Chinese tech-giant goes global
The Chinese e-commerce platform temu is taking the world by storm with cheap prices and fun games. Expect disruption.
Disruptive business model
Many traditional retailers are not even aware of Temu yet. However, the new Chinese e-commerce platform is stealing global markets shares and challenging Amazon in its home market. And this is probably just the beginning. Temu has the potential to disrupt almost every household related industry with its huge variety of extremely cheap products, shipped directly from Chinese suppliers.
Temu launched a big campaign during Super Bowl in the US in February 2023 under the slogan “Shop like a billionaire”, and it was a great success.
Amazon excluded Temu from its competitive price checks in June, stating that Temu doesn’t meet the criteria. However, Amazon just announced that it will lower its commission in 2024, especially for sellers in the apparel industry. This is probably to be able to compete with Temu and another disruptive Chinese company called Shein. Shein is a ultra fast fashion company which has grown explosively in the last 4-5 years on the same business model, connecting Chinese factories to consumers around the world.
What happened?
Temu tops the list of the most downloaded free iPhone apps in the US in 2023, just published by Apple. It now has more than 100 million users in the US, and it happened in less than a year. The company recently entered Mexico and the European market and was downloaded 250 million times since it was launched in September 2022.
Just a few years ago Shein (formerly know as She Inside) made headlines when it became the most downloaded shopping app in the US. It has grown rapidly and now has over 70 million active costumers in 150 countries.
With a turnover of 24 billion USD in the first three quarters of this year, it is poised to surpass both H&M and Zara. Shein is expected to IPO in the US in 2024 and is called the Tik Tok of shopping because of its advanced recommendation algorithm and real time data analytics.
What’s the secret sauce?
There is no doubt, that its almost impossible to compete with the cheap prices on Temu and Shein. You can find a jacket for 7 USD and a pair of shoes for less than 10 USD. But the real secret sauce is the way Temu and Shein attract and retain consumers by using entertainment and gamification.
For example, when you download the Temu-app, you can spin a digital wheel of luck which will decide whether you will have 40, 50, 60 or 70 percent discount. You can also earn discount coupons if you write a review. Many offers are time limited which creates a sense of urgency.
Shoppers are spending almost twice as long time on Temu as on Amazon, according to research company Apptopia. On average, users spent 18 minutes per day on Temu app, compared with 10 minutes for Amazon.
Also, both Shein and Temu use very aggressive marketing tools, so be careful, you will get spammed if you google their names! Next time you search for almost any kind of product Temu will come up as one of the first suggestions on Google. Both companies also use bloggers and micro influencers for branding their products and platform which has proven very successful.
Who is behind Temu?
Temu is a sister company of the Chinese e-commerce platform Pinduoduo which is a very successful group buying platform. Pinduoduo has grown rapidly since it was founded in 2015 and has recently overtaken Alibaba as the most valuable e-commerce company in China. Temu’s name comes from the slogan “Team up – Price down”, and we might see group buying features launched in the app in the future.
Temu is headquartered in Cayman Islands like many American tech companies and claims on the website to be founded in Boston, Massaschusetts in 2022. Both Shein (headquartered in Singapore) and Temu present themselves as international companies and do not flag the connection to their owners and founders in China, assumingly due to the current geopolitical situation.
Poor working conditions
It’s surprising to see how Shein and Temu can grow at such a speed, especially in the US, when other Chinese companies like Huawei and Tik Tok have faced so much criticism and even sanctions. But consumers don’t seem to care much about geopolitics or cyber security when they download an attractive app. Or maybe they are simply not aware that it’s a Chinese app.
Shein has been accused of copy right infringement many times and various media reports have revealed poor working conditions in its network of factories with 18 hour long working days and one day off a month.
US lawmakers have warned that there is an “extremely high risk” that products sold on Temu have been made with forced labour in Xinjiang Province. But so far, none of this has stopped consumers from using the app.
Sustainability
Both Shein and Temu offer free shipping and free return within 30 days from purchase, which can be hard because of shipping time. But many consumers take the chance, and sometimes they don’t even bother to return the products because they are so cheap.
To compensate for carbon emissions Temu invites costumers to plant a tree and claims to have planted more than 2 million trees in Africa.
However, the concept of shipping a single item at the price of a few dollars across the globe is considered unsustainable by nature.
It’s just the beginning
Expect more Chinese companies to develop international versions of their platforms to try to expand globally in the coming years. China has 1,2 billion internet users but it is a red ocean, and competition is fierce. Also, the local economy is still recovering from the pandemic, and the potential to grow is considered better outside China.
The timing is good as many consumers around the world are struggling with inflation and are more sensitive to the price.
Brace for impact - disruption may be coming to your industry soon!