The Growing Threat to Established U.S. Footwear and Clothing Brands

The emergence of Chinese apps Shein and Temu has raised concerns about their impact on established footwear and clothing brands in the United States. However, analysts at Stifel believe that these concerns are exaggerated. They predict that Shein and Temu will only capture a small market share of 1 to 2 percentage points in North America by 2024.

This prediction is based on a survey of 300 consumers aged 18 to 34 in the U.S., who confirmed that they have recently made purchases on these platforms and plan to increase their spending in the next three months.

Shein and Temu are part of a new wave of platforms that offer heavily discounted clothing and heavily promote their products on popular social media platforms like TikTok. These companies offer items for as low as $1, making them particularly appealing to younger people with limited budgets.

Despite the rise in substitute purchases, Stifel analysts, led by Jim Duffy, argue that this low-cost consumption will have minimal impact on established brands. They believe that the competitive advantage of lifestyle brands lies in their quality, performance, and innovation, which will continue to strengthen their position in the market.

In terms of market share, Stifel expects Temu and Shein to capture around $7 billion in footwear and apparel sales by 2024, primarily focusing on the low-end price range.

The analysts also note that undifferentiated brands that compete solely on price are most vulnerable to the momentum of Shein and Temu. This includes companies like Hanesbrands Inc., which specializes in basic apparel, sweats, and fleeces and has already experienced a 40% decline in its stock value in 2023.

Revolve Group Inc., which targets millennial and Gen Z customers, could also be affected by price-sensitive customers trading down. Its stock value has already dropped by 27% year-to-date.

In conclusion, while Shein and Temu are gaining popularity among certain demographics, their impact on established U.S. footwear and clothing brands is expected to be limited. The success of these brands lies in their ability to differentiate themselves through quality, performance, and innovation. Consequently, it is undifferentiated brands that primarily compete on price that are most likely to face the pressure from Shein and Temu's momentum.

The Competitive Landscape for Sports & Lifestyle Brands

Prominent brands such as Nike, Under Armour, Columbia Sportswear, Lululemon Athletica, and Dick's Sporting Goods have little to fear from the rise of Chinese platforms Temu and Shein. According to analysts, these established brands possess superior quality, performance, style, and branding that set them apart in the market.

While Walmart and Amazon boast a significant combined scale in terms of revenue and gross merchandise volume, the potential revenue impact on these sports and lifestyle brands is merely 1%. Moreover, the analysts argue that the impact is likely to be even less significant due to the lower quality of goods offered by the Chinese platforms.

Although Temu and Shein enjoy a high level of awareness among consumers, their business models predominantly focus on fast fashion and lower price tiers. In contrast, the sports and lifestyle brands covered in this analysis possess scaled operations, strong differentiation, and existing consumer relationships. Consequently, they are well-insulated from low-price threats that lack novelty or direct competition.

Recent reports suggest that Shein has filed confidentially for a potential IPO in the US, which could be one of the largest in recent years. In May, the company achieved a valuation of approximately $66 billion during a fundraising round.

Temu, on the other hand, is owned by Chinese e-commerce company PDD Holdings Inc., further highlighting the presence and influence of Chinese players in the global retail landscape.

Stifel is not the first to assess the impact of Temu and Shein on US companies. In September, UBS analysts also recognized the potential for these platforms to become rivals to hardline retailers, particularly dollar stores and discounters.

Related Content: Morgan Stanley suggests that while Temu may not yet be on investors' radar, it could pose a threat to established retail names.