As Temu and other platforms drive up advertising costs, retailers turn to loyalty programs

According to foreign media reports, shopping apps led by Shein and Temu are bidding higher than their competitors and driving up digital advertising costs around the world. This is partly because retailers are refocusing their growth on loyalty programs and loyal shoppers rather than acquiring customers through media channels (especially Google search and social media channels) at higher costs.

1. Australian e-commerce market survey and trend analysis

It is reported that Australia's e-commerce sales grew 4% in the March quarter, and Shein and Temu's online sales were close to A$1 billion. According to Salesforce's digital commerce data for the March quarter, luxury handbags, toys and consumer electronics were the categories hit hardest, while affordable and mid-range handbags grew 7% and health and beauty products grew 12% overall.

According to the latest data from the Australian Bureau of Statistics (ABS), Australian e-commerce is still growing, but major categories remain weak. According to the report, consumers are very price-conscious and continue to trade down. In low-end categories, they flock to low-price shopping apps.

The latest Salesforce shopper data shows that Australia's high-end categories all fell sharply in the first quarter, such as luxury handbags (-10%), consumer electronics (-12%) and toys (-12%), and home furnishings (-8%), as spending on non-essential items further decreased. Affordable and mid-range handbags slowed down (+7%), health and beauty (+12%), skin care (+5%) and cosmetics (+3%) remained resilient in the first quarter, sports footwear and clothing (both +6%, clothing recovered from flat status in 2023), and online food and beverage (+4%).

2. The impact of increased advertising and marketing costs

Retailer profit margins have taken a hit, but low-price online shopping apps Shein and Temu have benefited greatly. Shein's revenue in Australia is close to $1 billion in 2023. Temu, which has only been in the local market for a year and a half, is expected to have revenue of more than $1.3 billion in Australia this year. Amazon, which has been in the Australian market for six years, reported Australian online store sales of A$1.57 billion in 2023.

Globally, the two markets are lucrative for companies like Facebook and Google as they try to take on Amazon. Temu spent $1.2 billion on Meta ads in 2023, and Chinese advertisers currently contribute about 10% of global revenue, according to Goldman Sachs estimates. Shein and Temu have almost single-handedly driven up advertising costs, which has hurt competitors.

Advertising is becoming more expensive, and the accuracy of ad placement is decreasing due to tighter privacy restrictions. The US election is also partly to blame for the increase in ad prices, as campaigns buy up ad space. Then these new shopping apps buy up a lot of ad inventory — driving up the cost of the remaining inventory.

This exacerbates the existing challenge for retail advertisers, who face limited marketing budgets to squeeze more profit from existing customers without facing constant bidding wars for new ones. As a result, retailers are refocusing their efforts on loyalty programs and doubling down on attracting loyal customers rather than working hard to build expensive customer acquisition channels.

3. Challenges and opportunities: Changing consumer behavior

The problem is that across-the-board belt-tightening is challenging the economy. According to Salesforce, only 15% of consumers are not actively downsizing, but 85% say they are making significant changes to what they buy and the prices they pay.

Additionally, the priorities for disposable income have shifted. Last year, the priority was physical goods, then experiences, then savings. This year, it’s completely shifted to savings, then physical goods, then experiences.

That means shoppers are still looking for cheaper goods, and Walmart's delivery business is increasingly attracting higher-income earners, another key indicator of overall austerity. Retailers and brands have had to make concessions to very price-conscious consumers who are eager for discounts and free shipping and are willing to sacrifice quality.

This in turn drives market size towards new, lower-priced market applications, creating a vicious cycle that could lead to greater discounting pressure during online sales events in the December quarter and in the crucial run-up to Christmas.

According to the research, 68% of shoppers said they had purchased from Shein, Temu, TikTok, Ali Express or Cider in the past six months, with these apps being used in Australia, Canada and the U.S. 63% said they planned to shop from these apps during the holiday shopping season.

If these consumers really do what they say, then Australian e-commerce company Kogan will feel further pressure , and physical retailers will not be immune.

Despite the low sentiment, the medium-term trajectory of e-commerce remains healthy. Meanwhile, Schwartz predicts that retailers who can get pricing, availability, and the combination of online ordering with same-day in-store pickup will thrive, especially in the run-up to Christmas. "We've seen a lot of shoppers gravitate toward buy online, pick up in-store options during the holidays. In the days leading up to Christmas, more than 40% of consumers bought online and picked up in-store."

Author✎ Summer/
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