Temu Meet World

Until a month or two ago I had never heard of this Aliexpress 2.0 but it feels like Temu has exploded overnight. To be fair I’m mostly oblivious to the movers and shakers in the pre-garbage consumer space. Temu first launched in the United States in September 2022 followed shortly after with a superbowl ad putting it squarely in the public imagination.

It eventually dropped in New Zealand and Australia in March 2023 and is now in over 100 countries. This makes it sound like Temu is setting up franchises, when in fact it’s just connecting consumers directly with suppliers and manufacturers in China. This has been dubbed the Next-Gen Manufacturing (NGM) model, which reduces unsold inventory levels as manufacturers can see the demand directly, and do customised orders to boot. According to Jupiter SCM Temu is able to cut warehousing and transportation costs which results in savings of at least 50% compared to traditional processes.

In the 80s and 90s When the world handed over the keys of production to China nobody would have suspected they’d also be handing in their keys to now defunct brick and mortar stores as a rising internet of apps cut out the middlemen. Farm to table is out, factory to letterbox is in.

In the last quarter New Zealand saw a slight growth in consumer spending, up .8% for the second quarter in a row. Unfortunately our local stores were still feeling the pain as the slight bump hardly touched them. According to Infometrics chief forecaster Gareth Kiernan speaking to RNZ Temu and AliExpress seemed to be the ones eating that slice as a 20% increase in direct imports of low-value goods came flooding into the country.

“Unfortunately, it’s of no benefit to New Zealand businesses whatsoever, and is in fact a negative for the broader retail sector as more of the consumer spend gets syphoned offshore.” Kiernan told RNZ.

Temu has become the most downloaded app, both home and abroad in the states. In its first seven months it was downloaded 50 million times. According to a market sentiment report by NZ Post 17% of Kiwis consider it the online retailer they use the most.

Economic headwinds have forced Warehouse Group to restrategize its offerings with a back to basics approach and even the online juggernaut Amazon has had to reconsider its approach. Amazon has already slashed fees on cheap clothing to keep up with the other upstart Shein. “For items priced under $15, we will decrease referral fees from 17% to 5%,” the company said. “For products priced between $15 and $20, we will decrease referral fees from 17% to 10%.”

They seem poised to make sure Temu doesn’t get one up on them by also setting up their own Temu style shopfront directly on Amazon, opening the floodgates of Chinese warehouses to consumers. It will have it’s own section on the homepage and is already signing up sellers, much to the dismay of local sellers already feeling Temu’s pinch.

Boutique ecommerce site Etsy has even had to change its model slightly to accommodate this new wave of competition. It did it’s own superbowl ad as well as opening up new categories outside of “handmade” and “vintage”. Four new categories are now used to sort products. “made by,” “designed by,” “handpicked by,” and “sourced by”.

Cheap merch flooding over borders has put a spotlight on de minimis which is a tax exemption on small items having to pay duties. The European Commission is planning on dropping the €150 threshold on imported goods in a direct effort to protect local businesses from the meteoric growth of these ecommerce platforms. In Europe last year 2.3bn items flowed in under this threshold, with imports more than doubling year on year. This change would directly hit Temu, AliExpress, and Shemu, but probably not Amazon, which relies on local warehouses in Europe.

But how did Temu so quickly gain a market share that would make the biggest names quake in their boots? To achieve this incredible growth Temu had to employ a range of tactics. By that I mean throw money at every problem until it goes away. Inside the app users are constantly bombarded with deals and crumbs of gamification that let you know you’ve won free shipping or some other great deal. It’s an addictive loop of dopamine from getting something new and getting instantly rewarded to do it again. Eventually these deals come with extra rewards on referral. The prices are also incredibly good. But are they too good to be true? Yes absolutely.

According to supply chain costs supplied to WIRED via a company insider Temu is losing around $30 per order, with calculations on the tab they are running up costing anywhere between US$588 million to US$954 million per year to maintain. This strategy worked well for PDD the tech giant umbrella who owns Temu and it’s flagship product Pinduoduo. Pinduoduo quickly gained market share in China with the same strategy. Temu’s logistics partner Indonesian startup J&T Express takes on some of the costs of postage as it itself disrupts its own market. As it broke into the Chinese market it shook the delivery sector with prices as low as 15c for both large and small parcels according to Technode. To fuel this growth it’s had to pull together a cumulative fundraising round of $5.39 billion. J&T has managed to swallow major competitors including Best Express which had the contract with Alibaba. Previously J&T had no way of approaching Alibaba due to J&T propping up one of their major rivals. Now it’s got the market stitched up.

Logistics aside, The question is can Temu land enough body blows on Aliexpress and Amazon before the money runs out for everyone involved.

In the US 48% of shoppers have used Temu in the last year, but only 6.4% even trust the app, according to an Omnisend survey. This bizarre pattern at least explains why so many people are willing to lose their money in obvious crypto scams. The same survey found that 17% think that Temu will eventually overtake Amazon.

Only time will tell if that 17% is right. The world is changing so fast it feels like we’re finding a new way to punish brick and mortar stores every week.