We’re all addicted to cheap stuff — and Temu knows it

How the new Chinese shopping site came from seemingly nowhere and is changing the way we shop.

The first time I opened the app for Temu, the viral Chinese shopping site, a pop-up greeted me: I could spin a wheel to win $200. The spinner landed on “1 more chance.” I spun again, and this time, I won $200. But wait, there was more — if I checked out in the next 10 minutes, I could net a cool $300. Cold hard cash right into my wallet? Well, no: $300 worth of coupons, which, on Temu, can buy you selected home goods, cutesy electronics, apparel — really, anything you can imagine.

This carnival barker’s pitch is Temu’s opening gambit; it’s how the company hopes to draw you in and keep you coming back. Such promotional offers and games are brazen enough to catch the eye — or turn off a skeptical shopper completely. The loud and disorienting introduction is also your first clue into what Temu offers: a dizzying circus of dirt-cheap things. A pair of wireless over-the-ear headphones for $6.80. An earbud-cleaning set (for getting into the tiny crevices) for just 98 cents. A 14-piece food chopper for $15.49. A set of hair clips in the shape of Danish biscuits for $2.49. It’s virtual aisle after virtual aisle of amusing, offbeat, baffling objects and gag gifts, a Dollar General mixed with Etsy, with a dash of Spencer’s.

A little over a year ago, Temu didn’t exist. It launched in September 2022 but quickly rose to the top of app store charts, thanks in large part to a flurry of ads across social media and not one, but two, pricey Super Bowl ads that touted the company’s discordant tagline: “Shop like a billionaire.” As of May, according to the app-industry analysis site Business of Apps, Temu, which sells in 48 countries, had more than 100 million active users in the US.

Like Amazon, the site sells a seemingly infinite range of products, but where Amazon revolutionized easy shopping, particularly for those customers who have a clear idea of what they’re looking to buy (usually some essential item that’s cheapest on the site or hard to source elsewhere), Temu has refined the art of nudging people to make impulse purchases. It does this by accentuating how affordable it is to indulge your every curiosity online.

Earlier this year, New York Magazine’s John Herrman wondered whether Temu was the future of buying things; it’s more like the inevitable conclusion of a retail race to the bottom for which Amazon drafted the blueprint.

How Temu found its market in the US

With such a diversity of often downright weird stuff on the site, it’s hard to know precisely who the Temu customer is. On a cursory browse, I see five pairs of ankle socks for $2.69 and a pack of adorable miniature poker cards for just 39 cents. A Temu spokesperson told Vox in an email that “every day is like Black Friday on our platform.”

“The thing with cheap stuff is that the barrier to entry is really low,” says Wendy Woloson, a historian of consumer culture at Rutgers University and the author of Crap: A History of Cheap Stuff in America. Temu hands over the cheap goods while feeding our “desire for novelty,” Woloson says. If a product isn’t as good as you hoped, it’s no big deal. “We want to be stimulated by things — and by the act of shopping.”

That explains the company’s slogan, to “shop like a billionaire” — an exhortation to customers to buy anything they want without worrying about the cost, just like the rich. Never mind that the roulette wheel games and the onslaught of affordable, mass-produced items are the opposite of how the wealthy shop. The ultra-wealthy seek out what’s bespoke and scarce, rarities often handpicked by a human personal shopper. What Temu gives us is “what seems like a hyper-personalized variety store,” says Woloson. It’s the illusion that something was picked out just for you, when in fact the products were cheaply mass-produced in the tens of thousands.

And though its tagline evokes billionaires, Temu’s core customer is on a tight budget. The greatest share of its US sales between September 2022 to August 2023 — about 40 percent — came from households making less than $40,000 a year, according to an analysis by market research firm YipitData. Among the big retailers studied, only Walmart, Dollar General, and Family Dollar had a larger bulk of sales from under-$40k households, and Walmart beat out Temu by just a sliver. (By contrast, less than 20 percent of H&M’s sales came from this income group.) Google Trends data shows that searches for Temu are highest in Mississippi, West Virginia, Arkansas, Kentucky, and Alabama, states with some of the highest poverty rates in the country.

In a Deutsche Bank Research survey of US consumers, almost a third said they would shop less at Walmart and Amazon because of Temu. It’s not a direct threat to Dollar General; YipitData shows that average spending at Dollar General remained about the same for customers before and after discovering Temu. On the other hand, Shein spending dipped.

Contacted by Vox, a spokesperson for Temu repeatedly emphasized the affordability of the site for household items as well as recreational goods such as pickleball sets and even musical instruments. “With many households facing higher living costs, Temu is a place where their money goes further,” the spokesperson said in an email.

But bottom-barrel prices on its front page don’t tell the full Temu story. The deep discounts are strategic. Temu’s prices are somewhat higher than big discount chains like Dollar General, says Rui Ma, a tech analyst at Tech Buzz China, and they’re not always cheaper than Amazon. “They’ll do those really incredibly crazy cheap things,” she says, then make some of the money back on other items where “their prices are actually comparable, or sometimes even higher than Amazon.” One waterless aromatherapy diffuser on Temu retailed at the time of publication at $79.98 $67.98, more expensive than many of the top hits on Amazon. The discounts, for now, are to draw in traffic — to intrigue customers so they return and never stop browsing for the next deal.

If you find yourself spending hours endlessly scrolling on Temu, that’s by design. Temu places an extra emphasis on serving up personalized recommendations based on an opaque mix of user behavior — you might say that it’s a little overzealous about it. Early in my Temu forays, I clicked on a pair of fuzzy cow slippers to wear at home. Next thing I knew, I was being served everything bovine: a cow-print thermos, cow jibbitz (the little accessories you can attach to Crocs), cow-print nails, and cow-themed duvet sets.

This puzzling variety is the point. “They try to go after things that are not being sold currently on Amazon,” says Ma.

The Chinese retailer also immediately suggested some distinctly American apparel to me, including almost certainly unofficial merch such as Morgan Wallen tees, a sweatshirt with “T.S. 1989” printed on it, and several pieces of New York-specific clothing, like a round-neck sweatshirt that reads “BROOKLYN” and in smaller letters “Union Made” and “Raw Denim” (claims that seem dubious) and candles emblazoned with clever slogans for the twee millennial in your life. Together, it was an entertaining potpourri of items that attempted to elicit a tickled reaction: Wow, I didn’t know I needed that.

In truth, I probably don’t. But a lot of modern e-commerce is oriented around creating this siren call. Temu’s hypnotic assemblage of non-essential stuff in some ways might remind you of Wish, the other huge, gamified, algorithm-driven marketplace of discounted goods that was once one of the top downloaded apps, too. Temu stands apart as the go-to online shopping destination for cash-strapped Americans who want cheap, unique products that may not even be found on Amazon. And it has a deep-pocketed benefactor determined to see it succeed.

Just how successful is Temu?

By June 2023, Temu had a monthly gross merchandise volume (GMV) — the total value of the goods it sells — of $1 billion, according to Business of Apps. That pales in comparison to Amazon’s estimated annual GMV of about $477 billion, but it’s head-spinning for a company that hadn’t even reached its first birthday. Shein, which launched in 2008, had an annual revenue of about $610 million in 2016, based on Business of Apps’ data; it didn’t really explode in popularity until the pandemic.

How could a fledgling retailer grow so quickly? Because it can stomach selling at extremely low prices, thanks to its parent company PDD Holdings, a juggernaut of Chinese e-commerce that also owns Pinduoduo, a massively popular Chinese online shopping site. PDD is listed on the Nasdaq, and its market cap is roughly the same as Verizon’s. “This is just the international expansion of a $155 billion company,” says Ma. Among the various fiefdoms of internet retail in China, where online shopping is far bigger than it is in the US, PDD is currently the third-largest company, but it’s on track to outgrow its competitors soon, largely due to Temu’s foreign push, according to Morgan Stanley.

For PDD, creating a billion-dollar business is simple: Just have many billions to start with and be willing to spend it.

According to Wired, Temu loses about $30 for every order placed. When reached for comment, Temu said that figure was outdated but declined to provide a current estimate. Chinese news site 36kr suggests the company currently loses about 30 to 35 percent on every US order. It only loses that much, instead of much more, thanks to how aggressively it pressures to cut prices the thousands of third-party sellers it works with.

Unlike Amazon, which sells a large chunk of its goods directly, Temu is entirely a third-party marketplace: an online platform that essentially matches sellers with consumer demand. The attraction for sellers is that Temu provides all the know-how and marketing necessary to get their products in front of customers. It’s also much easier to start selling through Temu than Amazon, which has stricter requirements for sellers to join its marketplace. Yet sellers who work with Temu also report how cutthroat it is about slashing prices — to the point of being unprofitable for sellers.

According to Temu, the reason it can offer such low prices is that its supply chain is streamlined: It argues that it has cut out all the middlemen and can offer wholesale prices. “Our goal is to democratize the global supply chain, ensuring equal access to the world’s most cost-effective products for everyone,” a Temu spokesperson told Vox.

Here’s the irony about Temu. Decades ago, it was Amazon that approached Chinese manufacturers to convince them to sell on its third-party marketplace, which launched in 2000. Third-party sellers are now responsible for over 60 percent of sales on Amazon, and almost half of these sellers are based in China. “Amazon taught them how to market in the States because Amazon marketplace was doing the marketing for them,” says John Deighton, a professor emeritus at Harvard Business School with expertise in consumer behavior and marketing. Now, he says, Chinese companies, including Temu, are taking direct control, cutting Amazon from the supply chain and trimming prices.

Temu’s use of third-party sellers has elicited questions about the ethics of its supply chain. In June, the US Select Committee on the Chinese Communist Party released an interim report alleging that there was an “extremely high risk” that Temu’s supply chain uses forced Uyghur labor — prohibited in the US under the Uyghur Forced Labor Prevention Act.

In a statement the company sent Vox, Temu said that it has always “prioritized following the rules and regulations,” and that, regarding compliance with US law on forced labor, its “current standards and practices are no different from those of major U.S. e-commerce platforms such as Amazon, eBay and Etsy.

“The allegations in this regard,” the company told Vox, “are completely ungrounded.” It did not address specific questions about whether it conducted audits of sellers to ensure no forced labor was being used or whether it prohibited sellers from the Xinjiang region, where numerous governments and rights groups say China is obscuring forced labor camps.

The other big factor driving Temu’s success at selling cheaply is what sets it apart most from Amazon: slow shipping. A Temu order can take weeks to reach a US customer, arriving at a snail’s pace for anyone accustomed to Amazon’s shipping speeds. But that slow shipping lets Temu avoid import taxes that could otherwise be prohibitive, and would likely be passed on to the consumer. Each customer’s order is shipped out directly from the factory to the customer, so sellers don’t have to keep bulk container loads of inventory stored in US fulfillment centers for quicker delivery. With no need for large shipments, sellers avoid current US law requiring duty on shipments over $800. US lawmakers have also argued that Temu’s use of this exemption allows it to effectively evade customs scrutiny. (In response to specific questions about the customs allegations, the company re-sent its previous statement.)

Not keeping inventory on US shores is a boon for Temu, for now. “But if they’re ever going to compete with Amazon on a large scale — and Amazon is much, much larger at the moment — they’re going to have to do that,” says Deighton.

It’s not the games, it’s the variety (and the algorithm)

A lot of the initial fanfare about Temu focused on its gamified shopping experience. There are wheels to spin, like the one I came across, and “lucky draw” contests that give away gifts; there are even fishing and farming minigames. While there are people who claim to have earned thousands of dollars worth of rewards by playing Temu’s games, it’s unclear whether these time-consuming features have significantly boosted sales. “I think it’s not paying off,” says Ma. Already, she says, Temu has scaled back on some of the games it used to offer on the app.

Temu doesn’t really need slot machines and Animal Crossing-style add-ons. It has made the experience of shopping into a kind of treasure hunt. You dig up your heart’s desire and find a deal. The shopping is the game.

That is what has attracted American consumers — our hunger to keep buying cheap stuff we probably don’t need.

It’s what drives so much of our modern economy, and certainly so much of online shopping. E-commerce companies like Temu offer an approximation of abundance while obscuring what it costs to create something so cheap — the exploited laborers, the environmental pollution — as if the objects appear out of thin air.

Whether Temu’s popularity will last is up in the air. Wish, the online direct-from-China retailer similar to Temu, had its time in the limelight, too, but was soon dragged down by complaints of defective products, misleading pictures, counterfeit items, and more. It’s currently trying to repair that reputation, but its current single-digit stock price is a sliver of what it was during its heyday in early 2021, when it surpassed $900.

Temu’s success or failure will depend on a lot of factors: its ability to avoid Wish’s mistakes, how long PDD is willing to subsidize the cost of business, whether Temu focuses too much on short-term growth, and how aggressively Temu is willing to make customers happy.

The basic model of selling more of the cheap goods manufactured in China directly to American consumers, though, is one that promises to endure. The spinners, coupons, and bootleg Taylor Swift gear might have our attention now, only to be abandoned in another year, when the next shiny carnival of optimized bargain-bin prices rolls into town.

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By: Whizy Kim
Title: We’re all addicted to cheap stuff — and Temu knows it
Sourced From: www.vox.com/money/23992696/temu-discount-wish-amazon-shein-chinese-online-shopping
Published Date: Thu, 14 Dec 2023 12:00:00 +0000

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