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.
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.
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Temu’s explosive 2023
If you are an internet user, you'll see Temu everywhere.
In just over a year, the retailer has flooded social feeds with curious consumers
Is Temu a scam?
It aired ads at back to back Super Bowls and stirred up debate on how to even pronounce the name.
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.
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.
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.
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.
How Temu can redefine e-commerce
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. Temu says its standard shipping takes six to 22 days, while express shipping is four to 11 days.
Temu connects factories and wholesalers with consumers directly, cutting the middleman.
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.
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.
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.
It's driving up digital ad costs.
That means it's more expensive for everybody in the space to acquire new users.
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.
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.
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.
Temu’s future
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 behaviour?
And that's still very much an open-ended question.
Still, Temu has cash to burn. It's willing to lose money to exchange for market share to acquire users. 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.
Consumers have been concerned about the product safety and quality.
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 labour.
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 labour 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.