A small food store in Madrid has been inundated with numerous orders from the new Chinese e-commerce giant, Temu. This emerging player in the e-commerce space has swiftly risen to become the most downloaded app in multiple countries, surpassing well-established competitors like Shein and Amazon, according to data.ai.
The key to Temu’s rapid ascent lies in its exceptionally high discounts, sometimes reaching up to 97% off the product’s value, and its hassle-free return policy. A report by Morgan Stanley has revealed that certain products on Temu, such as vacuum cleaners and makeup kits, can be up to 70% cheaper compared to equivalent items on Amazon. This price advantage has a significant appeal, especially in a time when the cost of living crisis is driving consumers to seek value for their money.
Temu’s range of affordably priced kitchen utensils and electronics, typically priced between $5 and $10, holds particular allure for younger consumers, as high prices are a major concern for 45% of millennials and 35% of centennials, according to a study by Deloitte.
In addition to attractive discounts, Temu has launched an aggressive promotional campaign, with numerous advertisements on social media. Beyond low prices, the company encourages users to register and refer friends by offering free products. To incentivize app downloads, Temu also introduces periodic games with prizes, including shopping credits, gifts sent to users’ homes, and PayPal account balances. However, some users have reported issues with receiving these promised gifts.
This rapid strategy has propelled Temu’s U.S. sales ahead of its fast-fashion rival Shein in September, and global sales could exceed $13 billion in 2023, according to AllianceBernstein. While Temu is growing quickly, it hasn’t achieved the same level of popularity as other Asian-origin retailers like Shein and AliExpress. Additionally, the rise of Temu has been associated with concerns of potential scams, and user complaints about the company’s customer service have also surfaced.
Behind the vibrant colors and online advertising is the company WhaleCo, registered in Massachusetts and associated with the Chinese giant PDD Holdings, which controls the online retailer Pinduoduo. PDD Holdings is listed on the New York Stock Exchange, but Temu’s success has not translated into a similar stock price surge. Investor skepticism stems from the high cost of this rapid expansion, with Temu possibly facing an operating loss of $3.65 billion this year.
Despite concerns about the parent company, Temu’s strength lies in its direct sourcing from Chinese manufacturers, eliminating intermediaries and reducing costs. However, there is a logistical challenge with some shipments taking up to six weeks to deliver, although Temu claims most packages arrive within 5 to 14 business days.
There is also a serious issue related to the potential use of forced labor in the production of products sold through Temu, as warned by the U.S. Congress. This raises ethical concerns about the sourcing and production practices of the company.
As a new player in the e-commerce space, Temu faces questions about its ability to retain customers in the long term. Social media comments reflect doubts about the company’s sustainability and product quality, which are factors that will likely influence its reputation and growth trajectory.
