How Temu Is Becoming a Serious Competitor to Amazon and Walmart | WSJ

Summary

Temu, a discount retail app, has rapidly gained 51 million monthly active users in the US by offering ultra-low priced goods from China. Its aggressive marketing, including a $1.7 billion spend in 2023 and a projected $3 billion in 2024, has it positioned to challenge Amazon. The app's gamified shopping experience and the backing of its Chinese e-commerce giant parent, PINDUODUO (PDD), have fueled its growth, despite concerns over product quality and safety. Temu's strategy is impacting the e-commerce industry, driving up digital ad costs and pushing competitors to adapt.

The video is abnormal, and we are working hard to fix it.
Please replace the link and try again.

Q & A

How long did it take Temu to reach 51 million monthly active users in the US?

It took Temu a year to reach 51 million monthly active users in the US.

What is the significance of Temu's growth in comparison to Amazon's user base?

Temu's growth is significant because it is approaching the 67 million user base that Amazon spent decades building.

What strategy is Temu using to gain ground in the US e-commerce market?

Temu is gaining ground by selling cheap goods shipped from China, such as a $20 coat or a $9 stainless steel water bottle.

How is Temu positioning itself in the US e-commerce landscape?

Temu is positioning itself to be a bigger player in the US e-commerce landscape by offering extremely low-priced goods and gamifying the shopping experience.

Who should be worried about Temu's rise according to the transcript?

Anybody who is not Amazon should be worried about Temu's rise, as it is redefining what it means to shop online and challenging the e-commerce industry.

How much did Temu spend on advertising in 2023?

Temu spent $1.7 billion on advertising in 2023.

What is Temu's parent company, and how does it contribute to Temu's success?

Temu's parent company is PINDUODUO (PDD), a Chinese e-commerce company that earns billions annually, providing Temu with the financial backing needed for aggressive marketing and growth strategies.

How does Temu differentiate itself from competitors like Shein and TikTok?

Temu differentiates itself by gamifying the shopping experience, offering extremely low prices, and connecting factories and wholesalers directly with consumers, cutting out the middleman.

What was the estimated loss per order for Temu in 2023 according to analysts?

Analysts estimate that Temu lost about $7 per order in 2023.

What concerns have been raised about Temu's products and practices?

Concerns have been raised about the safety and quality of Temu's products, as well as the company's Chinese ties, data risks, exploiting trade loopholes, and the use of forced labor.

How has Temu's growth impacted the e-commerce industry?

Temu's growth has driven up digital ad costs, impacting the economics of running an e-commerce business and forcing existing incumbents to make hard decisions about sales volume and consumer acquisition and retention strategies.

What is the future outlook for Temu according to the transcript?

While Temu's growth has been explosive, some analysts question its sustainability and whether it can drive repeat purchasing behavior. However, the company is well-funded and continues to focus on growth.

Outlines

00:00

🚀 Temu's Rapid Growth and Market Disruption

Temu, a discount retail app, has rapidly gained 51 million monthly active users in the US in just a year, nearing Amazon's 67 million. The app's strategy revolves around selling inexpensive goods from China, similar to Amazon but at lower prices. Temu's aggressive marketing, with a $1.7 billion spend in 2023 and an estimated $3 billion in 2024, has made it a significant player in the US e-commerce market. Its parent company, PINDUODUO (PDD), has significant financial backing, which has allowed Temu to adopt a strategy of selling extremely cheap goods to build market share. Temu's gamification of the shopping experience and its focus on low prices have attracted a large user base, surpassing Shein's growth. The company's strategy has impacted the e-commerce industry, with Amazon even adjusting its fees in response to the competition.

05:01

💡 Temu's Impact on E-Commerce Advertising and Sustainability

Temu's presence in the e-commerce market has increased digital ad costs, affecting companies like Etsy that cannot match Temu's ad spending. The economic model of e-commerce is being challenged by Temu's approach, forcing incumbents to consider their strategies for consumer acquisition and retention. While Temu's growth has been remarkable, there are concerns about its sustainability, particularly regarding repeat purchasing behavior. Despite significant losses per order in 2023, Temu claims its business model is efficient and not based on selling at a loss. However, the company faces scrutiny over product quality, safety, and ethical concerns, including data risks and potential use of forced labor. Temu's impact on the market is expected to push other players to improve their offerings.

Keywords

💡Temu

Temu is a discount retail app that originated from China and has rapidly gained popularity in the United States by offering extremely low-priced goods shipped from China. The app has managed to attract a significant user base in a short period, becoming a major player in the US e-commerce landscape. Its strategy includes gamifying the shopping experience and leveraging the resources of its parent company, PINDUODUOO (PDD), to undercut prices and acquire market share.

💡E-commerce

E-commerce refers to the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions. In the context of the video, e-commerce is the platform through which Temu operates and competes with other giants like Amazon. The video discusses the impact of Temu's entry on the e-commerce industry, highlighting changes in consumer behavior, advertising costs, and market competition.

💡Monthly Active Users (MAUs)

Monthly Active Users (MAUs) is a metric used to measure the number of unique visitors to a website or app in a given month who have interacted with the platform. In the video, Temu's achievement of 51 million MAUs in the US is highlighted, showcasing its rapid growth and popularity among consumers. This metric is crucial for understanding a platform's user engagement and market penetration.

💡Parent Company

A parent company is the entity that owns and controls one or more subsidiary companies. In the context of the video, PINDUODUOO (PDD) is Temu's parent company, providing it with financial backing and resources to operate and compete in the e-commerce market. The support from the parent company allows Temu to engage in aggressive marketing and pricing strategies.

💡Gamification

Gamification is the application of game-design elements and game principles in non-game contexts to enhance user engagement and experience. In the video, Temu uses gamification to make shopping more interactive and entertaining for its users. This strategy differentiates Temu from other e-commerce platforms and contributes to its rapid user acquisition.

💡Market Share

Market share refers to the percentage of the total market that a company or product holds. It is a key indicator of a company's competitive position within its industry. In the video, Temu's strategy of selling extremely cheap goods from China is aimed at capturing market share in the e-commerce industry, challenging established players like Amazon.

💡Advertising

Advertising is a marketing communication used to promote or sell something, usually a business's product or service. In the context of the video, advertising is a critical tool for Temu to increase its visibility and attract customers. The company's significant investment in advertising has contributed to its rapid growth and has also increased digital ad costs across the e-commerce industry.

💡Competitive Pricing

Competitive pricing is the strategy of setting product prices lower than or equal to those of competitors to attract more customers and gain market share. In the video, Temu's competitive pricing strategy is highlighted as a key factor in its ability to challenge established e-commerce giants like Amazon by offering extremely low prices on products.

💡Shipping Times

Shipping times refer to the duration it takes for a product to be delivered to a customer after purchase. In e-commerce, shipping times are a crucial factor in customer satisfaction and can influence buying decisions. The video contrasts Temu's standard shipping times of six to 22 days with Amazon's faster delivery times, highlighting the different strategies companies employ to meet consumer expectations.

💡Digital Ad Costs

Digital ad costs refer to the expenses incurred by companies to place advertisements on digital platforms such as social media, search engines, and websites. These costs can vary widely based on factors like ad placement, targeting, and competition. In the video, the increased digital ad costs due to Temu's aggressive marketing strategy impact the entire e-commerce industry, making it more expensive for companies to acquire new customers.

💡Product Quality and Safety

Product quality and safety refer to the standards and characteristics of a product that ensure it is reliable, durable, and safe for its intended use. In the context of the video, concerns about the quality and safety of products sold on Temu are raised by consumers, highlighting the potential trade-offs between low prices and product standards.

💡Ethical Labor Practices

Ethical labor practices involve treating workers fairly and with respect, ensuring safe working conditions, and adhering to legal and moral standards in employment. In the video, concerns are raised about Temu's ties to China and potential issues related to data risks, exploiting trade loopholes, and the use of forced labor, which are critical aspects of ethical labor practices.

Highlights

Temu, a discount retail app, reached 51 million monthly active users in the US in just a year, approaching Amazon's 67 million user base.

Temu's rapid growth is attributed to selling inexpensive goods shipped from China, such as a $20 coat or a $9 stainless steel water bottle.

The company is positioning itself as a significant player in the US e-commerce market.

Temu's strategy is to challenge any e-commerce entity that is not Amazon.

The brand's ubiquity online has been deliberate, with Temu spending $1.7 billion on advertising in 2023 and an estimated $3 billion in 2024.

Temu's parent company, PINDUODUO (PDD), is a Chinese e-commerce giant with billions in annual revenue, supporting Temu's large ad spend.

Temu's strategy mirrors PDD's approach in China, aiming to replicate its success in the US market.

Temu differentiates itself by gamifying the online shopping experience with features like a roulette wheel for prizes.

Temu's user acquisition strategy has been highly effective, amassing more users in six months than Shein did in eight years.

In 2023, Temu sold $17 billion worth of goods, boosting PDD's market value by 74% and briefly making it China's most valuable e-commerce company.

Temu's growth is prompting e-commerce giants in the US to be vigilant about their pricing strategies.

Temu's standard shipping times are six to 22 days, compared to Amazon's average of less than two days for delivery.

Amazon reduced fees for sellers in late 2023, possibly in response to competition from platforms like Temu.

Temu's aggressive marketing tactics are driving up digital ad costs, impacting other e-commerce companies' customer acquisition costs.

Etsy, a company not growing as fast as Temu, struggles to keep up with the level of ad spending required in the market.

Temu's business model is changing the economics of running an e-commerce business, forcing incumbents to make strategic decisions.

Despite its growth, Temu's sustainability is questioned, with analysts wondering about its ability to drive repeat purchasing behavior.

Temu is willing to exchange market share for short-term losses, a strategy that has been met with skepticism and controversy.

Concerns about product safety and quality have been raised by consumers, and Temu is under scrutiny by the US government due to its Chinese ties.

Temu's impact on the market will force competitors to elevate their strategies, distinguishing real contenders from pretenders.

Transcripts

- [Narrator] It took discount retail app Temu a year to get

to 51 million monthly active users in the US.

That's approaching the 67 million user base

that Amazon spent decades building.

Temu gained ground by selling cheap goods shipped

from China, like this $20 coat

or $9 stainless steel water bottle.

And its positioning itself

to be a bigger player in the US E-commerce landscape.

- Anybody who's not Amazon is the short answer

of who should be worried.

- [Narrator] Here's how a 1-year-old brand

is keeping the e-commerce industry on watch

and how, just like Amazon, it's redefining

what it means to shop online.

- You are an internet user, you'll see Temu everywhere.

- [Narrator] In just over a year,

the retailer has flooded social feeds

with curious consumers.

- Is Temu a scam?

- She's a serial Temu user.

- I guess I'm known as a Temu girl now.

- It aired ads at back to Back Super Bowls.

(upbeat music)

- [Narrator] And stirred up debate

on how to even pronounce the name.

They're freaking gaslighting you.

The name of the company is Temu, not Temu.

- I'm gonna be honest, I don't think I'll ever say Temu.

- [Narrator] For the record,

the company confirmed it's now Temu.

That confusion hasn't slowed the company down.

It quickly acquired over 161 million monthly app

users across the world.

- It's pretty extraordinary.

It's a speed of adoption

we really haven't seen in the past online.

- When I first wrote about Temu,

we reported that it launched very quietly,

and now Temu is the opposite of being quiet.

- [Narrator] That omnipresence is by design.

It spent $1.7 billion to advertise in 2023,

and JP Morgan analysts estimate

that Temu could spend nearly $3 billion in 2024.

It can spend that big thanks to the deep pockets

of its parent company, PINDUODUO

or PDD, the Chinese e-commerce company,

raking in billions annually.

- PDD Holdings emerged out

of nowhere when China's e-commerce industry was already

dominated by two companies, Alibaba and JD.com.

- [Narrator] So Temu's strategy

of selling extremely cheap goods from China

to build market share, isn't entirely new.

- They're just hoping to replicate its strategies

that worked very well in China.

- Other China founded companies like Shein

and TikTok are also making their mark in US e-commerce.

But Temu sets itself apart

in how it gamifies shopping online.

- You open up the app and there's like a roulette wheel

that you spend and you get a prize.

And the prize is usually here's a whole bunch

of dollars to go buy stuff.

And then as you're searching through products, first off,

you're amazed at how low the prices are

and then you see a ticker of how much time is left

before you know this offer expires

or before they're sold out of that product.

- [Narrator] That strategy has paid off.

Temu amassed more users in six months

than Shein and has in eight years.

Research firm Alliance Bernstein estimates

that $17 billion worth of goods were sold on Temu in 2023.

That helped boost PDDs market value 74%,

allowing it to briefly overtake Alibaba

as China's most valuable e-commerce company.

In the US, Temu's growth is putting e-commerce

giants on watch.

Temu and Sheins' success tells us

that consumers are willing to wait as long

as the products are really cheap.

- [Narrator] Temu says its standard shipping takes

six to 22 days,

while express shipping is four to 11 days.

- [Speaker] Temu connects factories and wholesalers

with consumers directly, cutting the middleman.

- [Narrator] Meanwhile, the biggest e-commerce companies

in the US have been betting big on faster delivery.

Amazon's delivery time has more than halved since 2022

to less than two days on average.

Other retailers are catching up,

with an average of about 4.6 days in January.

As Amazon sets the standard on speed

and Temu takes on price.

- Expect price to get more competitive.

Everybody needs to focus in the e-commerce space about

making sure that they've got a distinctive value proposition

that appeals to a consumer

and not just the first time around,

but has them coming back for more.

- [Narrator] For now, Amazon's hold on the industry

is still ironclad,

but the e-commerce giant has made some changes.

In late 2023, Amazon announced it would reduce the fees

it charges sellers for clothing under $20.

- Some analysts believe

that Amazon's move shows it's worried about losing

suppliers as well as consumers to other platforms.

- [Narrator] In a statement, an Amazon spokesperson said

that the company reduced the referral fee to help drive

and incentivize even greater selection for customers

and competitive prices.

But it's not just cheap prices and seller fees

that's putting pressure on other companies.

(upbeat music)

- [Speaker] Download the Temu app

and shop like a billionaire.

It's driving up digital ad costs.

That means it's more expensive for everybody in the space

to acquire new users.

- [Josh] There's no question that Temu

and Shein are are having an impact in the market.

I think those two players are almost single-handedly

having an impact on the cost of advertising.

- [Narrator] Those digital ads are especially important

for e-commerce companies.

- They need to be there on social media,

making sure that they're right in front of the consumer

to either purchase or to download the app

whenever they're in a mood

to go buy something or they're more intentional.

- It's like a game of chicken.

And for companies like Etsy

that are not growing as fast as Temu,

they cannot keep up with this level

of ad spending at all.

- [Narrator] An Etsy spokesperson said

that the company is seeing a strong return on investment

for its marketing costs,

and the Etsy marketplace is profitable.

That's the short term threat Temu poses to its competitors.

But in the long term,

what it's done is that it's actually changed

or is changing the economics of what it means

to run an e-commerce business.

The existing incumbents in the global e-commerce landscape

aren't just going to lie down

and say, well, I guess we've lost the sale.

They're gonna have to make some hard decisions on whether

they're okay to maintain that with lower sales volume

or whether they wanna be more aggressive in acquiring

consumers and retaining those consumers.

- [Narrator] But some analysts say,

Temu stratospheric growth isn't sustainable.

A Morgan Stanley report noted

that the company's momentum is cresting.

- So what we really now need to see is can they drive

that repeat purchasing behavior?

And that's still very much an open-ended question.

- [Narrator] Still, Temu has cash to burn.

- It's willing to lose money to exchange

for market share to acquire users.

- [Narrator] Analysts estimate the company lost

about $7 per order in 2023.

In a statement, Temu said,

"That its business model boosts efficiency

and that the idea that Temu sells at a loss

to gain market share is simply not true."

But with explosive growth comes more eyes on the company

and more controversy.

- That junk was trash, the sizing is off.

It literally looked like the pattern that I asked

for was printed on it.

I think only one thing actually looked like what I ordered.

Everything else was trash.

- Consumers have been concerned about the product

safety and quality.

I think selling really cheap products is the first step

for Temu to acquire users.

- [Narrator] Temu said in a statement that it works closely

with our independent sellers to ensure

that their products meet the required standards

and the US government is already watching the fledgling

company thanks to its Chinese ties.

A 2023 report from a congressional commission called out

Temu for concerns around data risks,

exploiting trade loopholes and use of forced labor.

The company says that in regards to the trade loopholes,

it is open to and supportive of any policy adjustments made

by legislators that align with consumer interests.

It added that it considers privacy

and security to be core functions of the platform

and that it's committed to ethical labor practices,

but the company is still primed to keep growing.

- I think that's what Temu, Shein, TikTok,

are really gonna bring to the marketplaces.

They're gonna force everybody to level up their game.

And we're gonna see who's real

and who was just a pretender.

(soft music)