Since launching in late 2022, Temu has captured the attention of millions of shoppers worldwide with its promise to let you “shop like a billionaire” at rock-bottom prices. However, its exponential growth has raised concerns within the business community. In this article, we delve into the background of Temu, its remarkable growth, concerns surrounding its business model, and the implications of its expansion for British companies in China and beyond.

What is Temu?

Temu (pronounced ‘tee moo’) is a discount e-commerce platform shoppable via an app and website that launched in the UK in April 2023. The platform sells ultra-cheap products across a range of segments – from tech to kitchen gadgets to clothing – shipped directly from China. It has been compared to other discount e-commerce sites like Ali Express, Wish and Shein. Shoppers are encouraged to buy with “lightning deals”, clearance sales and free shipping; at the time of writing, some of the lightning deals on offer included an iPhone charging cable for £0.47 and a ‘crystal’ necklace for £0.89.

The platform keeps prices so low by shipping directly from a network of small manufacturers and independent sellers, avoiding the need to spend on warehousing. The low value of most individual orders also means that it avoids UK customs duties, which only kick in on shipments valued above £135.

Since first launching in the US in September 2022, Temu’s app has been downloaded more than 117 million times, making it one of the fastest-growing apps of all time. Monthly spending on Temu is reported to have reached $700 million in May 2023, surpassing even that other Chinese e-commerce behemoth, Shein.

This success has been achieved partially by super discounted prices and a strong novelty factor but also by a massive marketing push, including spending huge sums on ads on Meta platforms (Facebook and Instagram) and Apple’s app store, and taking out two TV spots during Super Bowl LVII in February 2023 (reportedly costing more than $14 million).

Who owns Temu?

The company is operated by PPD Holdings, best known for its flagship e-commerce platform Pinduoduo. Starting out life as a group buying platform for agricultural produce, Pinduoduo has grown into one of China’s biggest e-commerce platforms, with a particularly strong customer base in third and fourth-tier Chinese cities. As it has grown, Pinduoduo has created a vast network of manufacturers and suppliers in China, and Temu has drawn on this network to scale quickly. The success of both platforms pushed PPD Holdings’ profits to $1.2 billion (£944 million) in Q1 2023.

Are there any criticisms of Temu?

Temu’s rapid growth has generated much conversation in the business community.

Some have raised questions about the long-term viability of the business. A Wired investigation found that Temu is losing an average of $30 per order and may lose up to RMB 6.73 billion per year in total. It is also putting a lot of pressure on Chinese manufacturers, which are already feeling the pinch from China’s slower-than-expected post-Covid economic recovery, to cut costs or even supply products for free.

As with Shein, environmental groups have criticised Temu’s sustainability credentials, arguing that its business model encourages impulse purchases that lead to waste, and that parcels come in excessive, un-recyclable packaging. Of course, the same criticisms have long been levelled at other fast-fashion companies like Zara and H&M. Proponents of Shein and Temu’s models say that by gathering data on what consumers are buying and then directly feeding it back to manufacturers, they can reduce the production of unwanted items.

Like other Chinese platforms, Temu is facing scrutiny about the collection and use of data, especially in the US. A report published by the US-China Economic and Security Review Commission in April 2023 accused platforms like Temu of “data risks, sourcing violations and trade loopholes”.

Temu’s expansion may pose challenges for British businesses. Of course, most companies will be unable to compete with Temu on pricing, so to stay relevant and competitive, British brands may need to explore innovative strategies, such as offering unique and differentiated products or focusing on niche markets, advice that applies to both the UK and Chinese markets.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC can further help you identify the best e-commerce platform for your brand and target market in China.

The post What is Temu? The new Chinese bargain shopping app explained appeared first on Focus - China Britain Business Council.

“New Retail has become a phenomenal term that’s been discussed and executed by a diverse group of businesses,” says Demi Ping, CBBC’s retail and e-commerce sector lead. “For instance, major e-commerce platforms have launched offline lifestyle showrooms and convenience stores, and brick and mortar shopping centres have introduced technologies and mini-apps to track shopper’s visiting routes and shopping preferences through their free Wi-Fi access, which will then be adopted in their data analysis to help operators improve the shopping experience and manage in-store product display.”

Espoused by Jack Ma, New Retail has been used to install Alibaba as China’s foremost e-commerce company and the market’s leading New Retail contender. For giants such as Alibaba, New Retail effectively functions as ‘online going offline’[1]. Alibaba’s dominance of Chinese E-commerce has provided the company with the necessary resources and raw data to fully exploit such offline opportunities. Indeed, Alibaba has seen massive success with its investment in supermarket chain, Hema – dubbed the “Pathfinder of Alibaba’s New Retail”. Hema’s success has enabled Alibaba to make fast inroads into China’s fresh produce sector.

Whilst investments on the scale of Alibaba’s are not practical for the majority of businesses, smaller businesses are finding other means to establish a foothold within, and redefine China’s New Retail offering. One of these is Pinduoduo.

This social touch will create an e-commerce space that focuses on sharing and network building, rather than simply selling products to the end-user

Pinduoduo caters to the lower-end of China’s e-commerce market but since its founding in 2015, has successfully adopted many innovative New Retail strategies, winning the title of “fastest-growing App in the history of the Chinese Internet”.

Pinduoduo’s name means ‘shop more together’ and this is exactly what they encourage by offering discounts on bulk purchases and offering rewards when users encourage others to download and share the app. Pinduoduo’s marketing strategy is very much built around a model of viral incentives which keeps sales momentum high by creating a social feel.

The company’s success is rooted in its geographic focus on third and fourth-tier cities, areas other e-commerce players have largely ignored. These less saturated markets have allowed Pinduoduo to gain an impressive 109 million monthly active users as of December 2018.

“Consumers aren’t looking for another Tmall, so brands should focus on having a social touch,” explains Raymond Phang, Global Business Manager of Very Star. This social touch will create an e-commerce space that focuses on sharing and network building, rather than simply selling products to the end-user; an altogether more holistic and innovative model of retail in comparison to traditional approaches.

With a focus on lower-income areas, Pinduoduo’s shared buying strategy not only lowers the overall cost to consumers but also turns shopping into a cooperative exercise, creating a sense of community and growing Pinduoduo’s online footprint.

Pinduoduo’s clever use of WeChat Mini Programs (MPs) has been “the driving force behind the success of Pinduoduo, combining the powerful network effect of WeChat with Chinese consumers’ love of a great deal” says Sam Deacon, Chief Commercial Officer of Samarkand Global. WeChat has developed into a “diverse ecosystem where users interact directly with your brand,” says Deacon.

WeChat MPs are a much more effective proposition for British companies than simply listing a new product on an e-commerce website, says Phang. The use of WeChat MPs makes life much simpler for any China market entrant. Not only is WeChat looking to expand the use of these, but the development of MPs is low cost and doesn’t necessarily require significant advertising to succeed.

DNBX is a British cross border e-commerce company connecting British brands to Chinese consumers. At the end of 2018, they opened a physical store in Guiyang with support of a Free Trade Zone and the local government. The products are seen in the offline store and then bought online via the DNBX site, allowing customers to benefit from cross-border e-commerce tax incentives.

“An unknown brand can get some traction online but it certainly needs to push its e-marketing,” says Liam Hannagan managing director of DNBX. “But with an offline store, customers can try them on, take pictures with products and share the information socially,” he says. It gives smaller brands the opportunity to get into the Chinese market by moving from offline to online. DNBX also helps brands register their trademark and set up a WeChat presence, creating a one-stop-shop for brands looking to get into China’s booming New Retail market.

British House in Beijing offers online and offline shopping from some of Britain’s biggest brands

The British House in Beijing also has a physical offline store which sells high-end British products via cross-border e-commerce. They created a MP in just four weeks, and this now accounts for 20 percent of all their online sales.^[2]

“Mini Programs take approximately 20 percent of the time and cost that native apps take build, so establishing an e-commerce shop as a mini program can be the easiest way for UK brands to establish an initial direct sales route online in China,” explains Scott Muir, founder of digital marketing agency Regroup-media.

A combined use of New Retail, and an online-offline strategy with WeChat Mini Programs are not only helping British brands to enter the Chinese market but are opening up whole new areas of potential for e-commerce.

Written by Patrick Allum.  For more information on retail contact Demi Ping in China on demi.ping@cbbc.org.cn

The post The merging of online and offline shopping has created an era of New Retail in China appeared first on Focus - China Britain Business Council.