Developing strategies to combat unfair competition

Author: Konrad Schröter, Freelance journalist, Leipzig

Co-author: Martina Schimmel, Managing Director zentrada, Würzburg

How Chinese online platforms are affecting European retailing, and what steps the policymakers need to take.

If you enter “Purchase jogging trousers” into Google, the first two hits are from Temu. Enter “Remote-controlled car” and the second-placed hit is Temu once more. Enter “Christmas tree decorations”, and Temu features in three of the first five hits.

Anyone who shops online these days is practically overwhelmed by Chinese online retailers. No matter what the product is, Temu, Shein, Wish and the like immediately catch the eye with top rankings. The prices are tempting, too: men’s jogging trousers for 9.83 euros, a remote-controlled car for under 50 euros, 24 Christmas tree decorations for 1.86 euros. How are prices like this possible? And what does this development mean for the European market?

“The rapid rise of Temu, Shein, Wish and the rest is essentially based on three factors,” explains Martina Schimmel, Managing Director of zentrada, a Europe-wide retailer network. The first factor is low prices: “Ultimately, the Chinese sell many products to consumers at the same or similar prices as they sell to importers or other resellers.” While European importers and dealers still have to add their own profit mark-up, the Chinese platforms can offer products at prices far below the European retail price.

Factor two is growth. Making a profit is not yet the most important objective, with an IPO and fast expansion as the top priorities instead. “This mindset is the reason why companies invest so much money in marketing,” explains Martina Schimmel. The Google sampling referred to above illustrates the strategy. This is also the third reason for the market dominance of Chinese online retailers, especially Temu: “Customers are lured into the app using relatively aggressive methods, and are then tempted to stay there for as long as possible.”

What can initially be shrugged off as clever business tactics is, however, based on dubious competitive practices. For example, the shipping costs of Chinese retailers are subsidised by the Universal Postal Union, and Chinese products are partially exempt from customs duties and VAT. As a result, even more favourable prices can be charged. The actual quality of the products is irrelevant, because the EU customs offices simply don’t have enough capacity to check the flood of parcel deliveries from Asia, with around 400,000 shipments arriving every day in Germany alone. The trade union of Germany’s tax administration speaks of tax fraud and losses in the billions, which EU citizens have to compensate for with the taxes they pay.  

European retailers in particular are suffering from these competitive practices. A survey by the zentrada network reveals that 65% of retailers are feeling the competitive pressure from Temu and Shein, with 23% even seeing their very existence threatened. Even if retailers manage to keep up with prices, they are forced to cut their margins to the bone.

In order to create a level playing field, zentrada has recently launched a petition to support European commerce by calling for compensatory measures. The central demand is the abolition of subsidies for Chinese imports, especially in terms of customs duties and shipping costs. The zentrada petition also calls for products from Chinese direct imports to be checked for compliance with EU standards, and for the individual platforms to be held liable for their shipments. Participation in European disposal programmes should also be just as mandatory for Temu, Shein, Wish and other Asian retailers as it is for companies from the European retail sector. “If these measures were implemented, trading conditions between Temu & Shein and European retailers would be more equal once again,” says the Managing Director of zentrada.

It will probably be some time before the playing field is fully levelled. So what can European retailers do in the short term to keep up with the competition from Asia? zentrada recommends that retailers should increasingly focus on branded goods instead of reselling unbranded Chinese products. However, this doesn’t necessarily mean traditional and well-known consumer brands: “Most importers have innovative brand lines and their own or private labels in every price range,” says Martina Schimmel. “If retailers promote these brands, they increase customer confidence and quality awareness while remaining within traditional price ranges.” Another option is to develop their own brand – a strategy that Amazon retailers have been pursuing for years.

Professional, quality-conscious trade fairs such as the IAW Trade Fair or zentrada as a virtual trade show play an important role in this development. If the trade fairs and their participating retailers position themselves even more strongly in terms of brands and continue to maintain a high level of quality awareness through their approach, it may be possible to strengthen European retailing once more. The aim is for the first page on Google to show quality products from countries with fair competitive conditions, and not Temu.

Visitors to the IAW Trade Fair will receive further information on this topic on 4 September 2024, the second day of the fair, at the zentrada forum entitled “Is cheap always better? Germany’s retailers under attack from Temu, Shein and the like”. Details of the programme will be available shortly on the website www.iaw-messe.de .

Link to the zentrada petition: https://www.change.org/zentrada-petition-gegen-temu