Many American shoppers will have heard of Temu by this point. That's saying something for a company that launched less than a year ago, in September 2022. Known for its orange bags and boxes containing hauls of low-priced online goods shipped for free, the company has made a big splash in a short time. Influencers have picked up on the draw of posting "Temu haul" videos of their shopping sprees, and consumers more generally have turned to the platform as a sort of online dollar store - described as "If Amazon and Dollar Tree had a baby" by one shopper on Twitter.
All of this activity and attention has enabled the company to expand rather quickly. Its app already has over 50 million downloads on Google Play, and it's had a long run as the No. 1 most-downloaded shopping app in the U.S. across app stores.
Temu began its expansion in February 2023, the same month it aired a Super Bowl ad encouraging shoppers to use the platform to "Shop Like a Billionaire." Beginning with that February expansion into Canada, Temu has since become available in Australia, New Zealand, and several European countries, including the U.K., Germany, the Netherlands, France, Italy, Spain, Portugal, Poland, Belgium, Austria, and Switzerland. It also recently became available in Mexico.
Sky Canaves, a senior analyst at Insider Intelligence, told Modern Retail in a recent report that the platform is "really tapping into this demand for low-cost goods at this time when inflation in different parts of the world is really top of mind among consumers. And their consumers are looking very closely at their budgets and looking to save money as much as they can."
In addition to tapping into demand for lower prices, Temu has built its business on word-of-mouth social media reviews, as well as new developments in supply chain management technology and strategy. This confluence of factors has the company positioned to compete in a modern e-commerce sector that exploded during the pandemic but has still maintained a strong international growth trajectory.
How Does Temu Work?
Temu is an online platform that connects brands and sellers with consumers. Its business model relies on establishing a reliable supply chain network and providing its partners with helpful insights on product design and development, which are derived from precise demand forecasting services. This helps sellers reduce production costs, save on overhead from wasted inventory, and gain insights into their target audience without expensive marketing spending. In exchange, Temu asks sellers to pass along savings to consumers.
The company's goal is to provide a platform that helps sellers connect with consumers to provide products tailored to both niche wants and general needs at affordable prices. A shopper on Temu might find a pair of slippers for $2, a replacement car windshield wiper for $3, a 12-pack of sponges for $4, a set of over 100 small auto part replacements for $6, or a mopping robot for $39.
Its unexpected array of products, from electronic gadgets to accessories and fashion items, is just as important to the company's business model as its low prices. Using what it calls Next-Gen Manufacturing, the company says it can afford to offer products that meet more niche needs because it uses demand forecasting to inform its partners on how much inventory to produce without excess production and storage costs. The platform doesn't manufacture its own products; rather, it helps its partners fit their manufacturing strategies to demand and to target customers who actually want their products.
This cuts down on marketing and inventory costs and enables brands and sellers to confidently offer meager prices that would seem at first glance to risk not making a profit. According to the model, sellers can afford to offer these prices because they've saved on manufacturing and marketing costs often incurred from oversights in the early design and development stages.
International E-Commerce Growth Trajectory
A November 2022 McKinsey & Company report found that e-commerce sales have doubled in the past five years and are expected to come close to doubling again by 2026. The report highlighted social commerce, which refers to the integration of social media and online shopping and the leveraging of social influence to facilitate online sales, as a robust growth area during this time. It's expected to double from 2021 to 2025.
These projections are a good sign for Temu, an e-commerce company that seems to be doubling down on growth during the forecasted period, and has also embraced social commerce as part of its growth strategy. The company's expansion efforts at an international scale back up these projected numbers as well. There's a lingering effect of the increase in online shopping during the COVID-19 pandemic, and this effect could be maintained or amplified by the impact of inflation and the expansion of social commerce at a time when more and more people turn to social platforms and influencers for product research, reviews, and sale opportunities.
A recent review of the Temu app sums up how consumers often discover and research the platform.
"Great app. Before using it, I watched the videos on YouTube that people created about their Temu hauls," wrote Regi Smith. "I have been pleased with the products I have ordered. With the two products I wasn't pleased with, Temu quickly credited my account."
Another review speaks to the growth potential of the app given the current consumer climate.
"It's a great app to use for when you're looking for cheap things and lots of coupons," posted user Hello Kitty!
As consumers continue to turn to social media to evaluate shopping choices and continue to prefer lower prices and the availability of discounts in an economy struggling with inflation, Temu looks well positioned to remain a key player in the e-commerce space at a global scale.
