Like nearly every growing youngster, Temu is having growing pains. But the list of grievances against the ultra-low-cost online shopping platform with roots in China is very long.
At first Western experts were worried about the data mining the company could do on users. To calm accusations of Chinese government interference, Temu's owner PDD Holdings moved its legal domicile to Ireland, and Temu itself relocated to Boston. Now new problems are taking the front row.
Currently, it is hard to escape the company's constant advertising. They hit this year's Superbowl with another "shop like a billionaire" ad that played numerous times. Last year, they spent $1.7 billion (€1.57 billion) on marketing, JPMorgan Chase said. The US investment bank expects the company to spend $3 billion this year.
Available in the US since September 2022, Temu quickly became the most downloaded app there. Besides the US, last year Temu was the most downloaded app in the UK, France and Germany.
Perhaps surprisingly, users have been getting progressively older suggesting the enduring appeal of the app amongst older users, according to consulting firm GWS Magnify. In fact, users aged 55+ make up the largest group in both the UK and US markets.
Electronics, unsafe toys and fakes
Unlike Amazon, Germany's Zalando or many other online retailers, Temu cuts out the middlemen and connects buyers to manufacturers directly in China. The goods are then sent directly from Chinese factories or warehouses to shoppers at home.
In an apparent affront to the existing e-commerce norms, fast or same-day delivery isn't the deciding factor when shopping on Temu. For users, the lowest possible price is the ultimate goal, even if it means waiting a week or two to get their goods.
"This may not be sustainable as Temu appears to be using a penetration pricing strategy to gain market share," said Bruce Winder, a Toronto-based retail analyst and author who has observed the company since it first appeared.
The company will also have to react to a landslide of stories of shoddy and defective electronics, unsafe toys, outright fakes of trademarked products and lost packages. The German government has also taken notice. It says it will set up better monitoring and surveillance of incoming packages.
Winder expects more such criticism as the company continues to grow and warns that it will have to address such issues head-on if it is to survive in the long term.
"As Temu responds to the challenges this will add cost to their business, which may increase prices," he told DW. Winder stressed that nothing less than the company's legitimacy is on the line as it figures out data privacy, environmental sustainability, intellectual property rights and factory working conditions.
Temu: Taking over air cargo one package at a time
Across the US and Europe shippers and customs authorities are seeing a lot of orange in the form of Temu packaging. Reuters recently reported that Temu sends around 4,000 tons of goods a day around the world from China.
Temu is hoovering up a big share of available air cargo worldwide to move all those packages. This is pushing up shipping costs and creating capacity shortages on some routes.
Last June, the US House Select Committee on the Chinese Communist Party published an interim report that said Temu and fast fashion retailer Shein send nearly 600,000 packages to the US every day under the de minimis rule, which allows most products valued below $800 (per person, per day) to be brought in without import duties.
They calculated that both companies were responsible for more than 30% of all packages imported to the US under the de minimis provision. It is a luxury many others do not enjoy. In 2022, clothing retailer Gap paid $700 million in US import duties and Swedish retailer H&M paid $205 million because they import goods in bulk in containers rather than individually packaged.
Staying under the radar in the EU
In the European Union, only packages valued under €150 ($162) can be brought in without import duties. In 2022, nearly a billion customs declarations for low-value goods were filed, according to the European Commission. Preliminary numbers suggest this increased to two billion last year.
This ever-growing volume makes it impossible for officials to keep up.
"Estimates show that 65% of parcels entering the EU are deliberately undervalued in their customs declaration to benefit from this exemption at the expense of EU businesses," the European Commission wrote in May 2023, without singling out specific companies.
Some companies don't undervalue things, they just split larger orders to stay under the €150 limit per package, which leads to even more packages.
Market share at any cost?
Yet airplanes and delivery trucks full of packages don't tell the full story. In fact, the initial hype around Temu could be cooling.
The number of monthly active users has slowed after hitting a peak of 17 million in the UK as of November 2023 and 83.2 million in September 2023 in the US, according to GWS Magnify. Since then user numbers have declined in both markets.
However, in the UK, users now spend significantly more time on Temu than other online retailers like Amazon and eBay, says GWS Magnify. In February, Temu users spent an average of 21 minutes per day on the app compared to 8 minutes on Amazon. In the US, it was 23 minutes a day on Temu compared to 11 minutes on Amazon.
Getting attention from new users is becoming increasingly harder for Temu. Ultimately, the online retailer is committed to luring shoppers with the lowest prices possible. Many experts think the company loses money on each item in its quest to grab market share. Others suggest it will soon gravitate to more expensive items.
Though Temu has not sustained the rapid growth of 2023, its place among major retailers in the US and UK cannot be disputed. This comes down to the company's focus on the "customer journey" says Paul Carter, CEO of GWS Magnify.
"Temu has built a significant user and resilient user base, with particular popularity amongst older women," he told DW.
For him, the key to Temu's success is things like personalized rewards and gamified shopping features that keep people online. For any competitor, that kind of user engagement will be hard to replicate.
