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Upon entering Temu, a cascade of products of all kinds begins to fill the screen. And almost everything is accompanied by discount labels and very positive reviews.
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For those looking to buy cheap amid the high inflation left by the pandemic, it seems to be the ideal platform.
And just make some comparisons with similar sites like Amazon or Mercado Libre to be tempted to buy at Temu.
It is “Amazon on steroids,” trade expert Niel Saunders tells the BBC.
But why is everything so cheap? Who is behind Temu and what is his strategy?
There are several keys that explain why this platform that emerged in China has been able to attract millions of users so quickly in 14 countries, including Chile, Colombia and Mexico, and with an upcoming launch planned in Brazil.
And it is not a platform free of controversy.
Politicians in several Western countries have begun to put it under scrutiny, with allegations that it may be selling products made with forced labor in China, something the company says it “strictly prohibits.”
The origin of Temu
Temu is owned by Chinese giant PDD Holdings, “a Chinese e-commerce juggernaut,” according to Shaun Rein, founder of China Market Research Group.
“In China, everyone buys products on Pinduoduo [la marca de PDD Holdings]from speakers to t-shirts or socks,” he says in conversation with the BBC.
The company disputes the leadership of its rival Alibaba as the most valuable Chinese company listed on the US stock market.
Its current value is just below US$150 billion.
According to Rein, the company has become a great source of pride and patriotism for the Chinese.
“They are proud that Chinese companies can slay US e-commerce dragons like Amazon,” adds Rein from Shanghai.
With dominance of the Chinese consumer market, PDD Holdings expanded overseas with Temu, using the same model that had ensured its success in its home country.
Almost all of its products are made in factories in China.
Unbranded products
When looking at the list of products sold on Temu, buyers will notice that most of them are items that do not have a brand logo stamped on them, or if they do, not one that is well-known.
And that is no coincidence, since this Chinese platform is using a direct sales strategy from the manufacturing factory to the consumer.
Other platforms, on the other hand, offer renowned brands (although many originate from those same Asian factories).
“[En Temu] “They understand that consumers, in these times of inflation and turbulent economy, are looking to buy cheap products,” explains analyst Neil Saunders.
“And the platform is allowing companies to sell their products at a tenth of normal prices, to directly access consumers around the world,” he adds.
“Consumers who want to buy an expensive T-shirt very often have to pay a 50% premium if it has a logo on it.”
But experts warn that, logically, Temu products are not the best in quality or durability, despite the good reviews that may appear on the platform.
Sale without intermediaries
Another factor that tends to make products made in Asian factories more expensive is sales through retail stores.
But with online commerce, manufacturers can do without the additional costs involved in selling in physical stores or on platforms already established in the West.
“They don’t have to sell through Walmart, Marks and Spencer (UK) or Amazon. They can go directly to the consumer, directly from the factories, and that is why they can have such cheap prices,” says Rein.
It is a strategy that is not exclusive to Temu, as it is also the cause of the great penetration that platforms such as the fast fashion store Shein have had in the West.
Temu and Shein together sent almost 600,000 packages per day to the United States, according to a June 2023 report from the US Congress, the country that is one of their main markets.
And with its entry into countries in Latin America or Europe, the platform is growing like few businesses in the world.
Valuable user data
Like other online sales platforms, Temu collects user behavior data on a large scale.
But it does something different from sites like Amazon.
“It collects data on consumer trends, the most searched for and most clicked products, which they deliver to the different manufacturers,” Ines Durand, e-commerce expert at SimilarWeb, explains to the BBC.
“With this, manufacturers only make a small number of products first to test the markets,” he adds.
And those suppliers also avoid the costs of storing a large inventory of products.
“Sometimes the website uses images generated by artificial intelligence to keep up to date with the latest trends. So it is possible that the products you order do not exist yet,” says Durand.
Amazon also collects consumer data, which is very valuable, but sells it to merchants.
Like airport store
Many consumers will see Temu offering free or discounted shipping as another incentive. The company can afford it by taking advantage of some countries’ import rules.
In the United States, for example, the rules indicate that, up to a certain amount in dollars, imports are free of tariffs, which avoids these costs for Temu.
“If you shipped in bulk, like traditional clothing or electronics manufacturers do, you would have to pay huge tariffs,” Rein explains.
Durand also points to the fact that shipments are often made by air, which not only speeds up transportation from Asia to Western countries, but also avoids local storage costs in those countries.
“They don’t need to go to warehouses. They go directly to the consumer’s mailbox,” adds the SimilarWeb expert.
It’s like a duty-free airport store.
Advertising spending
To make itself known in large markets such as the United States, Temu has invested enormous sums of money in advertising.
Just in the last Super Bowl final, the most watched event in the US with a record of 123 million viewers, Temu paid for six 30-second ads that cost an average of US$7 million each.
“It’s a lot of money for a very short ad,” says Saunders.
“But it is seen by a huge number of people and we know that after that publicity, downloads of Temu skyrocketed,” he adds.
Data from SimilarWeb indicates that individual visits to the platform worldwide increased by almost a quarter on Super Bowl day compared to the previous Sunday, with 8.2 million people browsing the website and app.
In the same period, visitors to Amazon and Ebay fell by 5% and 2% respectively.
“They have also spent a lot of money on micromarketing, convincing influencers to promote products and suggest buying things on the platform through social networks like TikTok and YouTube,” explains Saunders.
These influencers typically have fewer than 10,000 followers, according to Ines Durand of SimilarWeb. “Micro-influencers have important communities, so their approval translates into support for these products,” she explains.
Business experts might be nervous about a model like the one Temu is pursuing. But in reality it is something that its parent company in China has proven.
“Temu’s strategy, over the next 2 or 3 years, is solely to increase its brand awareness and market share. They don’t really worry about the benefits, which could be obtained in 3 to 5 years,” considers Niel Saunders.
“That’s exactly what happened with Pinduoduo when it launched in China. It was not profitable. They were making incredibly cheap offers just to grab market share.
“And in the end people started buying more expensive products.”
The magnifying glass on Temu
Temu’s growth has been so dazzling that it has caught the attention of legislators and politicians in the Western countries it has entered. Their way of doing business is being put under the microscope.
A US government investigation said there is an “extremely high risk” that products sold in Temu may have been manufactured using forced labor.
Lawmakers in that country have argued that Temu should be banned under the Uyghur Forced Labor Prevention Act that President Joe Biden signed into law in 2021 to protect the Uyghur ethnic minority.
Last year, Alicia Kearns, chair of the British Parliament’s Foreign Affairs Committee, told the BBC that she would push for greater scrutiny of the online marketplace to ensure that “consumers do not unknowingly contribute to the Uyghur genocide.”
Temu states that it “strictly prohibits” the use of forced, prisoner or child labor by all of its merchants.
The Chinese company told the BBC that anyone doing business with it must “comply with all regulatory standards and requirements.”
“Our current standards and practices are no different from those of other large e-commerce platforms that consumers trust, and allegations in this regard are completely baseless,” a spokesperson added.
In France, a fashion bill was passed on March 14 targeting retail giants like Temu and Shein that lawmakers say harm the environment and the economy, and incentivize impulsive shoppers.
It prohibits the advertising of certain ultra-fast fashion companies and imposes annual increases of up to 10 euros per item of clothing by 2030.
Both Temu and Shein separately told the BBC that their demand-driven business models reduce waste compared to traditional business models.
Temu, for its part, points out that it is not a fast fashion company, since it does not manufacture the products it sells.
And although it has not yet entered Brazil, in that country there is currently a campaign by Brazilian retailers asking for tax equality with Asian platforms like Shein.
All of these challenges have the potential to test the tremendous growth that Temu is achieving in the West.
Source: Elcomercio
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