Deep Dive into the Temu Store. Hero or Villain of the Ecommerce World? Part 1 The Numbers

Unless you happen to have been living under an extremely large rock with no internet for the past couple of years, you can hardly have missed the meteoric rise of the Chinese ecommerce platform Temu.

Even if you haven’t bought from them, chances are that you’ve been bombarded with Temu store ads (I see them all the time on the BBC news website for example as well as on Flipboard).

Who or what is Temu?

Temu is an online marketplace, belonging to the Chinese 拼多多 Group (PDD), founded by Colin Huang (one of China’s 5 richest entrepreneurs) & launched in May 2022. They launched in Europe in May 2023.

The site works with the tagline “Temu: shop like a billionaire” and is known for the rock-bottom pricing & heavy discounts, as well as for selling anything and everything… In 2023 Temu topped the download charts of various app stores worldwide and has been aggressively targeting market share in many markets around the world. (I counted 63 countries that they ship to on their website.)

Business Model of the Temu Store

As it’s a marketplace, consumers don’t actually buy from Temu themselves but from the manufacturer.

In the beginning the platform selected the products as well as determining pricing (based on AI driven analyses), being responsible for logistics and after sales. They implemented a policy of zero entry fees and zero deductions for merchants looking to sell there, helping many smaller manufacturers dare to enter the US market once again.

This model may now be changing to a semi-managed model (according to Late Post), transferring responsibility for overseas warehousing, freight and returns to the merchants on the platform in order to reduce Temu’s losses. Free shipping has been costing them a fortune!

The so-called semi-managed model means that the pricing and operating rights still belong to Temu, but sellers do not need to supply and warehouse goods domestically in China. Instead, they can use their inventory in overseas local warehouses (even Amazon FBA warehouses) to directly put them on Temu for sale, skipping the previous process of product selection, sample sending, and version review for domestic sellers. This makes it attractive for merchants to sell on various platforms including Amazon, Walmart and Shein. Shipments coming in directly to customers from China are duty free in the US if under the value of $800 (there is a lobby to reduce this to $10) or for the EU €150 which also keeps prices down for consumers.

Why are cross border exports a topic in the last 2 years?

The surge in cross-border e-commerce from China can be attributed to factors such as overcapacity in factories, as many Western brands have shifted production to cheaper countries like Vietnam and Bangladesh. Chinese webshops effectively utilise this excess capacity to meet consumer demand globally. Also, the Chinese domestic economy has slowed down significantly so accessing international markets helps create additional demand.

Chinese ecommerce often rests on various geographic manufacturing clusters with their own self contained micro supply chains. Design, sourcing and manufacture can all be completed with an extremely short turnaround – ideal for a platform like Temu which has a massive churn on their range – if the data shows that a product isn’t doing as well as expected it’s immediately swapped out for another.

It’s hard for many producers to gain traction on Amazon though as the platform forbids many of the tactics which are typical within Chinese ecommerce, such as offering coupons or freebies for positive reviews. Temu offered an opportunity to clear the post-covid overstocking from the domestic slow down in China but at the same time, it’s really hard for producers to make a profit there.

Some numbers

I gathered these from a whole host of sources, so if some of them contradict one another or are not clearly defined, then I’m sorry!

Sales

• It’s been estimated that Temu had a GMV (= gross merchandise volume) of $16bn in 2023 and that that could triple in 2024.
• Last July the 7- & 30-day customer retention rates for Temu were at 18.5% and 13.5% so had overtaken eBay, Wish & Shein and were approaching Amazon levels of “stickiness”.
• As sales grow in other regions, the share of US business is dropping from 60% in early 2023 to around 40% at the end of the year.
• Average order value in the US has increased by around 30% - this is hard to quantify exactly, but estimates are at between $37 and $50 depending on which source you look at.
• Goldman Sachs estimated that approximately 28% of PDD’s revenue in Q3 2023 could be contributed by Temu.

Coverage

• Around 1 in 4 Germans have already bought from Temu (26%) and 15% of Americans
• As of April 2024 I counted 63 countries on the website that Temu would deliver to
• At the end of 2023, the app had been downloaded 200 million times across 47 countries. This is partly a result of the gamification whereby buying multiples as a group brings further discounts (this users-bring-users approach was also used by Pinduoduo (PDD) when they started out in 2015 & is of course a way to keep costs of customer acquisition down a little).

Promotion

• Temu's 2023 marketing budget was estimated at between $2-3 billion.?
• Before the Super Bowl commercial in February, Temu was spending $100 - $150 million on marketing each month.?
• The 2 x 30 second spots at the 2023 Superbowl were rumoured to have cost $14 mn
• In August 2023 alone, Temu spent more than $300 million on advertising.
• In the 2nd half of last year daily marketing was in the tens of millions of dollars across Meta and Google, forcing Shein to up their promotional spend
• Temu is still buying up as much online traffic as possible, especially from Google and Meta, regardless of costs and ROI. It ranked first in the download list of every country it launched in.
• From May, Temu increased spending on Twitter, Snapchat, Line, etc. because Google and Meta no longer had enough traffic to allocate to Temu
• When US order volume growth slowed down, Temu moved marketing expenses to other markets and sped up launching in other countries.

Logistics

• Temu shipped 1.6 million packages per day, mostly to the US. This volume is close to Shein’s level at the start of 2022. Temu expected a volume of 2.2 million packages per day by the end of 2023.
• The first leg of logistics, from merchants to a Temu warehouse, costs $1 and is split between Temu and merchants. The second leg, from a Temu warehouse to an overseas transhipment warehouse, costs $4-$5. Domestic delivery in the destination country costs $3-$4. This is for the US and for the original fully managed model, it’s changing though now with the semi-managed model I mentioned above
• After warehouse capacity problems following Temu’s Super Bowl commercials, Temu expanded to 26 US warehouses and tightened logistics processes.
• Shipping is being transitioned to seafreight for many markets to cut costs and also because airfreight demand grew faster than supply in 2023

Products

• Temu is using 90,000 suppliers to provide over 1 million SKUs. 55% of those suppliers also sell on the Pinduoduo and Duoduo Maicai (PDD’s community group buying division).
• The overlap in product categories between Temu and Shein is 30%. The overlap in customers is only 5%. Still, Temu is trying to improve its fashion offering and is promising apparel merchants a 20-25% margin.
• Prices of products on the Temu store tend to be about 75% of the price on Shein. But they are expected to even out over time as Temu is forced to gradually end its subsidies.

Organisation

• Temu has up to 4000 employees as well as up to 50,000 outsourced sorting workers.
• Many employees shifted from PDD’s domestic projects to Temu including at the management levels.

Profitability

• Profits from the Pinduoduo app finance Temu for now. PDD also shifted marketing budgets from the domestic market to international markets.
• Temu’s overall loss rate is around 30%-35%. Marketing expenses and logistics form the highest portions of the losses. A Temu order cost the company around $32 in 2023, including $8-9 in logistics costs. Hence the urgent need for a restructuring of the business models
• The platform is prepared to suffer losses for three years.

Is Temu a threat for Amazon?

I would carefully say: not yet, although they certainly have the potential to be so in the future. They are investing hugely in their overseas markets and grabbing market share.

TikTok & YouTube are full of videos of influencers showing off their “Temu hauls” – both the good, the bad and quite frankly the ugly. And as long as consumers see the products as cheap enough to take a chance on the quality they will continue to buy on Temu instead of other platforms such as Amazon.

However the question remains whether they will be allowed to continue with unfettered growth or whether the authorities in the US or EU will intervene at some point. There are already calls for the de minimis customs free limit to be lowered from $800 in the US, or a new law imposing penalty fees of €10 per package in France (€5 from 2025. €10 from 2030 – this will also affect brands such as Zara or Primark as well as sales via influencers).

Amazon are unlikely to join a race to the bottom from a price perspective and as long as they are not perceived as supplying “mainly” Chinese goods then they can continue while perhaps considering how to adapt to the new world of ecommerce that has opened up now post-pandemic.

Should other marketplaces be adopting the strategies and tactics of Temu (or Shein)?

I don't think so, no.

But I do believe that they should be closely observing to see what could be learnt and reasonably applied in their own ecosystems within their own value frameworks.

Temu is taking market share and whilst many people will say "of course I don't buy from Temu", the figures tell a different story.

The marketplace isn't inherently evil because it was founded by a Chinese company but anyone selling "too cheap to be true" is cutting corners somewhere so time will tell if it's a sustainable business model.

Your thoughts?

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