How Temu’s Explosive Growth Is Disrupting American E-Commerce | WSJ

- Discount retail app Temu took a year to reach 51 million monthly active users in the US. This is close to the 67 million user base that Amazon took decades to build. Temu gained traction by selling cheap products shipped from China, like this $20 coat or a $9 stainless steel water bottle. And its positioning to be a bigger player in the US e-

commerce

landscape - anyone other than Amazon is the short answer of who should care. - Here's how a year-old brand is keeping an eye on the e-

commerce

industry and how, like Amazon, it's redefining what it means to shop online. - You are an Internet user, you will see Temu everywhere. - In just over a year, the retailer has flooded social media with curious consumers. - Is Temu a scam? -She is a serial Temu user. - I guess I'm known as a Temu girl now. -She aired ads in Back Super Bowls. (upbeat music)-And she sparked a debate about how to pronounce the name.

They are deceiving you. The name of the company is Temu, not Temu. - I'll be honest, I don't think I'll ever say Temu. - For the record, the company confirmed that it is now Temu. That confusion hasn't slowed the company down. It quickly acquired over 161 million monthly app users worldwide. - It's quite extraordinary. It's a speed of adoption that we haven't really 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 silent. - That omnipresence is by design. It spent $1.7 billion on advertising in 2023, and JP Morgan analysts estimate Temu could spend nearly $3 billion in 2024.

It can spend that amount thanks to the deep pockets of its parent company, PINDUODUO or PDD, the Chinese company. e-commerce. raising billions a year. - PDD Holdings came out of nowhere when China's e-commerce industry was already dominated by two companies, Alibaba and JD.com. - So Temu's strategy of selling extremely cheap products from China to gain market share is not entirely new. - They only hope to replicate their strategies that worked very well in China. - Other companies founded in China, such as Shein and TikTok, are also making their mark on American e-commerce. But Temu sets itself apart in the way it gamifies online shopping. - You open the application and there is like a roulette wheel that you spend and you get a prize.

And the prize is usually a lot of dollars to buy things. And then while you're browsing for products, first you're surprised at how low the prices are and then you see an indicator that tells you how much time is left before you know this deal expires or before they're out of stock. product. - That strategy has paid off. Temu accumulated more users in six months than Shein and has done so in eight years. Research firm Alliance Bernstein estimates that $17 billion worth of goods were sold on Temu in 2023. That helped boost the market value of PDDs by 74%, allowing it to briefly overtake Alibaba as the China's most valuable e-commerce company.

In the United States, Temu's

growth

is putting e-commerce giants on alert. The success of Temu and Sheins tells us that consumers are willing to wait as long as the products are really cheap. - Temu says its standard shipping takes six to 22 days, while express shipping takes four to 11 days. - Temu directly connects factories and wholesalers with consumers, eliminating intermediaries. - Meanwhile, the largest US e-commerce companies have been betting big on faster delivery. Amazon delivery time has more than halved since 2022 to less than two days on average. Other retailers are catching up, averaging about 4.6 days in January.

While Amazon sets the standard in speed and Temu assumes the price. - Expect the price to become more competitive. Everyone needs to focus in the e-commerce space to ensure they have a distinctive value proposition that attracts the consumer and not just the first time, but keeps them coming back for more. - For now, Amazon's control over the industry remains tight, 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 that it is worried about losing suppliers and consumers to other platforms. - In a statement, an Amazon spokesperson said the company reduced the referral fee to help drive and incentivize even greater customer selection and competitive pricing.

But it's not just low prices and seller fees that put pressure on other companies. (upbeat music) – Download the Temu app and shop like a billionaire. It is increasing the costs of digital advertising. That means it's more expensive for everyone in the space to acquire new users. - There is no doubt that Temu and Shein are having an impact on the market. I think those two players almost single-handedly are having an impact on the cost of advertising. - Those digital ads are especially important for e-commerce companies. - They should be present on social media, making sure they are right in front of the consumer to purchase or download the app whenever they feel like going to buy something or be more intentional. - It's like a game of chicken.

And for companies like Etsy, which aren't growing as fast as Temu, they can't sustain this level of ad spend at all. - An Etsy spokesperson said the company is seeing a strong return on investment on its marketing costs and that Etsy's marketplace is profitable. That's the short-term threat Temu poses to its competitors. But long term, what it has done is it has actually changed or is changing the economics of what it means to run an e-commerce business. The current players in the global e-commerce landscape are not going to sit back and say, well, I guess we lost the sale.

They will have to make some tough decisions about whether they can maintain that with lower sales volume or whether they want to be more aggressive in acquiring consumers and retaining them. - But some analysts say Temu's stratospheric

growth

is not sustainable. A Morgan Stanley report noted that the company's momentum is peaking. - So what we really need to see now is can they drive that repeat purchasing behavior? And that remains an open question. - Still, Temu has money to spend. - You are willing to lose money in exchange for market share to acquire users. - Analysts estimate that the company lost around $7 per order in 2023.

In a statement, Temu said: "That its business model increases efficiency and that the idea that Temu sells at a loss to gain market share simply does not it's true". But

explosive

growth comes with more eyes on the company and more controversy. - That garbage was garbage, the size is not right. It literally looked like the pattern I ordered was printed on it. I think only one thing looked like what I ordered. Everything else was garbage. - Consumers have been concerned about product safety and quality. I think selling really cheap products is the first step for Temu to acquire users. - Temu said in a statement that it works closely with our independent sellers to ensure their products meet required standards and the US government is already watching the fledgling company thanks to its ties to China.

A 2023 report by a congressional committee brought data risks, exploitation of trade loopholes, and the use of forced labor to Temu's attention. The company says that when it comes to trade loopholes, it is open and supportive of any policy adjustments made by lawmakers that align with consumer interests. It added that it considers privacy and security to be core functions of the platform and that it is committed to ethical labor practices, but the company is still prepared to continue growing. - I think that's what Temu, Shein and TikTok will really bring to the markets. They will force everyone to level up their game.

And we will see who is real and who was just a pretender. (soft music)