China firm takes on U.S. retail giants

2024-05-09 08:17:24China Daily Editor : Li Yan ECNS App Download

Temu, the fastest-growing Chinese e-commerce platform in the United States, could be set to challenge U.S. online shopping giant Amazon and dollar stores with discount prices.

The company, owned by PDD Holdings, has made headway in the e-commerce field since its launch in the U.S. in September 2022. It now accounts for nearly 17 percent of market share in the discount store category, according to data analytics firm Earnest Analytics.

Its rock-bottom prices include $10 shirts and running shoes for $17.48 sold on a site that offers a gamelike experience and heavy discounts — somewhat unusual for U.S. and international consumers.

George S. Yip, an emeritus professor at Imperial College London, and a distinguished visiting professor at Northeastern University in Boston, told China Daily: "Temu is a sister company to Pinduoduo. It's a very important platform. Its head office is in Boston, but it's essentially a Chinese company and uses Chinese approaches."

PDD Holdings appears to be using a similar growth strategy for Temu that it used to launch Pinduoduo in 2015 against rival Alibaba, the Chinese e-commerce giant. Pinduoduo offered low-priced groceries and household items.

It also featured a game arcade and discounts. After becoming successful, it raised advertising fees for merchants and bought higher-margin items.

Temu is already posing a threat to long-established U.S. e-commerce platform Amazon, which has a 38 percent market share and has had a dominant share of the consumer market for years.

As a brand that's extremely familiar to customers in the U.S., Amazon has a few clear advantages. With Amazon Prime, customers can get next-day delivery.

Amazon is reportedly trying to offer even faster shipping on a wider range of items, as standard shipping on Temu can take six to 20 days and express four to nine days.

"Amazon, of course, has the advantage of its distribution system or its warehouses. So that's hard to beat," Yip said. "But in China, the managers (are very efficient)."

Temu, much like its rival Shein, is able to offer such low prices because it uses a network of manufacturers based in China and cuts out the middleman to get goods to shoppers in the U.S..

The packages that arrive are processed under the de minimis trade rule — which allows any item under $800 to enter the U.S. duty-free.

Temu has an estimated 100,000 merchants based in China that sell goods on its platform, according to research firm Marketplace Pulse.

Temu's rise can also be traced to its aggressive advertising campaign. It was the fifth-largest advertiser in the fourth quarter of 2023, The Wall Street Journal reported.

That was a jump from 2022, when it ranked 67th in digital-ad spending during the same period, according to research firm Sensor Tower. Amazon was the top spender.

During the much-watched NFL Super Bowl in February, Temu had three prominent advertisements costing $21 million, along with a reported $15 million worth of discounts, Forbes reports.

Last year, the company spent $1.7 billion on marketing. This year, the company is projected to spend $3 billion, JPMorgan estimated.

But the advertising blitz drew the disdain of 11 Republican lawmakers, who wrote to the heads of CBS (which aired the Super Bowl) and its parent company, Paramount, asking them to ban Temu from buying ads — something that did not happen.

The website's inroads into the U.S. market come as U.S. shoppers battle the fallout of inflation and the rising cost of food and everyday items.

Global expansion

About 40 percent of all sales in the U.S. between September 2022 and August 2023 came from households with an income of less than $40,000 a year, market research firm YipitData found.

Chen Lei, PDD Holdings' chairman and co-chief executive, told analysts in March that it was important to remember amid Temu's global expansion that consumers want bargains.

Other U.S. discount stores such as Dollar General, Dollar Tree and others are reportedly watching Temu's meteoric rise closely. Dollar General has a market share of 43 percent and Dollar Tree 28 percent.

Dollar Tree, which owns Family Dollar, announced on March 13 that it plans to close 1,000 stores, including 600 this year. The company, with its headquarters in Chesapeake, Virginia, has 16,774 discount chains in the U.S. and Canada.

Amid a challenging retail landscape, Temu has more than 100 million users in the U.S. and a presence in 48 countries. The app has been downloaded more than 130 million times worldwide.

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