Takealot’s warning about Temu and Shein

Takealot said offshore online platforms with no physical presence in South Africa extract value from the country without contributing, harming small businesses and local manufacturers.

In the past few years, South Africa has seen a rise in the popularity of these offshore online platforms.

In particular, Chinese eCommerce giants Shein and Temu have seen their popularity skyrocket, with local customers attracted to their low prices and wide product selection.

Shein and Temu are experiencing remarkable growth in South Africa due to their aggressive marketing strategies and low prices. 

Local competitors like Superbalist have struggled to keep up because of their higher prices and significantly smaller marketing budgets.

Temu’s rise in the United States provides a glimpse into how these companies can take on local players who have been in the industry for years. 

Temu is owned by PDD Holdings, which also owns Pinduoduo, a popular online commerce platform in China.

PDD Holdings has a market cap of $151 billion (R2.9 trillion), highlighting the formidable competition that local eCommerce players face. 

The Temu platform launched in the US in September 2022 and invested billions in marketing to build brand awareness and gain market share.

In 2023, Temu was the top advertiser by revenue on Meta Platforms, which owns Facebook and Instagram. Through PDD Holdings, Temu spent nearly $2 billion on advertisements with Meta last year and was one of Google’s top five advertisers.

The company also heavily invested in digital publishers to promote its brand and even spent tens of millions on advertising during the Super Bowl to become a household name in the US.

This Chinese giant’s aggressive online marketing spending also drove up digital advertising prices for everyone. 

Although PDD Holdings does not provide separate financials for Temu, it reported a profit of $2.1 billion in Q3 2023 while spending $3 billion in sales and marketing.

Goldman Sachs estimated that in 2023, Temu’s marketing spending led to an average loss of $7 per order. This demonstrates how aggressively Chinese retailers like Temu spend on marketing to gain market share in the new countries they enter.

In South Africa, reading a news article online or opening Facebook without encountering a Temu ad is nearly impossible. 

This is because Temu is investing millions in marketing to expand its brand and eCommerce market share in South Africa – something local players cannot afford to do.

Takealot – which is owned by JSE-listed Naspers – told Daily Investor that the online retail environment in South Africa has become even more dynamic and competitive in the past year.

This is largely due to the increasing prevalence of offshore online platforms without physical presence in South Africa.

“This form of commerce extracts value from South Africa without contributing to local communities or skills development,” it said.

“It ultimately harms small businesses and local manufacturers and threatens the ability of entrepreneurs and corporates to create job opportunities.”

It said the emergence of offshore online platforms is not unique to South Africa – it is a global phenomenon that requires decisive and urgent attention.

Big blow for Shein and Temu

Despite their impressive rise in popularity over the past few years, Shein and Temu are set to face a major challenge soon.

TFG CEO Anthony Thunström recently said South African retailers have been working with the South African Revenue Service (SARS) and Customs to create a level playing field.

Thunström said that when TFG and other South African retailers import clothing, they pay 45% of the import duty plus value-added tax (VAT).

However, Shein and Temu have been accused of bypassing these taxes by abusing a loophole in the taxation of smaller packages.

Jean-Louis Nel, tax director at Van Huyssteens Commercial Attorneys, explained that packages under R500 are taxed at 20%.

Retailers claim Temu and Shein break up larger orders into smaller quantities and packages to ensure they are under R500.

Once they have benefitted from the lower 20% tax, they combine these orders again before shipping them to clients.

Nel explained that Temu and Shein used the de minimis rule by splitting imports to fall below R500. “That means there is a flat rate of 20% and zero VAT,” he said.

“Retailers are aggrieved by this practice as any imports they do is at 45% plus 15% value-added tax.”

This puts South African retailers under a great deal of pressure because consumers will prefer lower-priced items.

“From a competition perspective, it looks uncompetitive because it does not stimulate the local market. However, the lower import tariffs also force local retailers to become more competitive and drop their prices,” he said.

To address this issue, from 1 July 2024, SARS and Customs will levy the same duties and taxes on clothing items under R500 as on bigger order

Temu previously said it was committed to complying with local laws and regulations in the markets where it operates.

“For South Africa, the displayed prices of goods on Temu South Africa do not include import duties and taxes,” it said.

It explained that local authorities will impose applicable taxes on customers upon the arrival of the package.

“In our commitment to providing the best service to our customers and adhering to local customs laws. Temu collaborates with a reputable logistics company with extensive experience in e-commerce packaging,” it said.

“The logistics company acts as our customers’ agent with the local customs and tax authorities to clear the package, process, and remit applicable taxes.”