The Rise Of Temu
Temu, has quickly become the second most popular e-commerce app in the United States, trailing only behind Amazon and surpassing major competitors such as Walmart, Target, and Shein.
Launched in September of 2022 with the tagline “Shop Like A Billionaire” and featuring two Super Bowl ads, Temu has amassed over 100 million active users by April of 2023, achieving this milestone in a mere seven months.
For comparison giants like Amazon, Uber and Spotify took over 5 years to reach a similar user base.
But how did a company that was virtually unknown just two years ago manage to achieve such unparalleled success?
Origin Of Temu:
To understand How Temu became so big we need to look at its past.
Although it states that it is based in Boston Massachusetts implying that it is a American company, it’s true roots trace back to its parent company, PDD Holdings.
Which is a Chinese company and only in 2023 has changed its Legal domicile from Shanghai, China to Dublin, Ireland as tensions between US and China are escalating.
It also owns another ecommerce company called Pinduoduo which is listed on NASDAQ.
It is the 2nd largest e-commerce company in China with a staggering revenue of 20 Billion Dollars, just behind Alibaba and has more than 750 million users per month.
Temu is its first major push in the overseas market and it isn’t the first Chinese company to do so.
Alibaba had launched Aliexpress and JD.com had Launched Joybuy but both failed to make a significant impact in the global market.
But what has Temu done differently from its competitors?
How Is Temu Growing So Fast?
Since day one, Temu has been aggressive on advertising and had spent an astonishing $140 million dollars within first month of its launch and nearly 2 billion dollars by August of 2023.
This includes spending money on Superbowl ads, running ads on different social media platforms and paying you cash for referring your friends to sign up.
According to Meta, Temu ran about 8,900 ads on its platforms in January 2023 alone.
Temu has also been aggressive on influencer marketing, , offering influencers 100s of dollars for posting Tiktok or reels and paying people to post positive comments on all major social media platforms.
Temu also stands out for offering products at dirt cheap prices such as a 5 dollar shoe and 10 dollar smart watch, allowing customers to truly “Shop Like A billionaire.”
This is because of its strategy to sell only generic products like clothing, jewelry and home products.
And Unlike traditional e-commerce models, Temu doesn’t stock products domestically. Instead, when a customer places an order, the product is shipped directly from China, clearing US customs and reaching the customer’s doorstep via the US Postal Service.
And since products are not brought in bulk, the goods escape any customs that would have otherwise been applicable because of US policy of De-minimis Shipping, according to which goods valued under $800, shipped internationally to U.S. homes avoid tariffs and duties at U.S. Customs.
To put it into perspective, other companies like H&M, GAP spends 100’s of millions of dollars on custom duties in 2022 and on the other hand Temu and Shein paid nothing, combined they account for 30 to 50% of de minimis shipping into the US, that’s an estimated 600,000 packages every day.
How Does Temu Makes Money?
Temu is projected to face a substantial loss ranging from $800 million to a billion dollars in 2023 because of its cost cutting practices.
But how is Temu planning to earn all this money back?
For this we have to we have to examine the revenue model of its sister company, Pinduoduo.
In 2022, most of Pinduoduo’s revenue came by selling online marketing services to its merchants and not so much of physical products.
Here is a breakdown of Pinduoduo’s 2022 revenue:
1. Online Marketing Services, i.e. selling advertising sevices to its merchants, where merchants bid for keywords that match their product listing contributed a staggering 72%
2. Transaction fees i.e. charging commission from its merchants on sales accounted for 18%
3. While direct product sales on the platform contributed only 10%.
Temu appears to be adopting a similar strategy, selling at a loss to gain market share and then sell marketing services to its merchant and this is not new, Amazon did the same thing for a very long time.
There is also speculation that Temu is also gearing up to launch social shopping in the US, a wildly successful business model Pinduoduo is using in China,
In China, the concept of group buying enables users to join forces with friends and family to unlock discounts.
This approach aims to capitalize on economies of scale by placing substantial orders at remarkably low prices and this strategy is what allowed them to grow to almost a billion users in China.
Is It Safe To Buy From Temu?
So, is it safe to buy from Temu?
Well no one can say that with certainty but it does not really have that great of a track record, as its sister company Pinduoduo was suspended from google play store back in march of 2023 as it was found to contain malware that allowed it to track your location, access all your files, change your settings and even read notifications and private messages.
However Temu hasn’t been found to contain the same malware YET! But it is best to maintain caution.
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