In its first year of operation, Pinduoduo’s cross-border e-commerce venture, Temu, once again proves that the irresistible allure of low prices can break down barriers of distance, consumer habits, and even geopolitical conflicts.
LatePost has learned that in September of this year, Temu attracted 120 million people to browse its products, with an average of 1.6 million packages being sent out daily—most of these products are shipped to the United States. Over the past year, around 9% of Americans have made purchases on Temu. In the world’s largest consumer market, Temu’s GMV in September is already approaching that of SHEIN, which has been in business for over a decade.
Throughout the year, Temu has gone live in 47 countries around the world. Its app has been downloaded 200 million times, and in September, it was opened by 120 million people, half of whom are from outside the United States. As early as the beginning of 2023, Temu set a global GMV target of $16 billion for the year, a figure on par with SHEIN’s GMV in the US market for 2022.
LatePost has learned that Temu’s management has recently reduced its marketing expenses in the US market, planning to redirect these funds to other regional markets. Temu recognizes that the growth rate of orders in the US is slowing down and is choosing to invest resources in newer, faster-growing markets. As a result, Temu is rapidly expanding into more countries and regions, opening 10 new countries in September, the highest monthly expansion record since its inception.
With an average of 1.6 million packages per day, Temu is approaching the level SHEIN had in early 2022. SHEIN primarily focuses on clothing, with an average order value of around $80, while Temu focuses on general merchandise with an average order value of $30 – $50.
In the past two months, Temu’s monthly order volume has consistently increased by 100,000 to 200,000. A source close to Temu predicts that Temu is on track to reach 2.2 million packages per month by the end of the year.
Temu has become the most significant new venture for Pinduoduo in its eight-year history. Several sources close to Temu have revealed to LatePost that the business’s marketing budget for this year falls between $2 billion and $3 billion. From the outset, Pinduoduo’s management planned to provide continuous support to Temu and was prepared for it to operate at a loss for three years.
As of August this year, Temu has directly recruited approximately 2,000 employees. Out of the several thousand product research and development employees at Pinduoduo’s headquarters, over one-third have been assigned to support Temu. In addition, Temu has employed around 50,000 outsourced sorting workers who work around the clock.
The last time Pinduoduo went all-in on a business was with community group buying. Approximately 2,000 employees from across the company joined Duo Duo Mai Cai, and 20,000 outsourced sorting workers were brought in.
When Duo Duo Mai Cai expanded three years ago, Pinduoduo required main site employees to rotate positions. In contrast, the rapid growth of Temu has naturally attracted a large number of Pinduoduo employees to switch roles. In the past year, more than 20 of the 30 provincial-level managers of Duo Duo Mai Cai have been transferred to Temu. Pinduoduo employees looking to switch to Temu today must have worked at Pinduoduo for over a year and pass multiple rounds of interviews.
Investment, growth, logistics: Temu’s continuous expansion
Temu continues to invest heavily in advertising on major social media platforms and app stores. It has even made appearances during North American Super Bowl commercials, imprinting the “Shop like a Billionaire” advertisement in the minds of 100 million US viewers. Over the past year, Temu has become one of the most popular apps in the US, consistently ranking first in downloads on Apple App Store and Google Play.
Temu has spared no expense in acquiring most of the traffic that Chinese advertising agencies can offer. An agency source described Temu as a “black hole that devours all traffic.” Temu runs extensive advertising campaigns in every country it operates in, consistently maintaining the top position in the download charts of various app stores.
The majority of its traffic comes from Google and Meta. For these two major traffic sources, as long as agencies have the inventory, Temu is ready to take as much as possible, prioritizing ROI less than other considerations. Before its Super Bowl commercial in February, Temu’s monthly marketing spending was between $100 million and $150 million. The Super Bowl campaign led to explosive growth, increasing downloads by 45%, and further increasing ad spend.
By around May of this year, the agencies for Google and Meta couldn’t supply enough traffic to Temu, prompting Temu to start purchasing from other traffic sources, including Twitter, Snapchat, Instagram, Line, and more. According to agency sources, after multiple increases, Temu’s ad spend in August exceeded $300 million.
Several secondary market analysts have reported that they have noticed Pinduoduo reducing its domestic marketing expenditure and shifting its focus to overseas markets.
In addition to aggressive ad spending, Temu has utilized Pinduoduo’s traditional tactics by launching promotions such as “Slash the Price” and various game-based discount activities in the United States and other new markets. This allows existing users to earn cash and significant discounts by inviting new users to place orders, further lowering the cost of acquiring new customers.
These growth tactics have been highly effective, enabling Temu to acquire 200 million download users in developed countries in Europe and the Americas within a year. Prior to Temu, only TikTok was able to gain over 100 million new users annually among Chinese internet products going global.
Backed by a relentless wave of advertisements and low-priced products, Temu expanded into more countries beyond the United States after February of this year. LatePost has learned that Temu now divides the global market into two major regions: the US region and the European region. These are overseen by two managers, Zhao Jiazhen (also known as Dong Zao) and Grape (nickname), respectively.
The former focuses primarily on the North American market, led by the United States, while the latter is responsible for several new markets in Europe, the Middle East, Southeast Asia, Japan, South Korea, and Latin America. They develop independently and compete internally with their merchant and operations teams, while sharing a single advertising team and warehousing and logistics network.
Since 2023, 16 managers with experience in managing the entire supply chain and previously serving as provincial directors of Duo Duo Mai Cai have been dispatched overseas to help Temu expand into new markets. They are tasked with addressing compliance issues, reducing costs, and optimizing logistics efficiency.
Sources close to Temu have informed LatePost that, with this strategic adjustment, the marketing budget for the US region in September has been reduced, and the average order value has been increased from $35 to around $50. “Previously, the US market accounted for over 60% of Temu’s GMV, but it may decrease to 40% – 50% in the future.” Allocating more marketing expenses to new markets implies that Temu’s user base still has significant room for growth.
However, this strategy is not set in stone, as Temu remains adaptable and quick to respond to changes. They do not rule out the possibility of increasing their investment in the US market again during the peak season for North American e-commerce in the fourth quarter.
As the overseas team continues to expand, Temu’s Chinese team is working to address various issues. Challenges such as warehousing and logistics, which plagued Temu in the first half of the year, have been steadily improving in recent months.
In March of this year, after the Super Bowl ad campaign, Temu’s orders surged, causing warehouses in several Guangdong provinces to consistently overflow. The most severe instance of overcrowding had a significant impact on Temu for over two weeks.
Subsequently, relying on the abundant warehousing supply chain in the Pearl River Delta, Temu rapidly upgraded its warehousing facilities, increasing the number of distribution warehouses from single digits to 26 large warehouses by September. With continuous order growth, Temu’s sorting employees increased from a few thousand to nearly 50,000.
In June, the former provincial director of Duo Duo Mai Cai in Guangxi, Tian Peng (nickname), was assigned to manage Temu’s central warehouses, responsible for improving warehousing and distribution efficiency. Upon taking up his role, Tian Peng began streamlining various inefficient and overlooked processes, establishing a system of rewards and penalties to motivate sorting employees, while optimizing various aspects to reduce costs. By September of this year, the issue of sellers needing to compete for warehouse space had greatly improved, and Temu began encouraging sellers to proactively stock their goods in the warehouses to prepare for the upcoming autumn and winter promotions.
Temu has introduced more service providers this year, while also setting stricter logistics standards for them. Logistics data needs to be updated and transmitted more promptly, and the handling of each transit point needs to be faster. Non-compliant sections face higher fines.
Currently, Temu collaborates with over 20 logistics service providers. They dynamically adjust the number of orders carried by logistics companies based on indicators such as timeliness, delivery rate, package breakage rate, and complaint rate. Previously, in the first quarter of this year, Extreme Rabbit International handled over 50% of the parcels, but as order volume and logistics service providers increased, Extreme Rabbit International’s share of the business dropped to less than 10%.
According to a logistics service provider, the delivery time for parcels in the United States has been reduced from a maximum of 15 days at the beginning to a maximum of 10 days. Most parcels sent from China to the United States can now be delivered within 7 to 8 days.
Regardless of user growth, the number of countries covered, or warehousing and logistics issues, Temu’s first year has already established a solid foundation, and it will continue to increase its investments.
Pinduoduo has long been associated with its core concept of “low prices, saving money.” This strategy was also implemented during the initial stages of its community group-buying venture, Duo Duo Mai Cai, where the emphasis was on offering the lowest prices before optimizing quality. Temu, Pinduoduo’s cross-border e-commerce platform, has followed a similar path, fully embracing the idea of ultimate affordability.
Over the past year, many sellers on platforms like SHEIN and Amazon have discovered that in certain product categories, Temu’s prices can be significantly lower than those on the aforementioned platforms, sometimes even up to half the price.
Cross-border e-commerce is no simple business. When entering unfamiliar markets, newcomers must start from scratch, facing challenges in areas like product selection, supply chain logistics, and marketing strategies. Even though platforms like Amazon offer various tools and services, most sellers still need to assemble professional teams and recruit experienced managers to navigate the entire supply chain.
One of the significant differences with Temu is that it uses a fully managed model to reduce the barriers for cross-border e-commerce. The platform has control over pricing and employs a bidding mechanism that encourages sellers to compete, offering the lowest prices for their products. This competitive approach results in prices that are lower than mainstream cross-border e-commerce platforms.
In Temu’s fully managed model, sellers only need to ship their pre-screened products to Temu’s domestic warehouses. The platform handles all aspects of operations, logistics, warehousing, customer service, and after-sales services, significantly lowering the barriers for sellers entering the cross-border e-commerce space.
Previously, the fully managed model was considered too heavy and unsuitable for inexpensive small goods. However, backed by the resources and determination of Pinduoduo, Temu entered the cross-border e-commerce arena with substantial investments right from the beginning, making it better equipped than smaller players and even more resolute than other established platforms.
A seller who had briefly experimented with Temu after operating on Amazon found that operating costs were minimized to an extreme extent. While running an Amazon store typically requires over ten employees, Temu only needs one employee to handle cost and profit calculations, as well as product listings and order fulfillment.
The fully managed model allowed Temu to onboard a massive number of suppliers. Afterward, it used a competitive bidding system to select the highest value products while taking advantage of economies of scale to reduce costs in operations, advertising, freight, and last-mile delivery. This extreme focus on cost-cutting has compressed profits for all involved parties, with many trade-oriented sellers seeing their profits shrink from several times what they used to earn in the traditional era of cross-border e-commerce to levels similar to domestic e-commerce.
For example, in the US region managed by Zhao Jiazhen, the procurement team has over a hundred members divided into two groups, A and B, each further segmented into 13 categories. These two groups compete with each other to attract and screen suppliers, encouraging competitive bidding and promoting the products of the sellers offering the lowest prices. The group that expands the number of low-price sellers the most within a specific period receives substantial rewards.
In August of this year, Temu further upgraded its pricing comparison system, improving its automation capabilities. Under the current competitive bidding rules, the platform conducts weekly product bidding. The product with the lowest price within the same category wins, gaining additional support in terms of traffic. Products that lose in bidding will be restricted from restocking and listing on the platform. If sellers persistently fail to win bids, Temu will return their previously stored products.
The elimination of middlemen who profit from information gaps and the inclusion of more factory-direct suppliers have been a central focus for Temu over the past six months.
Temu has held recruitment seminars in industrial areas across multiple provinces in China, including Guangdong, Fujian, Zhejiang, and Shandong, attracting factories and Pinduoduo’s private-label and white-label suppliers to become Temu’s suppliers. Against the backdrop of slowing domestic e-commerce growth, the influx of cross-border e-commerce orders is helping factories utilize their surplus production capacity.
Investors and industry experts who closely follow Pinduoduo believe that the three main business areas Pinduoduo has invested in over the past eight years (Pinduoduo’s primary platform, Duo Duo Mai Cai, and Temu) essentially revolve around a single business concept: providing users with the most cost-effective products. Therefore, the primary platform and Duo Duo Mai Cai can support Temu by providing a source of products to maintain a price advantage.
Since September, Pinduoduo has started recruiting black-label (brands certified by Pinduoduo) clothing sellers from its primary platform to become suppliers on Temu. This move marks a second attempt at entering the fashion category, which wasn’t initially successful when Temu was launched a year ago.
During recruitment events, the representatives informed clothing suppliers that Temu promised to provide a 20%-25% profit margin for them in the fashion category, which is higher than other product categories on the platform. Even for suppliers unfamiliar with overseas market demands, the recruitment representatives suggested referencing popular styles on other platforms and making improvements based on those trends. They also advised against directly using competitors’ product images to avoid unnecessary risks for both the sellers and the platform.
Currently, Temu has recruited over 90,000 suppliers and offers more than one million SKUs, with 55% of the suppliers coming from Pinduoduo’s primary platform and Duo Duo Mai Cai. Many of these suppliers are expected to continue collaborating with Temu to uphold its ultimate affordability strategy.
While the major battles in the cross-border e-commerce arena have not officially commenced, the impact of Temu’s presence is already being felt in the industry.
Cross-border e-commerce is not a new territory for Pinduoduo. As mentioned earlier, Pinduoduo’s founder, Huang Zheng, and his core team had attempted various overseas projects before the launch of Pinduoduo.
At the beginning of 2022, Temu was still in the research and preparation phase and had not yet made its presence known. At the time, the environment for cross-border e-commerce was not very favorable, and the prospects for new platforms to rise quickly from scratch were bleak.
However, like the domestic e-commerce arena, Temu has managed to find its way amid the competition. The platform’s fully managed model, substantial investments, and focus on ultimate affordability set it apart. Since October 2022, several mainstream cross-border e-commerce platforms have also introduced similar fully managed models.
Over the course of its first year, Temu has been considered a disruptor of industry norms by employees, competitors, investors, and analysts. It is a challenger that no platform or seller in the cross-border e-commerce industry can afford to ignore, and Temu is still in the process of expanding and growing.
At present, there are no external factors that can halt Temu’s progress, even in the face of legal challenges. This year, SHEIN and multiple Amazon sellers filed lawsuits against Temu, while Temu countersued SHEIN. However, people from both Temu and its competitors have indicated that litigation is a routine response to competition, and everyone understands that its impact on Temu’s primary business is limited.
The real battle has not yet begun, and platforms like Temu, SHEIN, TikTok Shop, AliExpress, and others are still aggressively seeking growth in global markets. As these platforms accelerate their internationalization processes, they are drawing closer in terms of talent, user traffic, advertising investments, and other aspects, leading to overlapping areas of competition.
It’s worth noting that Temu’s user base and SHEIN’s user base still exhibit significant differences. According to data from the third-party organization YipitData, the overlap between Temu and SHEIN users is only 5%. Several secondary market analysts have concluded that the overlap in product categories between the two platforms is less than 30%. While Temu aims to become a platform for all product categories, SHEIN primarily focuses on the fashion category.
However, Temu is making efforts to enter SHEIN’s market. This includes increased advertising targeting SHEIN’s user base, attracting more suppliers to sell fashion and lifestyle products, and encouraging sellers to introduce more fashionable products.
To prepare for potential competition in the future, SHEIN is adjusting prices for SKUs that overlap with Temu. Additionally, they are actively expanding into new product categories and developing unique products. While SHEIN has increased its budget for the US market, it remains more conservative in its approach compared to Temu. Unlike Temu, which is willing to invest heavily without worrying about costs, SHEIN is focused on ensuring a return on investment for every advertising dollar spent.
Some investors who have conducted research on the matter have observed that for certain home goods products, Temu’s meticulous control at every stage results in similar products being offered at a significantly lower price than SHEIN. For instance, a product that is sold for $40 on SHEIN could be sold for $30 on Temu with higher profit margins.
Many within SHEIN view Temu’s current strategy, including its heavy investment and competitive bidding, as a short-term measure. They believe that this approach is not sustainable, and once the phase of aggressive spending ends, the price difference between the two platforms will not be substantial.
However, at least for now, Pinduoduo has ample financial reserves. Pinduoduo’s primary platform provides profits for its new businesses, and Duo Duo Mai Cai is on the verge of turning profitable. As of June 30, 2023, Pinduoduo held a substantial amount of cash and short-term investments, amounting to CNY 179.5 billion (approximately USD 24.8 billion).
Another aspect to watch in the evolving cross-border e-commerce landscape is the presence of Amazon, the world’s largest e-commerce platform. In 2022, products from Chinese suppliers accounted for 70% to 80% of Amazon’s product offerings, and Chinese sellers generated a GMV of $201 billion on the platform, making up 26% of the total.
For many years, Amazon has maintained a low-price strategy, allowing sellers to set their own prices. However, if its price comparison system identifies the same product available at a lower price on other platforms, Amazon will lower the product’s price and suspend sales.
In June of this year, Amazon removed Temu from its price comparison system because most of Temu’s products were priced below $10. If Amazon directly competed with Temu in pricing, it would render sellers unprofitable. Amazon cited concerns about the origins of Temu’s products, suggesting they might be counterfeit.
In August, Amazon discontinued the “Small and Light” program for low-priced items, which allowed sellers to ship small items at a lower shipping rate with slower delivery times. After the adjustment, products priced below $10 on Amazon will also receive standard FBA (Fulfillment by Amazon) delivery times, potentially shortening delivery times.
In September, Amazon introduced an end-to-end supply chain service, enabling third-party sellers to use Amazon’s warehousing network similarly to Amazon’s own sellers, creating a seamless supply chain from factories to Amazon warehouses to consumers. By utilizing Amazon’s Global Logistics (AGL) service to reach Amazon’s Warehousing and Distribution Network (AWD), logistics costs can be reduced by up to 25%, and warehousing costs can be reduced by over 50%.
A source close to Amazon has stated that Amazon’s recent adjustments are primarily seen as a collective effort to restrict the price competition from upcoming Chinese cross-border e-commerce platforms. These changes are not perceived as a direct response to Temu’s strategy. According to this source, discussions about Temu within Amazon remain limited. For the time being, Amazon has not launched specific competitive strategies targeting Temu.
Compared to Chinese cross-border e-commerce platforms, Amazon holds unique advantages in its home market of the United States. Amazon offers superior services and experiences, including Prime membership’s benefits such as two-day delivery. This global e-commerce giant has a history of using pricing strategies to defeat competitors by offering lower prices than local competitors. However, Amazon’s commitment to self-managed logistics and providing an excellent delivery experience means it bears higher costs and cannot always offer the lowest global prices, leaving room for new Chinese cross-border e-commerce platforms like Temu.
In summary, the competitive landscape of cross-border e-commerce continues to evolve, and platforms like Temu are making significant strides. The focus on ultimate affordability, the fully managed model, and extensive investments have helped Temu disrupt the industry. As they continue to expand and grow, they are sure to influence the landscape further.