Temu, a shopping platform that promises customers a billionaire-like shopping experience at discounted prices, has quickly gained popularity since its launch in late 2022. The app became the most downloaded free app in the US in 2023 and by December of the same year, it was the second-most visited commerce site globally, behind only Amazon.
Despite its rapid success, Temu's exponential growth has sparked concerns within the business community. This article explores the background of the company, its impressive growth, the issues surrounding its business model, and the potential consequences of its expansion. In just one year after its launch, Temu's sales surpassed $5 billion, highlighting its significant impact on the retail industry.
What is Temu and why is it so cheap?
Temu’s affordability can be largely attributed to its business model. The site employs vendors who ship directly from China to customers all over the world, eliminating the need for middlemen who take profits and therefore drive up costs that are passed on to consumers.
China is notorious for its low manufacturing costs in comparison to Europe. By essentially buying from Chinese vendors more or less directly, European customers can access far lower prices than they’re used to.
Temu’s business model works because it lures in so many customers with its low prices. This means that even though its profit margins are slimmer than those of domestic retailers, its sales numbers are high enough to still make it money.
It’s worth noting that UK customers choosing to shop with Temu will have to wait a while for goods to be delivered. The free “standard shipping” takes six to 14 business days, while the £9 “express shipping” option can still take up to eight days.
The future of Temu
There is no doubt that Temu’s rapid expansion makes it a successful example of a Chinese brand “going global”. Nevertheless, its focus on bargain basement pricing could be a barrier to success in the long run. The cheap products might tempt people in, but if the quality isn’t there, they won’t return. Indeed, research by Goldman Sachs suggests that Temu’s retention rate is under 30% – Amazon Prime’s, in comparison, is over 90%. Therefore, Temu may have to shift its strategy in the long term if it wants to be a permanent fixture in the Western market.
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