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CWA # 1272, 13 April 2024
Global Politics Explainer
The Rise of Temu: A Chinese online shopping app in the US

  Diya Madhavan

Temu's success is not related to its phenomenal low prices on items, which managed to succeed by selling cheap goods. Its marketplace model makes it easy to control, and constrain sellers and less susceptible to market fluctuations.

Temu is a Boston-based Chinese-owned shopping app owned by a multinational commerce group, PDD Holdings. It possesses another daughter company, the Pinduoduo Inc. which relocated its primary executive office from Shangai, China, to Dublin, Ireland, opting for the region for its favourable corporate tax rates. 

Since the launch of Temu in Canada in February 2024, the massive online shopping site has held the top spot for mobile downloads, for both Apple and Android users. Following its launch in the US in September 2023, Temu has rapidly permeated to 51 countries, becoming one of the widely known apps on the App Store. 

According to Statista, Temu has reached over a hundred million users, in a year, and by November 2023, it has succeeded in achieving 250 million downloads worldwide. According to the release of the PDD's Q3 financial report, there was a remarkable 93.9 per cent year-on-year surge, along with an 18 per cent surge in the stock value, transcending Alibaba.

How to explain Temu’s rise in the US?
Temu's success is not related to its phenomenal low prices on items, which managed to succeed by selling cheap goods. The American consumers were are very also conscious of the cost-effectiveness of the Chinese-manufactured goods. In 2022, Vox recorded that the Chinese suppliers accounted for 70-80 per cent of Amazon's marketplace, which contributed to the gross merchandise volume (GMV) of 26 per cent.

Earlier, offline channels like Walmart used to serve as portals for Chinese products in the US markets. According to the analysis by market research firm YipiData, the greatest share of its US sales was extracted from households making less than an annual income of USD 40,000, following which data showcased by Google Trends pointed out that the searches for Temu piqued in areas including Mississippi, West Virginia, Arkansas, Kentucky, and Alabama, states that were reported with the highest poverty rates in the country.

Temu's marketplace model makes it easy to control and constrain sellers and less susceptible to market fluctuations. The marketplace/seller model has been easily accessible for Temu and quashes the obvious drawbacks of e-commerce, for its lack of voice in product quality.

At the 2023 Super Bowl event, Temu aired two 30-second advertisements revolving around its "Shop like a billionaire" tagline, focussing highly on its historical rates available on the platform. The television advertisement, along with those placed on social media platforms including Facebook, Instagram, and YouTube threw light on the variety of products, competitive prices and logistical advantages of Temu and also these advertisements focussed on acquiring more viewers from the categories including the price-sensitive young consumers, US consumers driven by Chinese culture and traditional mainstream consumers.
 
How successful is Temu?
According to a Business of Apps report, Temu had a monthly GMV of USD one billion by June 2023, compared to the annual estimated GMV of USD 477 billion of Amazon. Temu claimed that its net profits more than doubled in the last quarter of 2023, up 146 per cent. However, in June 2023, an interim report by the US Select Committee on the Chinese Communist Party, raised concerns over the ethics of Temu’s supply chain, hinting at the possibility of forced Uyghur labour, which has been prohibited in the US under the Uyghur Forced Labor Prevention Act. Temu has also attracted controversies over escalations of consumer complaints, about its US-based legal battle with rival Shein, the popular fast fashion retailer. Both Temu and Shein filed a lawsuit against each other, where Shein accused Temu of misdirecting consumers. Temu accused Shein of using "exclusionary practices" which Temu claims have detained its commercial growth. Temu had also dominated headlines in the media over an accusation based on data privacy that was raised by the UK, which led to various concerns that even resulted in the removal of the Pinduoduo app from the Google Play Store because of suspected malware.
 
Despite the commercial highs and lows the company has encountered in its course, Temu has made significant progress in its rapid overseas expansion, not by the replication of traditional methods of traffic and virality nor by its "rock-bottom price" phenomenon. Instead, Temu has innovated by bringing in the "full-service model" to equalise traditional self-operated and platform models on e-commerce platforms. Temu has also entered the top 5 in the UK and France, especially in the UK, where Temu accomplished a monthly visitors range of 11 million.

2024 will be a year of heightened competition among various forces. Temu gained the first-move advantage with remarkably low prices, but as more marketplaces enter the picture, the competition will unarguably become more intense. 

About the author
Diya Madhavan is an undergraduate student at the Department of International Relations and Public Policy, St Joseph's University, Bengaluru.
 

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