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Unless you’ve been living under a rock, you’ve undoubtedly heard of Temu, the discount online store that promises to let you “Shop like a Billionaire,” thanks to its ridiculously low prices.
Even if you’ve never downloaded the app (which is probably wise), it’s hard to miss seeing ads for Temu nearly everywhere you go online. Unbelievably, this supposedly plucky little upstart company is able to offer deep discounts on your favorite consumer goods while spending almost half a billion dollars on advertising. It’s even run Super Bowl ads.
Specifically, a late 2023 report by MediaRadar revealed that Temu increased its ad spending last year by a staggering 1000% or more, reaching $480 million for the year. Most of that was for paid social media ads on Instagram, TikTok, Twitter, and Google, but it’s also doing television advertising and the aforementioned Super Bowl ads. By comparison, Sephora was the number two big spender on ads last year, which jumped by a comparatively paltry 119%, spending only $143 million on ads.
So, how can an online marketplace that already appears to be selling things at bargain basem*nt prices afford to drop $480 million just in advertising?
Well, it turns out that the company isn’t actually making money.
Instead, it’s engaging in a relatively common business practice of operating at a loss to increase market share. In October, Bloomberg reported that Temu could see a $3.65 billion operating loss in 2023 despite global sales of around $13 billion. That data came from market research firm Sanford C. Bernstein, which forecasted that Temu could shrink those losses to as little as $1.9 billion in 2025, but it’s not expected to turn a profit anytime soon.
Even though Temu is officially headquartered in Boston, it’s a wholly-owned subsidiary of PDD Holdings, a $185-billion Chinese company with deep pockets that moved its headquarters to Ireland last year to get access to the European Union while enjoying a low tax rate.
That means Temu can afford to operate at a loss, especially if it helps it achieve market dominance. It’s a long game that hopes the investment in advertising and low prices will eventually pay off once Temu becomes the only game in town — or at least the only one anyone cares about.
According to Morgan Stanley, the company sells items ranging from robot vacuum cleaners to watercolor paint sets for as much as 70% cheaper than like-for-like products on Amazon.com. And while its current offer for free shipping without the need for a minimum spend has proved popular with consumers, it’s hurting margins.Bloomberg
As Bloomberg notes, Temu has already almost completely pushed its biggest rival out of the marketplace. It overtook Shein in May 2023 by about 20%, leaving it in the dust as price-conscious consumers turn to the broader selection of products available on Temu at even lower prices. Temu has also reportedly been trying to poach employees from Shein “by offering to triple their compensation” and make inroads into Shein’s Chinese suppliers.
That doesn’t mean Temu doesn’t have a few other tricks up its sleeve to keep prices low. As the Wall Street Journal (Apple News+) reported in October, the combination of low prices and direct shipment to consumers allows it to qualify under the US government’s de minimis rule, thereby bypassing US tariffs. That means customers receive goods tax and duty-free, and Temu doesn’t have to pay those fees either.
Then there’s the low cost of the goods that Temu sells. Concerns have been raised about the use of forced labor in Temu’s supply chain, and a June 2023 interim report by the United States House Select Committee on the Chinese Communist Party (PDF) shone a spotlight on how poorly this is policed.
Temu does not have any system to ensure compliance with the Uyghur Forced Labor Prevention Act (UFLPA). This all but guarantees that shipments from Temu containing products made with forced labor are entering the United States on a regular basis, in violation of the UFLPA.Executive Summary, Fast Fashion and the Uyghur Genocide: Interim Findings
The report goes on to point out that the de minimis exception means that Temu doesn’t have to provide as much detail to US Customs and Border Protection (CBP) for each of its shipments, which not only means it avoids import duties but also “minimize[s] the likelihood that the packages will be screened for UFLPA compliance.”
Is Temu a Scam?
Leaving the serious ethical concerns aside, Temu is a legitimate company that sells real products. It claims it’s able to achieve deep discounts as a result of economies of scale similar to how Costco operates, cutting out distributors and working with bulk purchases.
In reality, its business model is slightly more complicated. Cheap labor, lack of tariffs, and its willingness to operate at a loss to push out competition all translate to lower prices. However, Temu is selling real products, and when you order something, you’ll get something —it may just not always be what you think it is.
As a rule, if you’re content with cheaply made off-brand products, you’ll likely get what you ordered. However, you should be more careful with brand-name products, as Temu deals primarily with small “farmer merchants,” and knock-offs abound in the Chinese market.
One way to look at shopping on Temu is to compare it to visiting small local shops in your town because that’s essentially what it is: a globalized version of small Chinese “mom-and-pop” shops.
Officially, Temu has a policy against ripoffs, but it’s not as strictly enforced as it should be. Blatant knockoffs are easy to find on its shopping platform, and even when Temu does appear to shut one down, the same thing often shows up again on another listing.
Brand names aside, it’s also quite common to see product designs blatantly stolen from places like Etsy or other small independent artists and online merchants. Add that to what’s already a pretty long list of ethical concerns, and you may want to think twice about loading up your cart on Temu.
