Here comes Temu, China’s ‘scary’ bargain-basement Amazon killer
A 30-second advertising slot at the Super Bowl is the world’s priciest piece of screen real estate.
The world’s biggest brands plan their year around the marquee event, devoting their top creative minds and enlisting Hollywood celebrities to entertain the more than 100m viewers who tune in. Only the most recognised names in advertising need apply.
But this year, a shopping app that few people could pronounce, let alone had used, bought not one but two slots. Temu (pronounced “tee-moo”), invited people to “shop like a billionaire”, with an app selling clothing and household goods at seemingly impossible prices. The adverts cost the company a reported $14m (£11m) – the highest fee ever per second for a Super Bowl advert.
Temu launched in the US only last September but by February it had already risen to the top of Apple’s App Store. And after launching in the UK at the end of April, it has done the same, becoming Britain’s most-downloaded iPhone app over the past month.
More than 7m Britons have installed Temu, according to data compiled by research company Sensor Tower. Globally, it has hit 117m downloads, making it one of the fastest-growing apps of all time. Monthly spending on the site has risen from an estimated $192m in January to $700m in June. Analysts at Tech Buzz China say total spending could hit $10bn this year – a sum it took Amazon 12 years to hit.
The vibrant orange plastic packaging that orders are wrapped in have become an increasingly common sight in delivery vans and on doorsteps. And social media is clogged with influencers posting their “Temu hauls” of imitation AirPods, extra strong magnets and 98p water bottles.
The app is owned by PDD, the Chinese ecommerce company behind the online shopping giant Pinduoduo. It was founded less than a decade ago by Colin Huang, a 43-year-old serial entrepreneur who helped set up Google in China.
Huang’s $24bn fortune makes him one of China’s richest people, although unlike billionaires such as Alibaba’s Jack Ma, he has largely shunned a public profile.
Huang stepped down as PDD’s chief executive and chairman in the years after its 2018 New York float, saying he wanted to focus on life sciences research, although he remains its biggest shareholder. The company is now run by co-founders Lei Chen and Jiazhen Zhao, while public interactions in the West are largely limited to routine quarterly investor calls.
Temu is able to dramatically undercut its Western rivals by shipping directly from warehouses in China to front doors, cutting out the higher costs of logistics networks in Britain, the US and Europe and taking advantage of its parent company’s close relationships with Chinese suppliers.
It is not the first to try it: Alibaba, Wish.com and the fast fashion seller Shein have all sought to attract Western shoppers by shipping directly from China.
But none have taken off as rapidly as Temu, whose combination of aggressive pricing, free delivery and incessant marketing means it has threatened major online sellers such as Amazon. One ecommerce executive describes Temu’s rise as “scary”.
Temu has little in the way of brands or recognisable products on its site (one of its bestsellers, a set of headphones made by computer company Lenovo, is an exception).
Its website lacks the ordered lists of products on most shopping websites, instead displaying a seemingly random jumble of bargain gadgets, garments and toys.
FOMO (fear of missing out) is a key ingredient: many heavily discounted items are advertised as limited “lightning deals”. A clock next to the words “free shipping” counts down to midnight, giving the impression of an expiring offer, at least until it resets the next day.
Neil Saunders, a retail analyst at GlobalData, says that shopping on Temu can be closer to entertainment than utility – convenient, given that delivery times are typically more than a week.
“It’s a way of getting a shopping fix, without having to spend a vast amount of money,” he says. “A lot of it is, quite honestly, buying for the sake of it, rather than buying because people need it.”
The app successfully keeps people hooked. The average user spends around 28 minutes a day on the app, according to Sensor Tower, nearly double the 16 minutes spent on Amazon.
For Western consumers, prices seem impossibly low. A two-pack of shower organisers retails for £6.56; an Amazon listing with identical images is advertised for £16.99. A £100 air fryer on Amazon retails for less than half that on Temu. On average, prices are roughly half that of its US rival.
Products are shipped directly from Temu warehouses in China, and the low value of each individual order means customs duties are largely avoided (in Britain, they kick in only at £135). Shipping costs are kept low through a deal with the Indonesian logistics giant J&T Express, which is itself making heavy losses on the contract in an attempt to boost market share ahead of an upcoming Hong Kong flotation.
The crucial ingredient, however, is relentless pressure on suppliers to keep prices low. Temu has used Pinduoduo’s deep networks of manufacturers, many of whom are suffering through a downturn in Chinese consumer spending and looking for alternatives.
“What we’re seeing in China domestically at the moment is a race to value,” says Howard Lake of research company Kantar. “Consumption is struggling to recover post-Covid and Chinese consumers are still incredibly cautious. Long term growth headroom in China is looking pretty stifled.”
Temu first courted domestic merchants who were looking to shift excess inventory, promising them a burgeoning new market of comparatively wealthy consumers.
Since then, however, it has increasingly relied on factory manufacturers, and pitted them against one other. Each Monday the company holds a “reverse auction”, asking manufacturers to compete to offer it the lowest possible price for staple goods.
Suppliers are punished for too many faulty goods, or items that arrive late – or threaten to crowd warehouses by arriving too early. Temu sets prices, often applying a markup of several times what it pays manufacturers. Merchants are not paid if items stored in Temu warehouses are not sold out within seven days, even if the company later sells them.
One Chinese report described the company’s strategy as like boiling a frog: suppliers would never accept Temu’s terms at the outset, but they have slowly been cooked.
Temu’s own workplace is reportedly equally Darwinian: a “horse racing” strategy pits teams against each other to build new features and services. Teams who fail are disbanded, with managers demoted and employees occasionally cut.
Temu’s other weapon has been a non-stop marketing blitz. Temu has not only followed TikTok’s lead by spending huge sums on Facebook and App Store adverts, it has enlisted its own users to sign up new ones by offering them credit and free items.
Those who do register are subjected to a bombardment of emails and app notifications (a slew of text messages drove one disgruntled consumer to sue the company in May, claiming it amounted to being harassed).
If this sounds like a recipe for losing money, you would be correct. The combination of shipping costs, discounting and giveaways means Temu is losing an average of $30 per order, according to Wired, a huge loss considering the average order is just $25.
“You can’t sell goods for $2, when it costs $20 or $30 to produce and ship them. That’s just not a sustainable strategy,” says Sky Canaves, an analyst at Insider Intelligence, who says she expects prices to rise in future.
Temu can afford to lose billions for now, however. Profits at its US-listed parent company PDD tripled to $1.2bn in the first quarter of the year, driven by the success of Pinduoduo, its Chinese operation. Temu reportedly expects to break even in 2025.
That assumes nobody stands in its way, which is hardly guaranteed. Temu’s rise has come with increasing scrutiny of its Chinese ownership, which conspicuously avoided much of the Communist Party’s tech crackdown of 2021. Temu’s website says the app was founded in Boston, and its holding company moved headquarters from Shanghai to Dublin earlier this year.
That has not stopped pressure from US politicians, however. Last month, a Congressional committee said there was a “high risk” that the site contains products made using forced labour in Xinjiang.
Montana, which is due to ban TikTok from next year, has said the app should not be used on government devices. In March, Pinduoduo was removed from Google’s app download store over security concerns.
For now, though, Amazon seems rattled. The retail giant has refused to include Temu in its famous price matching scheme, saying that the company did not meet standards such as those guarding against counterfeits. Some Chinese sellers have claimed that the company has started discounting goods in an effort to compete.
“Amazon has spent the last two decades training consumers that they should expect very fast delivery and infinite selection,” says Juozas Kaziukėnas, of research firm Marketplace Pulse. “But obviously they can never be as cheap as what Temu is.”
Temu did not respond to requests for comment.
