Is Temu a threat or should we learn from them?

In the past years China’s cross-border e-commerce platforms, such as Temu, Shein and AliExpress have rapidly gained global market share, disrupting traditional retail markets in Western countries. As with many topics about China, in the mainstream media and the general public we often get a rather one-sided story. Some of the concerns are legitimate, but there are also a lot of misconceptions about Temu and similar cross-border platforms. Are all claims and complaints about Temu’s business model correct? Is Temu serious about dealing with the complaints from consumers and regulators? What is Temu doing to solve these issues? Should we, as European consumers, be worried about security issues and personal data?

Temu’s disruptive strategy and business model

Let’s first look at Temu’s market entry strategy. It is an excellent illustration of the way many Chinese companies initially entered their domestic Chinese market. Although the product, technology or service may not be fully market-ready yet, these Chinese companies prioritize speedy market share acquisition and penetrate the market very aggressively, while simultaneously refining their business model to align with local market dynamics and ensuring compliance with regulatory frameworks. This is exactly what Temu has done in Europe too: after launching the app in the USA in September 2022, about one year later Temu entered the European market and disrupted the traditional online and offline retail market by offering a wide variety of products at ultra-competitive prices, directly delivered from the Chinese manufacturer to the European consumer.

Temu’s pricing strategy is supported by advanced data analytics, which helps manufacturers predict demand more accurately and minimize waste. This results in cost savings that are passed on to consumers, a cornerstone of Temu’s business model. Additionally, Temu heavily invests in social media campaigns and pay-per-click advertising, driving visibility and user acquisition at an unprecedented rate. In terms of logistics, Temu optimizes costs through a unique cross-border supply chain. By making use of tax exemptions for low-value imports and consolidating shipments, Temu can maintain low margins. Recent efforts to establish local warehouses in Europe and partnerships with third-party logistics providers aim to address concerns about long delivery times and improve customer satisfaction.

Criticism from European regulators and consumer organisations

European regulators and retailers have raised concerns about unfair competition and quality issues. The European Commission recently launched an investigation, focusing on alleged violations such as the sale of illegal or non-compliant products and insufficient transparency about sellers. Concerns have also been raised about Temu’s use of addictive design elements, such as gamified promotions, which may exploit consumers’ psychological tendencies.

Additionally, European consumers expressed concerns about product quality and personal data security. Regarding data security, in the past 12 months Temu has already addressed these issues and adapted their algorithms accordingly. There is no reason for consumers to be concerned about their personal data being misused but it is important for consumers to be vigilant about Temu’s aggressive marketing strategies.

Outlook for the future

Temu’s speed of adaptation is an illustration of the agility of Chinese companies. Starting with a fully-managed model (logistics done by Temu), later they launched the semi-managed model (logistics done by the merchant by storing goods in European warehouses). On top of that, Temu is has recently launched a third model, called the ‘platform model’. In this new model, instead of getting a margin by setting the consumer price, Temu will earn a commission (like Amazon). Or in other words, while Amazon is becoming more like Temu (Amazon Haul), Temu will become more like Amazon.

This development will surely improve the level-playing field and be beneficial for European consumers. Temu’s fast growth features a shift in consumer behaviour, with price-conscious shoppers looking for platforms that prioritize affordability and convenience. While Temu’s long-term success depends on overcoming challenges related to quality and trust, Temu has already made a lasting impact on the e-commerce industry. Its innovative approach and disruptive strategies signify a new era of competition and choice for consumers worldwide.

The impact for European retailers and webshops

How should we deal with these new developments from the perspective of European retailers and webshops? First, it is important to keep an open mind, try to understand what Temu represents and follow the developments closely, without focusing too much on stereotype accusations which are often taken out of context. Secondly, these Chinese platforms may also offer opportunities for non-Chinese merchants, such as European brands. With the new platform model, soon also European companies will be able to sell their products on Temu.

If you want to learn more about this or need any advice, please contact us.

^{This article is a summary of a panel discussion with Ed Sander and Vincent Nys, in collaboration with the Belgian-Chinese Chamber BCECC. You can watch the full recording on the following YouTube link.}