Temu “It’s like Amazon on steroids”: how the Chinese giant shaking up the online shopping market works

As soon as you enter Temu, a waterfall of all kinds of products starts filling the screen. And almost everything comes with discount labels and very positive reviews.

This seems to be the ideal platform for those looking to buy cheap amid increased inflation due to the pandemic.

And do some comparisons with similar sites like Amazon or Mercado Libre to entice you to buy on Temu.

this is a “Amazon on steroids”Business expert Neil Saunders tells the BBC.

But why is everything so cheap? Who is behind Teemu and what is his strategy?

There are several keys that explain why this platform that emerged in China has been able to attract millions of users so quickly in 14 countries, including Chile, Colombia and Mexico, And an upcoming launch is planned in Brazil.

And this is not a controversy-free forum.

Politicians in several Western countries have begun to put it under scrutiny, alleging that it may be selling products made with forced labor in China, something the company says is “strictly prohibited.”

Temu is owned by a Chinese giant PDD Holdings“A Chinese e-commerce giant”, according to Shawn Rein, founder of China Market Research Group.

“Everyone in China buys products on Pinduoduo (a PDD Holdings brand), from speakers to T-shirts and socks,” he tells the BBC.

The company disputes its rival Alibaba’s lead as the most valuable Chinese company listed on the US stock exchange.

Its current value is just below 150,000 million US dollars,

According to Rin, the company has become a great source of pride and patriotism for the Chinese.

“They are proud that Chinese companies can defeat American e-commerce dragons like Amazon,” says Ren from Shanghai.

With the dominance of the Chinese consumer market, PDD Holdings expands overseas with TEMUUsing the same model that had guaranteed its success in its country of origin.

almost all their products These are made in Chinese factories,

When looking at the list of products sold on Temu, buyers will notice that most of the items There is no brand logo printed on themOr if they have, it’s not something that is well known.

And this is no coincidence, because this Chinese platform is using Direct sales strategy from manufacturing factory to consumer,

On the other hand, other platforms offer well-known brands (although many originate from the same Asian factories).

“(At Temu) they understand that in this time of inflation and a turbulent economy, consumers are looking to buy cheaper products,” explains analyst Neil Saunders.

He added, “And this platform is allowing companies to directly reach consumers around the world by selling their products at one-tenth of normal prices.”

“Consumers who often want to buy expensive T-shirts They have to pay 50% premium If there is any logo on it.

But experts warn that, logically, TEMU products They are not of the best quality or durabilityDespite the good reviews that appear on the platform.

Another factor that makes products made in Asian factories more expensive is sales through retail stores.

But with online commerce, manufacturers can Get rid of the extra costs involved in selling in physical stores or on already established platforms In the west.

“They don’t have to sell through Walmart, Marks & Spencer (UK) or Amazon. They can go straight from the factories to the consumer, and that’s why their prices can be so affordable,” says Rein.

This is a strategy that is not specific to Temu, as it is also the reason for the greater penetration of platforms such as fast fashion stores in the West. she in,

teemu and sheen almost sent together 600,000 packages per day to USAAccording to the June 2023 report of the US Congress, this country is one of its main markets.

And with its entry into countries in Latin America or Europe, this platform is growing like few businesses in the world.

Like other online selling platforms, Temu collects massive amounts of user behavior data,

But it does something different from sites like Amazon.

“It collects data on consumer trends, most searched and most clicked products, which they distribute to different manufacturers,” Ines Durand, e-commerce expert at SimilarWeb, tells the BBC.

“With this, manufacturers They make only small quantities of products at first to test markets.“, Add.

And they also avoid the cost of storing a large inventory of supplier products.

“Sometimes websites use images generated by artificial intelligence to stay updated with the latest trends. Therefore it is possible that the products you ordered do not exist yetDurand says.

Amazon also collects consumption data, which is very valuable, but is He sells them to traders.

Many consumers will find Teemu offering free or discounted shipping as another incentive. The company can afford it Taking advantage of the import regulations of some countries.

For example, in the United States, regulations state that imports are limited to a certain amount in dollars. duty freeWhich avoids these costs for Temu.

“If you’re shipping in bulk, like traditional clothing or electronics manufacturers, you’ll have to pay hefty fees,” explains Rein.

Durand also points to the fact that shipments are usually made by air, which not only speeds up transportation from Asia to Western countries, but Avoid local storage costs In those countries.

“They don’t need to go to warehouses. They go straight to the consumer’s mailbox,” says SimilarWeb expert.

It’s like a duty-free airport store.

To establish itself in big markets like the United States, Teemu has invested huge amounts of money in advertising.

The previous Super Bowl final, the most watched event in America with a record of 123 million viewers, Teemu paid for six 30-second commercials, each of which cost an average of $7 million.

“That’s a lot of money for a very small ad,” says Saunders.

He added, “But it got seen by a huge number of people and we know that after that promotion, Teemu’s downloads skyrocketed.”

Data from SimilarWeb shows that individual visits to the platform worldwide increased by almost a quarter on Super Bowl Day compared to the previous Sunday, with 8.2 million people browsing the website and app.

Over the same period, visitors to Amazon and eBay declined by 5% and 2%, respectively.

“They also spent a lot of money,” he said micro marketingGetting influencers to endorse products and suggest buying things on platforms through social networks like TikTok and YouTube,” Saunders explains.

these influential people According to SimilarWeb’s Ines Durand, they typically have less than 10,000 followers. “Micro-influencers have significant communities, so their approval translates into support for these products,” he explains.

Business experts may be nervous about a model like Teemu. But this is actually something that its parent company in China has proven.

“Temu’s strategy, during the next 2 or 3 yearsOnly involved in increasing the notoriety of your brand And its market share. They don’t really worry about the benefits that can be achieved over 3 to 5 years,” believes Neil Saunders.

“This is exactly what happened to Pinduoduo when it launched in China. It was not profitable. They were making incredibly cheap offers to gain market share.

“And eventually people started buying more expensive products.”

TEMU’s development has been so dazzling that it has attracted the attention of legislators and politicians in Western countries. Their way of doing business is being put under the microscope.

This has come to light in an investigation by the US government. There is “extremely high risk” Products may have been sold on Temu manufactured using forced labor,

Lawmakers from that country have argued that Temu should be banned under the Uyghur Forced Labor Prevention Act, which President Joe Biden signed into law in 2021 to protect the Uyghur ethnic minority.

Last year, Alicia Kearns, chair of the British Parliament’s Foreign Affairs Committee, told the BBC that she would push for greater scrutiny of online marketplaces to ensure “consumers do not unwittingly contribute to the Uyghur genocide.”

Temu says that “strictly prohibited” use of forced laborprisoners or children by all its traders.

The Chinese company told the BBC that anyone doing business with it “must comply with all regulatory standards and requirements.”

A spokesperson said, “Our existing standards and practices are no different from other large e-commerce platforms that consumers trust and the allegations in this regard are completely unfounded.”

In FranceOn March 14, a fashion bill was passed targeting retail giants like Teemu and Shein, which lawmakers say harms the environment and economy and encourages impulse buyers.

It bans advertising by some ultra-fast fashion companies and imposes an annual increase of up to 10 euros per item of clothing until 2030.

Both Teemu and Sheen separately told the BBC that their demand-driven business model reduces waste compared to traditional business models.

Teemu, for its part, points out that it is not a fast fashion company, as it does not manufacture the products it sells.

And although it has not yet entered Brazil, a campaign is currently being run in that country by Brazilian retailers demanding tax parity with Asian platforms like Shein.

All of these challenges have the potential to test the tremendous growth TEMU is achieving in the West.

* With reporting from BBC News and BBC News Brazil business and technology journalist Sam Gruet.

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