Love it or hate it, you have to admit Temu had a banger year. Launched in late 2022, the Chinese-owned ecommerce site, known for selling a vast array of astonishingly affordable goods, took only two years to become a household name in the US. Over the past 12 months, it has topped download charts, surpassing other viral apps like ChatGPT and Threads, and now operates in dozens of countries around the world. Even its biggest rival, Amazon, recently introduced a Temu clone called Amazon Haul that closely resembles the original, both in terms of its logistics supply chain and user interface.
Temu is projected to earn more than $50 billion in total sales this year, according to analysts from AB Bernstein and Tech Buzz China, potentially tripling its 2023 figure. Temu’s website now gets nearly 700 million visits worldwide every month, and Apple recently revealed it was the most downloaded app of 2024 on iPhones in the US.
Temu has now fully replaced Wish, an earlier bargain online shopping site, in the cultural lexicon as the signifier of knockoffs or budget-friendly alternatives. The winner of the recent Timothée Chalamet lookalike contest in New York City, for example, calls himself “Temu-thée Chalamet.” Tens of millions of ordinary people have tried out the app, many of whom learned about it through one of Temu’s seemingly unavoidable and relentless advertising campaigns. At this point, your grandma is probably obsessed with Temu, too.
“My friends and family members who didn’t know what it was in 2023 do now,” says Moira Weigel, an assistant professor at Harvard University who studies transnational online marketplaces. “Random relatives who know that I study China or ecommerce will say, ‘Oh, you must know all about Temu,’ in a way that didn’t happen a year ago.”
Weigel says that Temu has done a few things right, including identifying the correct suppliers in China, targeting appropriate customer segments, and finding an inexpensive way to ship products from one to the other. That allowed the shopping platform to defy early analyst predictions that it would quickly burn through its cash reserves and flame out.
Temu, which is owned by PDD, one of the biggest ecommerce giants in China, is moving and pivoting at a speed that its Western counterparts can’t really grasp, says Juozas Kaziukėnas, founder of the ecommerce intelligence firm Marketplace Pulse. “When you look at a company like Temu, it’s going a thousand miles an hour,” he says.
Kaziukėnas believes the most important thing Temu did this year was quickly switch its focus away from shipping small packages through air cargo and start building local inventory supply chains in the US and other countries. “This year, it started with 100 percent of goods coming from China; now in the US, 50 percent of them are coming from local warehouses. For Western marketplaces, these types of changes would have taken years,” Kaziukėnas says.
Still, Temu does not have a shortage of looming challenges. In the US, the Biden administration is eager to dismantle a tariff exemption rule that critics say unfairly benefits Temu before it leaves the White House. In Europe, Temu is under formal investigation for allegedly selling illegal products and getting users addicted to its app. The company is also often criticized around the world for its negative environmental impact, labor practices, and alleged misuse of user data, including allegations from researchers in the US that the app poses a national security risk.
Whether Temu can overcome these hurdles will depend on how fast the company can adjust its supply chain and pivot away from the most troublesome aspects of how it operates—before regulators take action. “What Temu was, is, and what Temu will be in the future are perhaps different things,” Kaziukėnas says.
From $1 Deals to Dupes
Temu made its name by promoting dirt-cheap deals that are often too good to believe, like $5 purses and $2 wireless headphones. It spent millions promoting the tagline “shop like a billionaire” in a series of Super Bowl advertisements, and that’s indeed what the app used to feel like: Identical or very similar products cost only a fraction of what they did on Amazon or Walmart, and it was hard to resist the temptation of adding a dozen more things to your shopping cart when they each were less than $1.
Temu managed to pull it off because it exploited a few areas of untapped potential, says Weigel. On the buyer side, it targeted price-conscious shoppers living in a time of high inflation. On the seller side, it scouted out Chinese factories that needed to keep their production lines running, but had no idea how to enter overseas markets. To connect them, Temu figured out it could take advantage of the so-called de minimis rule to send items affordably through air cargo directly to customers’ doorsteps. The provision allows people to send packages to the US duty-free as long as the goods inside are worth less than $800.
Because this business model is based on shipping everything from China and doesn’t require much local inventory, it’s very easy to replicate in different markets. As of December 2024, Temu’s website shows that it’s available in 86 countries, while Amazon, having been in business for three decades, operates in only 22. “In recent history, like the past 10 to 15 years, the first place people were interested in selling is the US and Europe, because they’re large markets, prices can be higher, and so on,” says Weigel, who traveled to China this year to interview vendors selling on Amazon and Temu. “Now, there is increasing interest among these small-to-medium-size Chinese businesses in expanding in Africa, Southeast Asia, and also Central Asia … Multiple people talk to me about how young and rapidly growing the population in Africa is.”
But that doesn’t mean Temu is totally different from Amazon. In fact, the company has begun borrowing a number of tactics from the US ecommerce giant. In March, Temu reportedly started working with local warehousing companies in the US and allowing vendors on the platform to store their own US inventory instead of shipping directly from China. This is essentially what Amazon has been doing for years with its Chinese-based marketplace sellers, a strategy that allows it to deliver orders in as little as a single day. And now, these locally shipped products account for nearly half of Temu’s sales in the US, according to The Information.
What this means is that many of the products Temu sells are no longer exempt from American import duties, significantly reducing the price advantage that Temu used to have. But the strategy allows Temu to ship physically larger items to US warehouses through ocean freight before putting them up for sale, and then, the products can be delivered faster to customers, who previously often needed to wait a week or more for their packages to arrive.
That is why consumers are increasingly buying things like couches or other furniture on Temu, and also why sometimes prices on the site end up not being much lower than on Amazon or other online retailers. “I think it’s pretty clear that Temu is becoming a more expensive offering,” says Kaziukėnas. “I talked to someone at Temu months ago, and they said that they’re repositioning Temu from cheap to affordable.”
Higher prices can help recoup some of the financial losses that Temu incurred in its earlier days when it was primarily focused on expansion, but it could also create an identity crisis for the platform. If it doesn’t have shocking $1 deals, then what does Temu really stand for? How can it compete with Amazon and Walmart when the other two are often perceived as more reliable, both in terms of shipping speed and product quality? “I think that’s a problem for Temu already, that it doesn’t really have a strong brand to consumers,” Kaziukėnas says.
Lingerings Risks—and Rewards
The days might be numbered for the de minimis exemption. The White House announced in September that it would crack down on “abuse” of the provision, citing a sleuth of reasons ranging from intellectual property violations to fentanyl smuggling. It’s not clear yet how exactly the regulation might change—lawmakers may get rid of it completely or lower the price threshold—but a fix could be finalized before president-elect Donald Trump takes office next month.
If it happens soon, the change will no doubt make it harder for Temu to remain competitive, but it’s not going to eliminate it from the field. So much of the conversation in Washington this year has revolved around restricting de minimis to contain Temu, Kaziukėnas says, but the platform has already taken significant steps to reduce its dependence on it. Its ability to ship under de minimis and handle everything from inventory to pricing used to be the main selling points Temu used to lure Chinese suppliers, but now, it’s doing a 180 to address the risks—and the strategy seems to be working. “The regulators are still only now trying to figure out what to do. And by the time they have figured out what they actually need to do, these retailers will be something different,” Kaziukėnas says, referring to Temu and competitors like Shein that rely on de minimis.
Of course, there are other risks that the company needs to address. What TikTok is going through right now—the app could be blocked in the US as soon as next month—should serve as a cautionary tale for Temu, as the latter is already receiving similar scrutiny from lawmakers over its Chinese ownership and data protection practices.
The possibility of being blocked in the US is real for Temu, but Weigel points out that there’s less of a political urgency to act on an ecommerce platform than a social media one that has elicited concerns about things like artificial intelligence and disinformation. “While there is a bipartisan consensus that people are concerned with the implications of China’s tech rise, the incentives to police Temu are lower than TikTok,” she says. The Chinese ecommerce vendors she has spoken to don’t seem very concerned either. “These people are very nimble and flexible. My sense was that it was a thing people were curious about, but not something they were afraid about,” Weigel says.
After all, Temu’s aggressive expansion into other markets gives them plenty of alternative places to find customers if things get really ugly between the US and China. On a recent trip to Shenzhen, Weigel says she met a woman who heads a cross-border ecommerce industry association. One of the first things she told Weigel: “We don’t necessarily make the American and the European markets our top priority.”
Source : Wired
