This is the latest installment of the Amazon Briefing, a weekly Modern Retail+ column about the ever-changing Amazon ecosystem. More from the series →
After two years of rapid global expansion, shopping app Temu has emerged as a genuine competitor to the biggest retailers in the U.S., including Amazon. But its growth is starting to look a lot more fraught, raising questions about whether it’s a dominant enough force to take on the Everything Store.
Earlier this week, Temu’s parent company PDD Holdings reported earnings that disappointed investors. Although the e-commerce upstart is still growing at a rapid clip — revenue climbed 86% in the second quarter to more than $13 billion — those numbers still fell short of analyst expectations, sending its shares plummeting and erasing $55 billion of market value, per Bloomberg. Although PDD’s recent pressures are tied to a broader economic slowdown in China, company executives hinted that its Temu brand, which has won a huge fanbase in the U.S. and other Western markets, is facing headwinds, as well.
PDD has been tight-lipped about specific sales figures at Temu, but Chen Lei, PDD’s co-chief executive, said on an earnings call with analysts that its global business unit, which includes Temu, faces “significant uncertainties from intense competition and evolving external environment.” He added that “high revenue growth is not sustainable and a downward trend in profitability inevitable.”
Temu has soared in popularity in the U.S. thanks to its low-priced items, such as $5.25 baseball caps and $7.49 dupes of Apple AirPods. Temu has also made a name for itself with its splashy “Shop Like a Billionaire” Super Bowl ad and game-like approach to e-commerce. In the process, Temu has embarked on a costly marketing blitz that has involved outbidding retailers on advertising and putting pressure on them to compete.
Temu has only been around for a couple of years, having launched in the U.S. in September 2022. But in that short time, Temu has made it clear it wants to become a retail juggernaut that rivals the likes of Amazon. Just last month, Temu ran a competing Prime Day sale dubbed “Temu Week.” Yet, between a cloudy earnings outlook, heightened regulatory scrutiny and hefty legal fees, Temu’s path ahead is looking more complicated.
Dampening the company’s expansion plans are calls for increased regulatory oversight around Temu’s shipping methods. The shopping app’s overnight success is in part powered by a trade rule known as the de minimis exemption, which lets companies like Temu bypass duties and taxes for imports below $800 that ship from China to U.S. consumers. Last year, a House committee report on fast fashion found that Temu and Shein are responsible for 30% of packages shipped to the U.S. under the de minimis provision.
But U.S. legislators, lobbyists and even companies are pushing for changes that would tighten the rules around de minimis imports. Meanwhile, the European Union is working to impose customs dudty on cheap goods bought bought. Change has already gone into effect in South Africa, where the country has imposed higher tariffs on all imported apparel, pushing some consumers to abandon apps like Shein and Temu, per South China Morning Post.
Amazon has seized on Temu’s direct shipping model, with The Information reporting in June that it plans to open a discount store on its website that would ship products from warehouses in China directly to consumers.
If the de minimis exemption were to be overhauled, making Temu’s operations more expensive, that would greatly dampen the company’s value proposition that has won it such a fanbase among inflation-pinched shoppers in the U.S., according to eMarketer retail analyst Sky Canaves.
“There’s definitely momentum behind the rollback of tariff exemptions for retailers such as Temu and Shein that are bringing very low-cost goods into markets around the world,” said Canaves. Such changes would “raise prices quite substantially for consumers, and that’s not necessarily why people turn to Temu,” she added. To pivot, Temu could offer incentives, coupons or promotions to keep shoppers buying from them, but that would also eat into their margins, said Canaves.
Indeed, Temu has sought to protect itself from such regulatory enforcement by taking a page from one of its biggest rivals: Amazon. Since March, Temu has been onboarding China-based sellers with warehouses in the U.S., according to Marketplace Pulse. “The shift to sellers with local warehouses has reduced its reliance on the de minimus loophole, improved shipping speed and allowed it to sell more sizes and weights of products,” according to Juozas Kaziukėnas, founder of Marketplace Pulse.
For evidence of how crucial the U.S. e-commerce market is to Temu’s growth, look no further than its legal squabbles with rival fast-fashion retailer Shein. As Modern Retail previously reported, the two retailers have been engaged in a back-and-forth legal battle as Temu and Shein fight for share in the U.S. market. They’ve made wild accusations in the process. Last year, for example, Temu sued Shein over copyright concerns and allegations that it uses “mafia-style intimidation of suppliers” to bully them into exclusivity agreements.
Their conflict reached a fever pitch earlier this month when Shein sued Temu for copyright infringement, alleging its rival stole its designs. Shein’s 80-page complaint also alleges that Temu loses “an average of $30” on every sale and uses trademark infringement to make up for the losses. In an email statement to The Verge, a Temu spokesperson said, “The audacity is unbelievable.”
Whether Shein’s complaints are believable or not, both it and Temu are spending a fortune to one-up each other, a strategy that may prove too aggressive to be sustainable, according to e-commerce lawyer Robert Freund.
“This kind of litigation is extremely expensive, and especially the longer these cases proceed, the more the bills increase,” said Freund. “For a company that’s accused of not turning a profit and losing money, to be willing to dedicate hundreds of thousands, if not potentially millions of dollars, towards legal expenses is a bit surprising.”
To be sure, spending big bucks has been a crucial component of Temu’s meteoric rise to challenge Amazon. Temu’s ad spend jumped 1,000% year-over-year for the period from January to November 2023, Modern Retail previously reported.
Despite Temu’s recent rough patch, the company remains a powerful player in the e-commerce landscape, according to Jason Goldberg, chief commerce strategy officer at Publicis Groupe. The industry is littered with buzzworthy upstarts that came and went, but Temu is proving to be far more resilient with consumers compared to the likes of Wish.
A March 2024 report from Earnest Analytics found that more than 28% of Temu customers bought something from the platform 16 months after their first order, giving Temu nearly double Walmart and Target’s retention in the same period but around half of Amazon’s. “Temu’s gamified shopping and heavy marketing set it apart from lower retention discounters Wish and AliExpress, and niche marketplace Etsy,” the report said. Survey data from Probolsky Research also found that shoppers generally think Temu is cheaper, but Amazon is more convenient.
“We’re not seeing the same crazy growth that we did in their first year,” said Goldberg. “But they’re still selling a lot of stuff to Americans. They should be very scary to any U.S. retailer.”
Amazon news to know
- Amazon is preparing to launch a revamped Alexa that costs money, according to documents seen by the Washington Post.
- The Amazon aggregator shakeout continues. Bloomberg reports that Blackstone has initiated an auction for the German roll-up company Seller X.
- Amazon opened four new Fresh stores this week in California, Illinois, New Jersey and Pennsylvania.
What we’ve covered
- Walmart beefs up its third-party marketplace to further take on Amazon
- BigCommerce is adding more AI tools to its platform with the help of Google
- Duolingo wants to make its green owl mascot ‘as famous as Pikachu’ with its first pop-up store
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