Pinduoduo's US storefront makes big splash
2023-02-10 18:25:00  
Temu offers bargain-basement prices on plethora of consumer goods

During the recently concluded holiday shopping season, the most downloaded shopping app in the United States was not Amazon, eBay or Etsy, but an online shopping platform launched about five months ago — Temu.

Temu has seen more than 16 million installs in the US since its launch in September, according to App Intelligence, and it has been the most downloaded app in all categories in the US for most of the time since November.

When you open Temu, prices seem almost too good to be true. Examples include a men's quartz watch for $3.59, a magnetic wireless charger goes for $5.49 and an eyeliner sets you back just 71 cents.

By mid-November, Temu had reached $90 million in average daily gross merchandise value, according to news website 36Kr. Temu plans to reach total sales of $30 billion in five years, an achievement that Shein, a Chinese company which created a successful business model by selling fast fashion clothing at ultralow prices, took 10 years to attain.

Boston-based Temu is a subsidiary of PDD Holdings, which is the parent company of China's e-commerce giant Pinduoduo. As the first US storefront of Pinduoduo, Temu offers deep discounts on a range of products, mostly shipped directly from factories or warehouses in China.

PDD Holdings has recorded success in selling heavily discounted products in China over the past few years, and it had a market cap of $122.65 billion as of mid-January. Given the success of Temu, its stock- listed on the Nasdaq exchange as PDD — has gained more than 32 percent in three months.

Temu can offer unbeatable low prices because the company is "fortunate to have the support of our parent company, PDD Holdings, whose global network of suppliers and logistics partners has helped us to offer US consumers a wide selection of quality products at the most competitive prices", a Temu spokesman told China Daily.

Temu can grow fast because it's "using the same playbook Pinduoduo is doing in China — having these best-selling, very low cost items on sale to attract eyeballs. They also do a lot of paid advertising and I think they're doing better quality control", Rui Ma, a tech analyst and founder of Tech Buzz China, told China Daily.

Temu is paying top dollar for marketing. It had an advertising budget of 1 billion yuan ($147.6 million) in September, and the company has reportedly earmarked more than 7 billion yuan to help push the Temu brand this year, according to Tech-Node.

Temu's strategy has gained returns especially in the recent holiday shopping season, when US customers were facing the highest inflation levels seen in a generation.

In the US, inflation peaked at 9.1 percent in 2022, marking a 40-year high. The high prices are squeezing household budgets, affecting consumer confidence and driving up the cost of living. A recent report by Morning Consult shows that 56 percent of US consumers are willing to shop less overall.

Data from Citigroup, Mastercard and Bank of America released in October showed that US consumers had cut back on buying luxury goods and accessories before the holiday shopping season.

In a recent consumer community survey made by research agency Gartner, more than 30 percent of consumers in the US said they are utilizing digital price comparisons and coupon tracking tools.

'Every day Black Friday'

Temu's "every day is Black Friday" approach and its strategy of giving free stuff and coupons to users who promote the app on social media appeared to be resonating with consumers in the US — amid inflation and recessionary fears, US consumers haven't seen prices this low for a long time.

A pair of Lenovo wireless Bluetooth earphones, one of the bestselling products on Temu, is $7.59 with no shipping fees. The delivery time is less than 10 days with free returns within 90 days. Nearly 300,000 pairs have been sold on Temu.

On Amazon, the same Lenovo Bluetooth earphones go for $14.49, nearly twice as expensive as on Temu.

Sherri White paid less than $4 for the pods.

"I love them! The sounds are clear and crisp. It is exactly as shown on the website," White wrote in a recent product review. "I did buy some similar to this make and model in the store, but it cost between $10 to $20.I'm thinking about buying a few for my family and friends as gifts even after Christmas."

During the Black Friday promotion that just passed, Temu's prices were 10 to 20 percent of those of Amazon, 36Kr said. In addition to rock-bottom prices, Temu also offers customers free shipping and full refunds if they're not satisfied.

The shopping platform's sales in November were roughly four times its sales in October, peaking during Black Friday shopping when daily sales hit $7 million in seven days, according to research company YipitData, The Wall Street Journal reported.

Some customers believe Temu's business model could pose a new challenge to US e-commerce leader Amazon's third-party marketplace and other Western online stores.

Bene Neumann bought some toys, shoes and a bathroom rug from Temu during the holiday shopping season. "I don't think Amazon has as many good toys on it. I have looked for toys like these on Amazon," he told China Daily.

In 2021, Chinese sellers account for a substantial percentage of overall vendors on Amazon. According to the e-commerce research firm Marketplace Pulse, China-based sellers represented 75 percent of new sellers on Amazon in January 2021. In 2021, 38 percent of the top-selling brands on Amazon are based in China.

Temu offers an alternative to Amazon as a path to US consumers for Chinese suppliers. Temu's business model is to remove the middleman from the equation, allowing Chinese suppliers to sell directly to US consumers and ship directly from China, instead of building a network of US warehouses.

The shopping platform has about 30,000 merchants with 300,000 to 400,000 items for sale in 24 top categories as of October, TechNode reported.

"I think Temu is coming to the US at a really good time because Amazon has spent basically the last five to seven years really educating the American public about made-in-China products," Ma said. "People are used to a certain type of quality and design, and they're okay with buying lesser-known brands."

She added that: "If you think about it, 10 years ago in the US, it was kind of weird to go online and buy a product with a brand that you can't even pronounce. But Amazon has done such a good job like educating the American public because they've brought so many of these merchants online, and people have bought it because they trust Amazon, and then they realize, oh, the product is fine."

Optimal arrival

Temu came to the US market when US customers are more willing to buy China made products, said Ma. "People don't even think about it. People are like, I've already done this a million times on Amazon. If Temu was coming in like five years ago, I think it would be a much, much tougher sale."

China's cross-border e-commerce has made great steps in recent years. Data from the General Administration of Customs showed that the import and export scale of the country's cross-border e-commerce segment reached 2.11 trillion yuan in 2022, up 9.8 percent year-on-year.

Globally, China is the largest online retail sales market, with the e-commerce industry contributing more than half of the retail sales in 2021, said Business Wire.

"China's cross-border e-commerce market has remained on a fast track since 2015," said a report published by global consultancy EY, which gave credit to the country's supportive policies.

Still, there are huge business opportunities in China's cross-border e-commerce field. Although cross-border e-commerce has grown rapidly in China in recent years, the trade value of cross-border e-commerce in China only accounts for around 36.32 percent of the total import-export transaction value, according to a report from the China E-Commerce Research Center.

Many Chinese enterprises started to seize opportunities. In May 2021, China's cross-border online shopping app Shein surpassed Amazon to top the list of US shopping apps.

Shein focuses on the small but fast-growing field of cross-border e-commerce logistics, one of the reasons it has become a dominant fast fashion brand in the US. Shein's revenue exceeded 100 billion yuan in 2021, up from 1 billion yuan in 2016.

Compared with Shein, Temu started relatively late in the US market.

"Our international business is currently in a very early stage. It is still going through constant trials where we focus on how to create unique value," Liu Jun, vice-president of finance at Pinduoduo, said during the company's third quarter 2022 earnings conference call in November.

"We believe that financial metrics are the natural results from the value that we create. As the international business is still at a very early stage, the current impact on our financial numbers is small," Liu said.

Previous attempts by some Chinese companies to break into the US e-commerce market also met with limited success. Shein has been criticized for the environmental impact of selling clothes so cheap that they are almost disposable.

Temu's website says it "will offset carbon emissions from every delivery" and prominently displays its intellectual property policy.

Temu's shipping process is also slower than that of Amazon. According to the company, orders take seven to 15 business days to arrive, longer than Amazon's delivery time, which averages three to five business days. Amazon also offers same-day or next-day deliveries via its Prime subscription services.

Amazon has a very high share of e-commerce in the US, said Ma, adding that share is just unlikely to be maintained by only one platform."Of course there are going to be other competitors coming in, but they all have to be doing something different. No one can compete against Amazon doing the exact same thing as Amazon," she said.

"Temu comes in with different offerings than Amazon. It's gonna come in and eat away at Amazon's market share. However, I don't see Temu really shaking the foundation of Amazon," Ma said.

What Temu can be most successful at vis-a-vis Amazon is going to be the low-end or middle-end commodity products where people don't really care about brands, said Ma.

At Pinduoduo's earnings conference in November, Chen Lei, the company's chairman and chief executive, also acknowledged that competition in the industry is currently fierce.

"We fully respect that there are many differences across different markets. And we also understand the need to constantly experiment and we expect that the process will be full of challenges. So we will be patient and work together with our partners to create long-term value for consumers," Chen said.

"Currently, we are still in the early stages of exploration. And we have many areas to improve in terms of the services that we provide. We need to learn and also optimize," Chen said during the earnings conference.