Cross-Border Update: Pinduoduo’s Temu (Part 1)

In the summer of 2022, I wrote extensively about cross-border e-commerce from China. Since there have been many developments in this area, I am publishing another series of articles on the initiatives of relevant companies. In the previous articles we looked at the overseas initiatives of Alibaba, Bytedance/TikTok, JD/Ochama and Shein. Today we’ll look at one of the youngest but also most active initiatives: Pinduoduo’s Temu.

Since Temu is a new player in the market, there is a lot of information to share. This first article looks into the business model, marketing and how Temu works with merchants. A second article will look at recent developments and the front end of Temu. A version of this first article appeared in the Tech Buzz China Insider newsletter in December, written by Ed Sander, Freya Zhang and Rui Ma. We combined insights from expert interviews from the Six Degrees Intelligence database with developments reported in Chinese tech media.

The domestic U.S. e-commerce market has been stable for many years, with most of the market divided between three players: market leader Amazon followed by eBay and traditional retailer Wal-Mart. However, after many Chinese merchants were banned from Amazon for violations of rules on reviews and ratings in 2021, some of them have gone on to sell on eBay and Wal-Mart, both of which have seen rapid growth in the first half of this year and are chipping away at Amazon’s dominance. Thus while Amazon’s growth remains robust, Chinese sellers in particular are actively seeking other platforms and adopting a multi-channel strategy instead of solely relying on Amazon. Enter Chinese players such as TikTok, Shein and the subject of today’s article, Pinduoduo’s Temu app, which has not dropped below the top 5 on iOS US Appstore since November 7, 2022.

Introducing Temu

Temu is an initiative by popular Chinese e-commerce platform Pinduoduo (PDD) (link in Dutch). According to LatePost (link in Chinese), Pinduoduo’s cross-border project was first considered as a new growth strategy in January 2022 and it was officially launched in May 2022. PDD staff were sent to Europe and the US to do market research and learn about local consumer habits and logistics. In June PDD had internal meetings on product categories and outsourcing of logistics. An 80-person supply chain team was established in Guangzhou, but according to LatePost there was no other dedicated cross-border team at that time. 

The Temu Facebook page became operational on August 14 2022, while Temu’s website and app were launched in the US on the 1st of September. The launch was a full month earlier than originally rumoured and the apparent rush showed in the many flaws the app and website still contained.

Since Temu is reported to be emulating Shein, it is no surprise that it decided to go after the US as its first market, also Shein’s largest. If we are to go by Shein’s track record, then Europe, the Middle East and Latin America could be next on the list. Southeast Asia is Shein’s weakest market due to over-saturation of Chinese players there.

Despite the name Temu, an acronym for Team Up, Price Down!, the platform has not rolled out the well-known group-buying model of PDD, instead relying on large discounts, coupons, and traditional marketing through online channels for customer acquisition.

At the end of October 36Kr (link in Chinese) and others reported on Temu’s performance:

  • Average daily GMV (gross merchandise value) had surpassed $1.5 million (slightly below internal expectations).
  • There were 30.000 merchants, selling 300.000-400.000 SKUs in 24 categories. Temu was accelerating its further expansion of merchants and items.
  • Temu planned to reach a total GMV of $300-$500 million by year’s end, $3 billion GMV in 2023 and catch up or overtake Shein in 5 years with an annual GMV of $30 billion (Shein’s GMV in the first half of 2022 was over $16 billion), which is also similar to eBay’s annual GMV.
  • 30-day repurchase rate was 10%, slightly higher than Temu’s competitors.
  • 60.000 daily active buyers.
  • Average order value was $25 (compared to Shein’s $75 in the second quarter of 2022).
  • Owing to heavy discounting and free shipping, average loss per order was estimated to be $30.
  • The number of employees had grown from 200 at the start of September to 700 two months later. LatePost (link in Chinese) reported that PDD had moved some first-level managers from Duoduo Maicai to Temu.

Two weeks after launching, the Temu app briefly topped the Android shopping charts in the US according to app analytics platform (formerly App Annie). On October 18th Temu surpassed Shein and Amazon in the shopping category in the Apple App Store, temporarily ranking first place. On November 9th Temu reached the third place in the overall Apple App Store chart.

Focus on the Supply Chain

In a previous article we described Bytedance’s failures in launching standalone webshops and apps like Fanno, Ifyooou and Dmonstudio. Experts said this was partially caused by a lack of focus on the supply chain. It looks like Pinduoduo’s Temu has a better chance of success. It can build on PDD’s strong supply chain consisting of 11 million suppliers.

Temu poached both experts and merchants from Shein. The initial group of merchants numbered 300-400. While Temu build business relationship with them, it required the merchants to provide goods that:

  • were different from those on Shein (Still, early September LatePost (link in Chinese) reported how Temu showed an item that had a Shein label attached to it.)
  • could not be found on other platforms.
  • were no replicas or counterfeits and unique on the U.S. market (Some counterfeits can still be found on Temu. Merchants try to get away with this by making minor changes to product designs.)

The second group of merchants consisted of sellers of electronics, small appliances, pet products, jewellery, and accessories. While there are now tens of thousands of merchants selling these popular categories on Temu the entry barriers are high: only the 10% of applicants that prove to be competent in supply chain management, product design, R&D and/or pricing are accepted.

Merchant terms

  • Price: Merchants are required to price their items within ranges determined by Temu. Prices of fast-fashion items are comparable to those on Shein, while electronics are cheaper than on eBay and Amazon.
  • Margins: LatePost (link in Chinese) reported that in September, Temu gave merchants of fashion items 1 RMB margin on top of the platform price. Merchants that sell more than a dozen items a day would be given a more prominent position, with Temu promising them hundreds of orders per day if they would further decrease their prices.
  • Costs: As with Shein (described in an earlier article) merchants do not have to pay fees and commissions to Temu (for now?). They only pay shipping costs from their own origin warehouses to Temu’s warehouse in Panyu, Guangzhou. All promotional cost to generate traffic are also financed by Temu. Shanghai Securities News (link in Chinese) has reported that PDD launched an overseas expansion project, investing RMB 10 billion ($1.4 billion) aimed at creating 100 overseas brands and helping 10.000 manufacturers to connect to overseas markets.
  • JIT delivery: Temu recently changed the supply model from merchants keeping stock in its Guangdong warehouse to ‘just-in-time’ (JIT) delivery by merchants in provinces around Guangdong. Participating merchants are asked to deliver customer orders at the warehouse within 24 hours after receiving a daily list of orders between 8:00 AM and 4:00 PM. Merchants must use SF Express (the most expensive but speediest option) for delivery. When failing to deliver in time, Temu will penalize a merchant with the value of the item. If delivery is more than 48 hours late, the penalty will be five times the value of the goods. The JIT system should reduce logistical costs for Temu, while merchants now need to bear the costs of potentially more frequent shipments based on actual customer orders.
  • Safety inventory: Temu requires merchants without flexible supply chain capabilities to keep buffer inventory in case sales exceed expectations.
  • Merchant payment: According to Temu’s cooperation policy, it does not need to pay merchants until an overseas customer has confirmed receipt of their order. Temu can also return unsold goods to merchants, limiting its inventory risks.

How Temu operates

  • Assortment: Competitor Shein originally started with just apparel products, it has recently been adding new product categories like pet products, home decoration, bed linen, and more. Temu, however, immediately kicked off with a wide assortment, much of which mirrors Shein’s. Temu’s assortment is made up of female fashion (60%), electronics (40%), small appliances and pet products. The main menu categories are Jewellery & Accessories, Women’s Clothing, Shoes & Bags, Kids’ Fashion, Pet Supplies, Beauty & Health, Baby Products, Home & Garden, Sports & Outdoors, Underwear & Sleepwear, Electronics, Men’s Clothing, Office Products and the appealingly named Industrial.
  • Price subsidies (e.g., one cent items, a direct copy of Pinduoduo’s domestic marketplace), which Temu finances for the merchants and promotes to attract new users. Discounts include 30% off on a user’s first three orders and 40% discount for sharing a registration link with a friend (both getting the discount). Currently, merchants can make some profit, but these subsidies are not sustainable.
  • Shipping charges: Like Shein, Temu offers free shipping for orders above $49 ($2,99 shipping for smaller orders, compared to $3,99 with Shein) and free returns (see ‘after sales’).
  • Logistics: After Temu’s quality control in its Panyu, Guangzhou warehouse has approved the merchants’ products they can be sold online. Temu has no warehouses in the U.S. Instead, it uses cargo airlines and ships goods from its transhipping warehouse in Zhaoqing, Guangdong to the east and west of the U.S. Domestic companies like USPS pick shipments up at the transhipping depot and deliver them to the consumers, costing on average $3-$5 per package. Compared to posting goods directly from the merchant to the consumer, this transhipping approach has a much lower package loss rate and thereby a lower customer complaint rate. Furthermore, with an average order value (AOV) of $5 per merchant, they would not be able to offer such low prices if they had to ship goods internationally. To make a profit, costs for a merchant would need to be below 15 RMB, and shipping costs could not exceed $1.
  • After Sales: Items are mainly the same unbranded products that you will also find on Pinduoduo. Because the prices are relatively low you shouldn’t expect high quality. Temu promises free returns, although the text on their website states that returns are only free ‘for your first return order for every order’. When returning another item from the same order, $7.99 will be deducted from your refund. In practice, Temu tends to let customers keep those low-priced items and gives a refund or replacement; costs of return shipping would be higher than the value of the item itself.

Profile of the Temu customer:

  • Gender: 55% male, 44% female
  • Age: 18-20 ~17%, 25-34 ~32%, >34 51%
  • Geography: evenly spread across the U.S.


The chart below shows the traffic sources for Temu. Organic traffic concerns people entering the Temu URL directly in their browser or downloading Temu from the app store without using a search engine. The high percentage of organic traffic can be explained by people sharing low priced items ($0.01 or $1.99) in groups and social media and thereby attracting other people to Temu.

When a user signs up for Temu 7 days or longer after seeing an advert on Facebook, Google, YouTube, e-mail or in sponsored content on social media, it is also considered to be organic traffic.

At the end of September, LatePost (link in Chinese) reported the following division for Temu’s advertising spending:

According to Zheshang Securities (as reported by Tech Planet) the average Customer Acquisition Cost (CAC) for cross-border e-commerce was $4.50 in 2013 but has since risen to approximately $40. Customer acquisition costs for Shein in the US were about $35 in the first half of 2022. China Renaissance has even estimated Temu’s CAC to be $75 and calculated it needs to spend $1.4 billion a year to quickly expand its U.S. customer base. Note that Pinduoduo has committed $1Bn to branding, but that is likely not just for the US market nor the annual budget. It has reserved RMB 7 billion for brand promotion in 2023.

The chart below shows Temu’s main acquisition channels.

In October, a Facebook employee told Tech Planet (link in Chinese) that Temu’s budget ‘was increasing almost every day’.

Areas for Improvement

Unlike Shein with its integrated supply chain, Temu is a marketplace, albeit one that is much more managed in nature versus say, an eBay. Therefore, most near-term improvements to profitability or customer experience are going to have to come from more efficient customer acquisition, logistics, and after-sales.

Customer acquisition: While not yet offering the group-buying functionality in Temu – according to Latepost because the target markets are not used to it – Cailian Press recently reported that PDD is planning to add an incentivized referral feature to Temu, giving users a lower price when they share product links through Whatsapp, Messenger or Facebook, in the same vein as WeChat social sharing for the core Pinduoduo app in its early days.

Logistics: The costs of the first part of shipping (see figure above) could be reduced by 2/3rd if Temu can generate more orders and book a whole cargo flight. The costs of the second part are more difficult to bring down as Temu does not have much bargaining power with local U.S. delivery companies but could potentially still decrease by some 30%.

Currently shipping takes 8-9 days on average, which puts Temu at a disadvantage compared to its competitors and should be brought down to 3-7 days. Temu recently launched an express shipping option for orders above $99 and $5 credit when orders arrive late.

If Temu continues to grow rapidly and wants to become a serious player in the U.S. market, it should invest in 6-7 transhipping depots across the U.S. If these depots would have enough stock, delivery to customers in surrounding states would only take 2-4 days. Currently, Chinese cross-border e-commerce companies normally set up an overseas warehouse when their GMV reaches $100 million, which Temu likely has already exceeded. The preferred location for such warehouses is normally the west coast since the logistical infrastructure in Los Angeles is well-developed.

Will Temu succeed?

Compared to Pinduoduo’s domestic business, Temu does not have a partner like Tencent abroad. Tencent’s WeChat has been instrumental in the early success of Pinduoduo’s customer acquisition strategy. Not only did Tencent invest in PDD in 2016, but it also gave it access to its enormous WeChat user base, which was already around 800 million large at the time. What’s more, a large part of PDD’s sales is still generated through WeChat mini programs.

Still, Temu isn’t the first cross-border e-commerce venture in the PDD legacy, as LatePost recently reported (link in Chinese). Like competitor Shein, PDD founder Colin Huang and other PDD managers have been active in selling wedding dresses abroad (, a fast-fashion company second only to Shein in 2017 (Mocan, with brands FlorydayAzazie and Vova) and even an overseas gaming company (Youta). According to LatePost the PDD executives remain good friends with some of their former business partners in these companies. If PDD can and will tap into this cross-border experience is unclear. 

Temu is also facing logistical challenges as reported by LatePost (link in Chinese) Overseas logistical costs are much higher than in China. For Amazon they account for 27% of sales in the U.S., while they only account for 6% of’s in China. The average cost of express delivery in the US is $12, which is why Shein has a minimum order value of $49 for free shipping. Temu is using the same minimum order value.

In the meantime, Temu will not only compete with Shein, Alibaba and other Chinese platforms that are starting to flood western markets, it also competes with, which has an estimated one million active Chinese merchants on its marketplace. While they might be higher priced, some of these merchants’ products ship from Amazon warehouses in the U.S. and can therefore offer faster delivery.

The bullish view is that even if Temu doesn’t make much of a dent against Amazon, it doesn’t really have to. It can greatly expand the tier of e-commerce activity in the customer segments below the Prime-addicted household, and just like Pinduoduo itself showed in China, and Shein in the rest of the world, there are more of these users than we think. Will regulations such as changed logistics or customs rules threaten that business model? Yes, but until then, Temu has its work cut out in terms of lowering its acquisition and fulfilment costs and increasing buying frequency. Will it succeed? Hard to say. Has it been very successful so far, just four months in? Yes, despite reportedly falling behind internal projections, it’s probably not very far behind.

If you liked this article, stay tuned for more information on the China Tech Buzz newsletter. In the meantime, in the next ChinaTalk article, we will have a look at the latest developments in the front end of Temu: its app, website and campaigns.