likely clamp down on some of the more concerning app features, and in the long run, users could be put off by an overuse of blinking pop-ups and countdowns.
Furthermore, a product portfolio predominantly composed of fast fashion or small, cheap, fast-moving consumer goods makes it more difficult to compete with more diverse offerings by the likes of Amazon. Unlike more established e-commerce platforms, Temu also lacks the presence of large, reputable brands such as Nike, Sony or Bosch, which are crucial for attracting a broader and more stable customer base. The absence of such brands could limit Temu’s appeal to consumers seeking higher-end, more durable products, as well as larger consumer electronics and appliances. Another notable challenge is the high advertising spending and rapid expansion to acquire customers, which may not be sustainable indefinitely.
The entry of Temu and Shein into the European market has created both opportunities and challenges, reshaping the landscape of e-commerce in significant ways. As they continue to evolve, their ability to adapt to local regulations and consumer preferences will be crucial to their long-term success in Europe.
