This is a follow-up article about Temu, the cross-border e-commerce platform of China’s 3rd biggest e-commerce company Pinduoduo. If you are not yet familiar with Temu, we suggest checking out our first and second articles and the results and price comparison of our first test order. There is also a series of videos with background information on Temu from an interview with Bloomberg.
In this first part of the update, we will look at some key figures and events surrounding Temu’s growth. In part 2, we will take a closer look at the Temu model for cross-border e-commerce. A longer version of the two parts of this article, including proprietary information from the Six Degrees Intelligence database, appeared on TechBuzz China Insider on June 23rd.
Since it launched in the U.S. in September, Temu has taken the internet by storm. Marketplace Pulse recently reported [1] that either Temu or its fellow Chinese webshop Shein was the number one downloaded app in half of the fifty largest economies in the world. Temu was the most downloaded app in all countries it had formally launched in, driven by an aggressive promotional campaign on social media.
The early months
After launching in the U.S. in September 2022, Temu has made remarkably strong and fast progress. In the first month after its launch, Temu spent RMB 1 billion (~$140 million) on marketing expenses. [2] According to data analysis firm Apptopia, Temu has also paid for more than 900 app store search terms to get to the top of listings. [4] The investments paid off: in 2 months, it surpassed the popular Chinese webshop Shein in the shopping app charts. Temu would stay at the top of the app charts until OpenAI launched its mobile ChatGPT app in mid-May. [3]
According to Sensor Tower, Temu had 41 million unique visitors between November and December 2022. On this metric, it had also overtaken Shein, which had 36.6 million in the US in the same period. [5] That’s within 4 months after Temu’s launch …
According to Sensor Tower, in January 2023, Temu had been downloaded 20 million times worldwide and had 10 million transacting customers, 90% of which came from the US. [6]
In the third week of January, Temu’s GMV exceeded $50 million, and the monthly GMV was approaching $200 million, which was roughly the same as the 2022 GMV since Temu’s launch in September. This positive progress made Temu raise its GMV target for 2023 from $3 billion to $5 billion. Meanwhile, the marketing budget for September 2023 – August 2023 was nearly doubled from the original RMB 7 billion (~$1 billion). [6]
By the end of 2022, Temu had started rolling out gamification in its app. By January, it was continuously adding new games.
By February, the Temu games had been promoted to the app’s home screen.
The approach of investing heavily in discounts and subsidies to attract new users and then have these users recruit friends and family through gamification is basically copying the successful model Pinduoduo used when it launched some 7 years ago. Games incentivize users to ask friends and family to install the app in order to win discounts or even free products for themselves.
When this gamification started, a user could get $20 and $80 in coupons when recruiting 7 new users, a threshold that was later lowered to 5 users. Chinese users in the U.S. could even get $20 paid directly to their WeChat account. On Facebook and Instagram, users would exchange invitation codes to receive cash. This is a smart strategy to grow your user base at relatively low acquisition costs. In the U.S., the normal customer acquisition cost for webshops is $30-$35. Temu gets people to download the app for $5 and spends a total of $10-$25 to complete a first order. [7]
In January, Sensor Tower reported that Temu had 16 million Monthly Active Users (MAU), and the app’s 7-day retention rate had increased from 14% in November to 22%. [8] Meanwhile, the average order value had increased from $20-$25 in November to $35. [7]
According to data from Consumer Edge, Temu was performing much better in customer retention than Wish, AliExpress and Shein.
The Super Bowl
In the first five months since its launch, Temu achieved $500 million GMV, and in January alone, GMV was about $200 million. [9] While most Chinese merchants were only selling a few orders per day, by this time, several Chinese merchants claimed to be selling 20,000 to 30,000 orders a day through Temu. [10]
By early February, Temu had 5 million Daily Active Users, according to Sensor Tower. [8] On the 12th of February, during the Super Bowl broadcast, Temu broke two records when its ‘Shopping like a billionaire’ advert aired during the first and third quarter of the game. It became the youngest brand to ever advertise during the Super Bowl (Temu had only been 5.5 months old) and paid the highest fee per second ever (allegedly $14 million for two 30-second ads). [8]
With its choice for one of the most viewed U.S. TV broadcasts, Temu took a page from the history of its sister app Pinduoduo, which previously advertised during China’s New Year’s Gala, the country’s most-watched TV program, to recruit new users.
Accompanying the Super Bowl commercials was a game called ‘Shake & Cheer’, in which $10 million was given away. While it followed games that have been quite common in China during Chinese New Year’s Gala broadcasts, it must have seemed strange and unnecessarily complicated to U.S. consumers.
Prior to the Super Bowl, Temu had advised merchants to increase their stock at the Temu warehouse. [8]
This proved to have been good advice. After the Super Bowl commercials, app downloads surged by 45% and Daily Active Users (DAU) by 20%. The number of packages shipped to the U.S. surpassed those of Shein, and the number of orders overwhelmed Temu’s Guangzhou warehouse (more on that later). According to Intelligence Insider, Temu saw more than 70 million unique U.S. visitors in February. [12]
By this time, the Temu staff had been told to shift focus from customer acquisition to increasing the spend of consumers, which was $25 per order at the time. [9/13]
Expansion into new markets
A few days prior to the Super Bowl, Temu had launched in its second market, Canada, where many people also watch the game.
By early March, the app had been downloaded 24 million times and had 11 million active buyers, up 46% from December. [9] In March, when Temu had 13.4 million MAU, surpassing U.S. retailer Target [14], it launched its webshop in two new English-speaking countries, Australia and New Zealand, on the 13th. On that same day, news broke that Temu would enter the UK by March 25th. It would actually take a month longer, possibly because of warehouse issues back in China.
The rapid increase of orders caused by the Super Bowl had even caught Temu by surprise. When it found its warehouse capacity overwhelmed, it issued a notice to merchants saying the warehouse needed to be ‘upgraded’ and receipt of goods, the launch of new products, and first-order approvals would all be suspended. Temu also temporarily closed JIT ((Just in Time) goods receiving mode. [15]
In April, Temu’s U.S. GMV was approaching $400 million. [16] According to Sensor Tower, the app had been downloaded 33 million times by the end of that month. Meanwhile, the Temu team had grown to about 1,500 people strong. [17]
At the end of April, Temu launched in several European countries: the U.K., Italy, Spain, France, Germany and The Netherlands. So far, it only offers an English website in these countries, something that might hamper its growth. At the time of writing, Temu has added more European countries and is available in 16 markets. Temu has also said to be preparing launches in Africa and Latin America. [18]
Like Shein, Temu set up an office in Dublin, Ireland, serving as the legal registration for PDD Holding’s overseas business while the headquarter remains in Shanghai. Like Meta and Google, it can enjoy a friendly 12.5% corporate tax rate in Ireland. [12] An organisational change in which PDD Holding’s CEO Chen Lei became responsible for Temu also points towards the priority that Temu received within the organisation.
When Temu first launched in the U.S. in September last year, it initially tried to be an ‘overseas Taobao’, focussing on women’s clothing. But the acquisition costs for this category proved very high, and the production capacity was limited since a large portion of it had already been claimed by Shein. Shein also had many loyal users and a 90-day repurchase rate of 60%. [17]
Comparing the homepage of Temu when it launched to its current homepage shows how Temu has abandoned the idea of becoming a ‘Shein clone’. Its social media ads have also shifted away from largely apparel-related content to (cute) household items. Temu’s product category structure now largely resembles that of Amazon.
Temu U.S. homepage September 2022
Temu U.S. homepage June 2023
Temu shifted its focus to standardized household and personal care products and increased its average order value to $40. The large discounts and gamification resulted in a conversion rate of 10%, far higher than the industry average of 2%. Meanwhile, promotional leaflets in shipping packages increased the repurchase rate to 50%. [17]
Ambitious targets
PDD Holding recently announced its 2023 Q1 results. Marketing costs had risen by 45% to RMB 16.26 billion (~$2.37 billion). Considering how Temu was not yet operational in the first quarter of 2022, this clearly shows the impact of Temu on PDD Holding’s spending.
In the U.S., Temu has shifted its goal three times since launching in September, from user recruitment (a normal launching strategy) to increasing average order value (by convincing customers to buy more items) to increasing the conversion rate. [7]
Temu is aiming to reach $30 billion GMV within 5 years, which is comparable to Shein’s GMV in 2022. It hopes Americans will place no less than 30 orders per year, with an average value of $50 each. It still has a long way to go. While the average order value is said to be $25, [21] Temu is losing, on average, $30 per U.S. order because of heavy subsidizing of logistics, pricing, etc. The company plans to spend $1.4 billion on advertising this year and $4.3 billion in 2024. [21]
Temu has been reported to expect an estimated RMB 5 billion ($0.72 billion) loss in its first year of operation (September 2022 – August 2023). [22] Credit Suisse calculated that Temu could sell $3.6 billion at a $1.7 billion loss in 2023. [13]
Challenges ahead
Not everybody is happy with Temu. There have been complaints about delivery times, product quality and customer service.
On April 14th, The US-China Economic and Security Review Commission released a report on ‘data risks, sourcing violations and trade loopholes’ related to Shein and Temu. The document largely consists of a collection of (sometimes dubious) facts from various media reports on both companies. It identified issues with labour, raw material procurement, the impact of chemical substances in products on human health, the impact of product production on the environment, product design infringement, and import tax avoidance.
And then there’s the competition…
In December, Shein filed a lawsuit against Temu, claiming it was using fake social media accounts to convince people to download their app and had asked influencers to badmouth Shein. [23] As was to be expected, Shein and Temu are not the best of friends. In May 2022, Pinduoduo set up an office in Panyua, Guangdong, across from Shein, to poach Shein staff and suppliers to come work for Temu. Suppliers were offered twice the normal commissions, and staff three times their current wages. The poached Shein staff proved a mismatch, though. Most of them were lower-level staff that couldn’t share strategic insights. [17]
Meanwhile, an old player is polishing up. Competitor AliExpress never really lived up to its potential because Alibaba has more urgent priorities in the domestic market. But Alibaba reorganised its international e-commerce business in 2022, and AliExpress has been aggressively expanding its product offerings and improving customer service. In March, Alibaba announced that it would split up into six different companies, international e-commerce being one. This should release AliExpress from being a lower-priority business unit. [24]
What’s more, AliExpress actually started copying Temu’s successful supply chain model. But more on that in part 2 of this update. Stay tuned!
Sources:
[1] Marketplace Pulse, 2023-05-24, [2] 白鲸出海, 2023-05-17, [3] 白鲸出海, 2023-05-19, [4] Pingwest, 2023-05-27, [5] Tech Planet, 2023-05-17, [6] 暗涌Waves, 2023-02-22, [7] LatePost, 2023-02-20, [8] 36Kr, 2023-02-14, [9] Bloomberg, 2023-03-05, [10] 36Kr, 2023-02-10, [12] Pingwest, 2023-05-04, [13] Pingwest, 2023-03-06, [14] 跨通社, 2023-03-13, [15] 白鲸出海, 2023-03-17, [16] Momentum Works, 2023-05-30, [17] 白鲸出海, 2023-04-07, [18] Jiemian, 2023-03-13, [21] Wired, 2023-05-26, [22] Momentum Works, 2023, [23] Pingwest, 2023-03-10, [24] KrAsia, 2023-04-13
