In a remarkable business transformation, Temu has surged to prominence over the past year. From being relatively unknown, it has now outpaced the industry giant, Shein, in the fiercely competitive US e-commerce market.
According to Bloomberg Second Measure, Temu surpassed Shein in May in the US, with a lead of approximately 20%, and it has continued to widen that lead each month. By September, Temu’s sales in the country were more than double those of Shein.
Temu, backed by Chinese heavyweight PDD Holdings Inc., has replicated the formula of offering low prices and a strong social media presence that propelled Pinduoduo to become one of China’s largest e-commerce platforms.
A diverse product range is a significant factor driving Temu’s success. As noted by Euromonitor International analyst Fatima Linares, «Temu’s kitchen gadgets and electronics, priced between $5 to $10, hold strong appeal in a time when cost-conscious shopping is in demand.»
However, the aggressive pricing strategy has affected Temu’s profitability. Morgan Stanley reports that Temu sells items up to 70% cheaper than similar products on Amazon. While offering free shipping without a minimum spend is popular with consumers, it impacts profit margins.
Estimates from Sanford C. Bernstein suggest that Temu may report a $3.65 billion operating loss this year, despite global sales of $13 billion. This loss may narrow to $1.9 billion by 2025, according to Bernstein. In contrast, Shein, with a larger global presence, reported $22.7 billion in sales last year.
While Temu and Shein are often compared, they have significant differences. Shein primarily focuses on its own brand and specializes in fashion, while Temu acts as an intermediary, enabling consumers to purchase a wide variety of products directly from suppliers.
Both companies rely on extensive supply chain networks in China and face intense competition for talent. Temu has attempted to recruit Shein employees by offering triple their compensation and has sought to collaborate with Shein’s suppliers.
Shein declined to comment, and representatives for PDD and Temu did not respond to requests for comment.
Despite Temu’s rapid growth over the past year, challenges lie ahead. Concerns about product quality may arise, and expanding into different legal and political landscapes as the company enters more countries presents unique challenges.
This competitive rivalry has resulted in legal disputes. Shein sued Temu in December in the US, alleging trademark and copyright infringement and «false and deceptive business practices.» In July, Temu counter-sued Shein, accusing it of violating antitrust laws.
Temu has been eyeing Shein from the start, setting a goal for its North American business to surpass Shein’s gross merchandise value by September. This target has already been exceeded, and Temu has become one of Apple Inc.’s top iOS apps in the US this year.
As competition intensifies, Shein has expanded its product offerings beyond its own, establishing a brick-and-mortar presence in the US.
Temu has also faced scrutiny from US government officials regarding potential data security risks for American consumers. Several states, including Montana, have banned Temu, and Google suspended the Pinduoduo app due to malware found in unauthorized versions.
Both companies have also faced criticism for contributing to the growing issue of waste from fast fashion. Addressing these concerns will be a significant challenge, as Linares from Euromonitor pointed out, «At some point, the model will reach its maturity, and the initial novelty that drew in consumers will diminish.