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TEMU's business model could only work in China. But they're racing to replace Amazon in the global market
August 28 2023
Since launching in the US last year, TEMU has become a major player in the market, competing with the likes of Amazon. (Reuters: Florence Lo)
When Leanne Owens was first bombarded with ads for something called TEMU on her Facebook feed, she wasn't sure if it was a scam.
The 64-year-old teacher and farmer looked up the Chinese e-commerce platform online, and was immediately intrigued by the wide range of products at dramatically low prices.
Owens ordered some pet supplies and small toys for her grandchildren, which cost her $58. Eight business days later, her order arrived at her home in the rural Queensland town of Grandchester.
"Everything was top quality, I was very impressed," she said.
What further surprised her was an email from TEMU's customer service team: they insisted on refunding Owen because the order could have arrived sooner.
"When I contacted them [to decline the offer], I was speaking to a real person within about five seconds, which is a very different way from dealing with most other businesses," she said.
Leanne Owens knows people who are suspicious about TEMU, but after learning of her interaction with TEMU's customer service team, they become confident in shopping on the platform. (Supplied: Leanne Owens)
Since then, Owen has made another two orders on TEMU, while sharing her shopping experience with her friends who were still sceptical of the platform's viral ads.
"I think there are just so many scams out there at the moment, that people assume something new or something that they haven't dealt with may be a scam," she said.
Since launching in Australia in March, with its slogan promising to help customers "shop like a billionaire", TEMU's made a big splash.
In the last few months, the platform has raced ahead of Amazon and fast fashion retailer Shein to become the most downloaded free shopping app on the Apple Store and Google Play, and it's expected to challenge traditional retailers such as Target and Big W for general merchandise.
At a time when Chinese apps like TikTok and WeChat have sparked concerns about their potential cybersecurity risks, TEMU's rise has been met with suspicion.
But industry insiders and experts say it marks a new era of global online shopping and Silicon Valley may find it difficult to compete.
Launched in 2015, Pinduoduo offers significantly discounted prices for users who manage a group purchase for products, winning the hearts of China's working class and suburban residents.
Last year, the app made $27 billion in revenue with 700 million active users in China, paving the way for the launch of its overseas version TEMU in the United States in September 2022.
With a strategy based around using price as its strength, TEMU introduced a price bidding model to ensure all the products for sale on the platform are priced as low as possible.
Every week, TEMU would allow sellers to bid, and give those offering the lowest prices the exclusive right to sell their product on the platform.
Once products are listed on TEMU, the platform heavily advertises on social media to ensure maximum exposure, making it possible for sellers to receive thousands of orders a day.
While this model has allowed some businesses to make huge profits relatively quickly, it has sparked concerns around environmental impact, employee welfare and long-term sustainability.
TEMU's business model has also been heavily criticised for creating barriers for small businesses without big manufacturing power.
Ann Zhang is a 27-year-old seller of toys and maternal products on both TEMU and Pinduoduo. As a sole trader, Zhang works with other factories and earns money from the mark-ups.
She said on Pinduoduo — TEMU's prototype — intermediary sellers like her don't need to bear the risks of stocktaking, as the platform directs all the orders to the factories she works with.
But Zhang describes TEMU's model as "complicated" for sellers.
TEMU requires sellers to store at least 30 items in their warehouse before their products can be listed online, meaning she has to bear the risks of failing to sell the items.
It's also the middleman sellers who pay for product certification — which can cost hundreds of dollars — and relevant taxes, while they share the costs of shipping with TEMU.
"I'm still losing money," said Zhang, who's been on TEMU for two months.
"Let's say I have invested 15,000 yuan ($3,180) on TEMU, so far I have only gained 600 yuan ($127) back."
However, they still see TEMU as "convenient" for them, since the app spends millions of dollars on advertising, so there is less pressure on them to drum up new customers.
When new users try out TEMU, its design ensures these customers keep buying on the app, according to an ecommerce business insider.
Sharon Gai is an ecommerce author, keynote speaker and former head of global key accounts at online retail giant Alibaba.
She says the way retail apps are designed in China is "fundamentally very different" from businesses in the West, which tend to focus more on search functionality.
"So their primary goal is to get you into an app very quickly, and then out of the app very quickly as well," Gai said.
"In China, shopping apps are oriented around discoverability — how long can we keep you inside the app, how long can we entertain you, [and] how many new brands or products or trends or styles can you discover?"
Gai also said China's huge domestic ecommerce market — which recorded almost $3 trillion in sales last year — enables platforms like TEMU and Shein to find the best formula for attracting new customers.
But while Chinese apps have been able to adapt their models to dominate US, UK and Australian markets, Western apps are struggling to achieve the same success bringing their business to China.
Last week, corporate social media giant LinkedIn announced it was shutting down its China service, InCareer, after pulling its main platform from China in 2021.
According to Gai, what sets Chinese and Western apps apart is how fast they are able to respond to the market's needs
She said at Alibaba, the team motto "changing the motor of the aeroplane, when you're flying in the air" means moving fast to address the market.
"A lot of Chinese tech companies, their DNA is centred around moving fast," she said.
Gai says it's this speed that has allowed Chinese companies to adapt to Western markets and become the preferred platforms for shoppers worldwide.
Chinese ecommerce platforms generated more than $425 billion in overseas sales last year, but there are concerns its manufacturing power is slowing — and US President Joe Biden has warned China's economy is a "ticking time bomb" in the wake of deflation.
New data shows China's factory activity was sluggish in July as a result of the deteriorating domestic and overseas market, while the youth unemployment rate has risen so sharply that Beijing is no longer publishing the statistics.
China is no longer the top exporter to the US, having been replaced by Mexico, Canada and ASEAN countries as a result of geopolitical decoupling.
Despite its desperation to boost the economy through the private sector, Beijing has ended up further restricting internet companies from launching new apps, sending mixed signals to technology firms.
Nevertheless, experts argue that China will retain its status as the world's factory for a while, with the help of ecommerce platforms like TEMU and Shein.
Walid Hejazi, professor of international business at the University of Toronto, said China has developed a comprehensive manufacturing ecosystem that has made it dominant in global supply chains for low-value products.
"In the next 25 years, I think that much of the low value production will very likely migrate out of China," he said.
"But still, these platforms can still marry consumers in the West to products produced in low cost facilities across Asia."
Last month, TEMU accused Shein of creating exclusive access to independent manufacturers in China with an attempt to control the US market.
But both apps are also under scrutiny in the US for exploiting loopholes in import tariff laws on ultra-cheap products to avoid taxes.
In May, TEMU was found to have moved its headquarters from China to Ireland, which attracts many foreign technology companies due to its low headline corporation tax rate and European Union membership.
Currently, TEMU doesn't have an office in Australia, but it has a warehouse in Sydney.
TEMU did not respond to the ABC's questions about how it was complying with Australian regulations. The ABC has also checked there was a registration of Australian Business number for "Pinduoduo PTY LTD" on July 17 in NSW.
The Australian Tax Office (ATO) said while it was unable to comment on individual companies, generally there was a "high level of compliance" with GST law for low-value imported goods.
"The ATO has a visible and effective compliance program using tools such as financial transaction tracing, close co-operation and information sharing with tax administrations in other countries," the spokesperson said.
Another challenge, TEMU faces growing concern in Australia over potential cybersecurity and foreign interference risks posed by Chinese-owned apps.
TEMU's Chinese prototype, Pinduoduo was suspended from the Google Play store earlier this year after malware issues were detected.
Lyria Bennett Moses, a cybersecurity law expert from the University of New South Wales, said the federal government needs to develop a strategy that goes beyond app-by-app tactics.
"There are actually a lot more apps that share data with people we might not want data shared with for various national security or other reasons, beyond simply the question of Chinese owned companies," she said.
Professor Bennett Moses suggested more productive communication with young people who are the main users of these Chinese-owned apps would be one way to improve.
A recent poll by the Australia-China Relations Institute showed that while 75 per cent of Australians over 55 support banning Chinese-owned apps, only 44 per cent of 18-34s agree.
"It's important to understand the community concerns around it," she said.
www.abc.net.au
August 28 2023
Since launching in the US last year, TEMU has become a major player in the market, competing with the likes of Amazon. (Reuters: Florence Lo)
When Leanne Owens was first bombarded with ads for something called TEMU on her Facebook feed, she wasn't sure if it was a scam.
The 64-year-old teacher and farmer looked up the Chinese e-commerce platform online, and was immediately intrigued by the wide range of products at dramatically low prices.
Owens ordered some pet supplies and small toys for her grandchildren, which cost her $58. Eight business days later, her order arrived at her home in the rural Queensland town of Grandchester.
"Everything was top quality, I was very impressed," she said.
What further surprised her was an email from TEMU's customer service team: they insisted on refunding Owen because the order could have arrived sooner.
"When I contacted them [to decline the offer], I was speaking to a real person within about five seconds, which is a very different way from dealing with most other businesses," she said.
Leanne Owens knows people who are suspicious about TEMU, but after learning of her interaction with TEMU's customer service team, they become confident in shopping on the platform. (Supplied: Leanne Owens)
Since then, Owen has made another two orders on TEMU, while sharing her shopping experience with her friends who were still sceptical of the platform's viral ads.
"I think there are just so many scams out there at the moment, that people assume something new or something that they haven't dealt with may be a scam," she said.
Since launching in Australia in March, with its slogan promising to help customers "shop like a billionaire", TEMU's made a big splash.
In the last few months, the platform has raced ahead of Amazon and fast fashion retailer Shein to become the most downloaded free shopping app on the Apple Store and Google Play, and it's expected to challenge traditional retailers such as Target and Big W for general merchandise.
At a time when Chinese apps like TikTok and WeChat have sparked concerns about their potential cybersecurity risks, TEMU's rise has been met with suspicion.
But industry insiders and experts say it marks a new era of global online shopping and Silicon Valley may find it difficult to compete.
How does TEMU sell everything so cheap?
Just like TikTok, which launched worldwide after its prototype Douyin achieved huge success in China, TEMU has its roots in a Chinese group buying app, Pinduoduo.Launched in 2015, Pinduoduo offers significantly discounted prices for users who manage a group purchase for products, winning the hearts of China's working class and suburban residents.
Last year, the app made $27 billion in revenue with 700 million active users in China, paving the way for the launch of its overseas version TEMU in the United States in September 2022.
With a strategy based around using price as its strength, TEMU introduced a price bidding model to ensure all the products for sale on the platform are priced as low as possible.
Every week, TEMU would allow sellers to bid, and give those offering the lowest prices the exclusive right to sell their product on the platform.
Once products are listed on TEMU, the platform heavily advertises on social media to ensure maximum exposure, making it possible for sellers to receive thousands of orders a day.
While this model has allowed some businesses to make huge profits relatively quickly, it has sparked concerns around environmental impact, employee welfare and long-term sustainability.
TEMU's business model has also been heavily criticised for creating barriers for small businesses without big manufacturing power.
Ann Zhang is a 27-year-old seller of toys and maternal products on both TEMU and Pinduoduo. As a sole trader, Zhang works with other factories and earns money from the mark-ups.
She said on Pinduoduo — TEMU's prototype — intermediary sellers like her don't need to bear the risks of stocktaking, as the platform directs all the orders to the factories she works with.
But Zhang describes TEMU's model as "complicated" for sellers.
TEMU requires sellers to store at least 30 items in their warehouse before their products can be listed online, meaning she has to bear the risks of failing to sell the items.
It's also the middleman sellers who pay for product certification — which can cost hundreds of dollars — and relevant taxes, while they share the costs of shipping with TEMU.
"I'm still losing money," said Zhang, who's been on TEMU for two months.
"Let's say I have invested 15,000 yuan ($3,180) on TEMU, so far I have only gained 600 yuan ($127) back."
An app designed to make you keep buying
Besides Zhang, several other sellers told the ABC that it's difficult to earn big on TEMU due to its focus on making low-value products ultra-cheap.However, they still see TEMU as "convenient" for them, since the app spends millions of dollars on advertising, so there is less pressure on them to drum up new customers.
When new users try out TEMU, its design ensures these customers keep buying on the app, according to an ecommerce business insider.
Sharon Gai is an ecommerce author, keynote speaker and former head of global key accounts at online retail giant Alibaba.
She says the way retail apps are designed in China is "fundamentally very different" from businesses in the West, which tend to focus more on search functionality.
"So their primary goal is to get you into an app very quickly, and then out of the app very quickly as well," Gai said.
"In China, shopping apps are oriented around discoverability — how long can we keep you inside the app, how long can we entertain you, [and] how many new brands or products or trends or styles can you discover?"
Gai also said China's huge domestic ecommerce market — which recorded almost $3 trillion in sales last year — enables platforms like TEMU and Shein to find the best formula for attracting new customers.
But while Chinese apps have been able to adapt their models to dominate US, UK and Australian markets, Western apps are struggling to achieve the same success bringing their business to China.
Last week, corporate social media giant LinkedIn announced it was shutting down its China service, InCareer, after pulling its main platform from China in 2021.
According to Gai, what sets Chinese and Western apps apart is how fast they are able to respond to the market's needs
She said at Alibaba, the team motto "changing the motor of the aeroplane, when you're flying in the air" means moving fast to address the market.
"A lot of Chinese tech companies, their DNA is centred around moving fast," she said.
Gai says it's this speed that has allowed Chinese companies to adapt to Western markets and become the preferred platforms for shoppers worldwide.
Chinese ecommerce platforms generated more than $425 billion in overseas sales last year, but there are concerns its manufacturing power is slowing — and US President Joe Biden has warned China's economy is a "ticking time bomb" in the wake of deflation.
New data shows China's factory activity was sluggish in July as a result of the deteriorating domestic and overseas market, while the youth unemployment rate has risen so sharply that Beijing is no longer publishing the statistics.
China is no longer the top exporter to the US, having been replaced by Mexico, Canada and ASEAN countries as a result of geopolitical decoupling.
Despite its desperation to boost the economy through the private sector, Beijing has ended up further restricting internet companies from launching new apps, sending mixed signals to technology firms.
Nevertheless, experts argue that China will retain its status as the world's factory for a while, with the help of ecommerce platforms like TEMU and Shein.
Walid Hejazi, professor of international business at the University of Toronto, said China has developed a comprehensive manufacturing ecosystem that has made it dominant in global supply chains for low-value products.
"In the next 25 years, I think that much of the low value production will very likely migrate out of China," he said.
"But still, these platforms can still marry consumers in the West to products produced in low cost facilities across Asia."
Is TEMU here to stay in Australia?
While TEMU has reaped the benefits since launching in Australia, it's now caught in an ugly fight with Shein, another Chinese success story.Last month, TEMU accused Shein of creating exclusive access to independent manufacturers in China with an attempt to control the US market.
But both apps are also under scrutiny in the US for exploiting loopholes in import tariff laws on ultra-cheap products to avoid taxes.
In May, TEMU was found to have moved its headquarters from China to Ireland, which attracts many foreign technology companies due to its low headline corporation tax rate and European Union membership.
Currently, TEMU doesn't have an office in Australia, but it has a warehouse in Sydney.
TEMU did not respond to the ABC's questions about how it was complying with Australian regulations. The ABC has also checked there was a registration of Australian Business number for "Pinduoduo PTY LTD" on July 17 in NSW.
The Australian Tax Office (ATO) said while it was unable to comment on individual companies, generally there was a "high level of compliance" with GST law for low-value imported goods.
"The ATO has a visible and effective compliance program using tools such as financial transaction tracing, close co-operation and information sharing with tax administrations in other countries," the spokesperson said.
Another challenge, TEMU faces growing concern in Australia over potential cybersecurity and foreign interference risks posed by Chinese-owned apps.
TEMU's Chinese prototype, Pinduoduo was suspended from the Google Play store earlier this year after malware issues were detected.
Lyria Bennett Moses, a cybersecurity law expert from the University of New South Wales, said the federal government needs to develop a strategy that goes beyond app-by-app tactics.
"There are actually a lot more apps that share data with people we might not want data shared with for various national security or other reasons, beyond simply the question of Chinese owned companies," she said.
Professor Bennett Moses suggested more productive communication with young people who are the main users of these Chinese-owned apps would be one way to improve.
A recent poll by the Australia-China Relations Institute showed that while 75 per cent of Australians over 55 support banning Chinese-owned apps, only 44 per cent of 18-34s agree.
"It's important to understand the community concerns around it," she said.
Are you getting a lot of ads for TEMU? The Chinese retailer is coming for Amazon – and it might win
A flashy new online shopping app has been bombarding Australians on social media. While some see it as the saviour of China's economy, not everyone is convinced.
www.abc.net.au
