For those looking to buy cheaply in the context of high inflation left by the pandemic, Temu seems like the ideal platform.
A few comparisons with similar sites like Amazon or Mercado Libre are enough to tempt one to shop on Temu.
It's "Amazon on steroids," explains retail expert Niel Saunders to the BBC.
But why is everything so cheap, who is behind Temu, and what is its strategy?
For several reasons, this China-based platform has quickly attracted millions of users in 14 countries, including Chile, Colombia, and Mexico, and is set to launch in Brazil.
This platform is not without controversy.
Politicians in several Western countries have begun scrutinizing it, claiming it may be selling products made by forced labor in China, something the company says it "strictly prohibits."
The Origin of Temu
According to Shaun Rein, founder of the China Market Research Group, Temu is owned by Chinese e-commerce giant PDD Holdings, "a behemoth of Chinese e-commerce."
"In China, everyone buys products from [PDD Holdings' brand] Pinduoduo, from speakers to t-shirts to socks," he told the BBC.
The company rivals Alibaba as the most valuable Chinese company listed on the U.S. stock exchange.
Its current value is slightly below $150 billion.
According to Rein, the company has become a source of pride and patriotism for the Chinese.
"They are proud that Chinese companies can defeat American e-commerce dragons like Amazon," he adds from Shanghai.
Building on its dominance of the Chinese consumer market, PDD Holdings is expanding with Temu using the same model that ensured its success in its home country.
Almost all of its products are made in factories in China.
Unbranded Products
When browsing the list of products sold on Temu, buyers will notice that most items are unbranded. If they are branded, they don’t carry any known logos.
This is no coincidence, as this Chinese platform uses a direct-to-consumer factory model.
Other platforms, by contrast, offer well-known brands (even though many of these come from the same factories in Asia).
"Temu understands that in these times of inflation and economic turbulence, consumers are looking to buy cheap products," says analyst Neil Saunders.
He adds that "the platform allows companies to sell their products at a tenth of the normal price and access consumers directly worldwide."
Consumers who want to buy an expensive t-shirt often pay 50% more if it carries a logo.
But experts warn that, logically, Temu’s products are not the best in terms of quality or durability, despite the positive reviews that may appear on the platform.
Selling Without Middlemen
Another factor that often increases the cost of products made in Asian factories is selling through retail outlets.
But with online commerce, manufacturers can bypass the extra costs associated with selling in physical stores or on established platforms in the West.
"They don’t have to go through Walmart, Marks and Spencer, or Amazon. They can go directly to the consumer, straight from the factories, which is why they can offer such low prices," Rein points out.
This strategy isn’t unique to Temu, as it also explains the huge penetration of platforms like fast fashion retailer Shein in the West.
According to a U.S. Congress report from June 2023, Temu and Shein together shipped nearly 600,000 packages per day to the U.S., one of their main markets.
And with its expansion into Latin American and European countries, the platform is growing like few other companies in the world
Valuable User Data
Like other online sales platforms, Temu collects large-scale data on user behavior.
But its approach differs from sites like Amazon.
"It collects data on consumer trends, the most searched-for and clicked-on products, and shares it with various manufacturers," explains Ines Durand, an e-commerce expert at SimilarWeb, to the BBC.
"With this information, manufacturers initially produce only a small number of goods to test the marketplaces," she adds.
These suppliers also avoid the costs associated with storing large quantities of products.
"Sometimes, the website uses AI-generated images to follow the latest trends. So, the products you order may not exist yet," says Durand.
Amazon also collects valuable consumer data but sells it to retailers.
It’s Like a Duty-Free Shop at the Airport
Many consumers will notice that Temu offers free or discounted shipping as an added incentive. The company can afford to do this by taking advantage of import rules in certain countries.
In the U.S., for example, the rules state that up to a certain amount, imports are exempt from customs duties, allowing Temu to avoid these costs.
"If you’re shipping goods in bulk, as traditional clothing or electronics manufacturers do, you’d have to pay substantial customs duties," says Rein.
Durand also points out that shipments are often made by air, not only speeding up transport from Asia to Western countries but also avoiding local storage costs in those countries.
"They don’t need to go to warehouses. They arrive directly in the consumer’s mailbox," adds the SimilarWeb expert.
It’s like a duty-free shop at the airport.
Advertising Expenditures
To raise awareness in major markets like the U.S., Temu has invested colossal amounts in advertising.
For the last Super Bowl alone, the most-watched event in the U.S. with a record 123 million viewers, Temu paid for six 30-second ads, each costing an average of $7 million (approximately 4 billion 253 million CFA francs).
"That’s a lot of money for a very short ad," says Saunders.
"But it’s seen by a massive number of people, and we know that after that ad, Temu downloads skyrocketed," he adds.
Data from SimilarWeb indicates that individual visits to the platform worldwide increased by nearly a quarter on Super Bowl day compared to the previous Sunday, with 8.2 million people browsing the website and app.
During the same period, visitors to Amazon and eBay dropped by 5% and 2%, respectively.
"They also spent a lot of money on micro-marketing by convincing influencers to promote products and suggest purchases on the platform through social networks like TikTok and YouTube," says Saunders.
According to Ines Durand of SimilarWeb, these influencers generally have fewer than 10,000 followers. "Micro-influencers have strong communities, so their endorsement translates into product endorsement," she explains.
Business experts might be concerned about a model like the one Temu applies. But it’s actually something that its parent company in China has proven.
"Temu’s strategy for the next two or three years is simply to increase brand awareness and market share. The company doesn’t really care about profits. It could make profits in three to five years," Niel Saunders estimates.
"This is exactly what happened with Pinduoduo when it launched in China. It wasn’t profitable. The company offered incredibly cheap deals with the sole purpose of capturing market share. And eventually, people started buying more expensive products."
Spotlight on Temu
Temu’s growth has been so rapid that it has attracted the attention of lawmakers and politicians in the Western countries where it operates. Its business practices are under close scrutiny.
A U.S. government investigation reveals that there is an "extremely high risk" that Temu products were made using forced labor.
U.S. lawmakers have argued that Temu should be banned under the Uyghur Forced Labor Prevention Act, signed by President Joe Biden in 2021 to protect the Uyghur ethnic minority.
Last year, Alicia Kearns, chair of the UK Parliament’s Foreign Affairs Committee, told the BBC she would push for a closer review of the online market to ensure "consumers are not unwittingly contributing to the Uyghur genocide."
Temu states that it "strictly prohibits" all its distributors from using forced labor, prison labor, or child labor.
The Chinese company told the BBC that anyone doing business with it must "adhere to all regulatory standards and requirements."
"Our current standards and practices are no different from those of other major e-commerce platforms trusted by consumers, and the allegations in this regard are completely unfounded," added a spokesperson.
In France, a fashion law passed on March 14 targets retail giants like Temu and Shein, which lawmakers say harm the environment and economy and encourage impulsive shopping.
It bans advertising from certain ultra-fast fashion companies and imposes annual increases of up to €10 ($10.80) per garment by 2030.
Both Temu and Shein separately told the BBC that their demand-driven business models reduce waste compared to traditional business models.
Temu emphasizes that it is not a fast fashion company since it does not manufacture the products it sells.
And while it has not yet entered Brazil, Brazilian retailers are currently camp⁰aigning in the country for tax equality with Asian platforms like Shein.
All these challenges could test Temu’s rapid growth in the West.
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