Addictive cheap and controversial: the rise of China’s Temu app

A chicken-shaped lamp. A toilet paper holder in the shape of a smiling velociraptor. An apron that catches beard hair during shaving. The list of unusual products goes on.

Among the more everyday items are cleaning products, smartwatches, novelty T-shirts, knock-off sneakers and barbecue tools, but the common thread across all of them is that everything is incredibly, mindbogglingly cheap.

This is Temu, the latest Chinese shopping app to take the internet by storm and raise questions about provenance, competition and value.

Temu launched in the US in 2022 before expanding to Canada earlier this year, then to several European countries, Australia and New Zealand in recent months.

It has quickly become a market leader, topping app charts in multiple countries, according to online monitors, and has captured more than half the US market share of its closest rival, the fast fashion giant Shein.

Its appeal is clear. In the midst of rising inflation around the world, Temu has attracted customers through its seemingly limitless range and incredibly low prices. Men’s running sneakers cost lest than £5, an avocado slicer is advertised for £0.89, a well-reviewed outdoor tent sells for under £2. The company earned itself the nickname “the price butcher” during Black Friday sales last year, according to the China Project – and the total value of products sold on the site has gone from US$3m in September 2022, to US$400m in April.

But it has also drawn controversy, and rising consumer complaints. Temu is engaged in a US-based legal battle with rival Shein. The two companies have sued each other in US courts over alleged anti-trust activity. Shein accused Temu of misleading consumers to think they were the same brand, then Temu accused Shein using “exclusionary practises” including making its suppliers sign exclusivity contracts which Temu said hindered its commercial growth. The two companies have rejected the allegations against them. Temu has also been accused of circumventing US anti-forced labour sanctions, and forcing suppliers into difficult conditions.

There’s also widespread scepticism over how long it can sustain its business model.

“Right now, Temu does not care much about breaking even,” says Ivy Yang, founder of Substack Calling the Shots, and Wavelet Strategy. “Its primary competitive advantage is selling products as cheaply as possible. The platform is laser-focused on capturing customer mindshare.”

‘It felt like a digital poker machine’

There is a reason the app suddenly seems so ubiquitous online. Recent market analysis found Temu is investing nearly US$500m every quarter into marketing and promotions.

“That’s $2bn a year to power all the social media ads, display banners, and paid searches, all geared towards aggressively expanding its customer base,” says Yang.

The app and website are an assault on the senses, filled with promotions and offers in return for referrals. Some shoppers have used the referral rewards so successfully that they’ve managed to order numerous items without paying for anything.

The platform tells users to shop “like a billionaire”, and then gamifies the experience with interactive prize wheels and reward systems, and exploits buyers’ FOMO with countdown timers and rolling lightning sales and deals.

To some, it’s a turn-off.

“They make the whole thing feel like a scam, even though I don’t think it is,” says one Australian shopper.

“They kept shoving opportunities to earn more coupons in my face, but it always felt like you had to do just one more thing, refer one more friend, before you’d finally get the promised abundance. It felt like a digital poker machine”.

Temu is also not immune to the general concerns about data security that have followed Chinese-linked apps for years. Analysts say it doesn’t appear to collect much more user data than Amazon or eBay, but they do say Temu isn’t transparent about its security testing and data safety. The app was temporarily suspended from Apple stores earlier this year after Apple found it was misleading users about its use of their data, according to Politico. Apple says its transparency concerns were resolved in July.

In March, Pinduoduo – Temu’s domestic Chinese equivalent – was suspended from Google Play stores after it was found to contain malware targeting android machines. It also was found to make about four times as many user data requests and permissions as Temu. The scrutiny of Pinduoduo appears to have led Temu to distance itself from it and their shared parent company, PDD Holdings. Temu moved its international headquarters from Shanghai to Dublin this year.

Temu has been contacted for comment.

An aggressive business model

The platform runs in a similar way to Shein – offering a seemingly endless array of items direct from suppliers who make short production runs in response to customer interest. But it differs in that while Shein directly contracts suppliers to make the orders, Temu acts as more of a bridge, allowing suppliers to focus on their production run while the platform manages product listings, marketing, and logistics.

“Yet, this comes at a cost for sellers: they relinquish control over pricing, return policies, and long-term sales growth planning,” says Yang. “Under this model, Temu’s duration of payments to sellers is notably longer, and the cashflow pressures fall on sellers, not platform.”

The rise of Temu (and Shein) have had major effects on aspects of the e-commerce industry. Yang says Temu’s aggressive social media marketing spend “has inadvertently driven up the costs of ads inventory for everyone”.

Sunandan Ray, chief executive of global shipping company, Unique Logistics, says the huge volume of shipping is taking up more of the limited export space out of China, and driving up prices.

“Everyone who is importing by air is paying a higher price now because of the loss of capacity,” he says. “To a certain extent it might be getting passed on to consumers, or it might be squeezing the margins of sellers.”

Unlike general retail, which imports large consignments of product, Temu’s logistics model for the US bundles individual customer packages together, USPS shipping labels attached. Upon arrival the packages are accepted as individual imports and distributed by local postal services. The model has led to US politicians accusing the company of circumventing de minimis rules which require customs declarations, inspections and compliance for shipments above US$800.

In June a report by the US House Select Committee on the Chinese Communist party accused Temu of avoiding sanctions under the US’s Uyghur Forced Labor Prevention Act (UFLPA), which restricts some Chinese goods linked to human rights abuses in Xinjiang.

“Temu is doing next to nothing to keep its supply chain free from slave labour,” said Republican senator and committee chair Mike Gallagher, referring to allegations of forced labour transfer programs.

“At the same time, Temu and Shein are building empires around the de minimis loophole in our import rules – dodging import taxes and evading scrutiny on the millions of goods they sell to Americans.”

The report said 30% of small packages coming into the US were now from Shein and Temu.

Temu did not respond to requests for comment, but told the committee it has sellers sign a code of conduct containing a zero-tolerance policy for the use of forced labour.

Temu’s meteoric rise has observers and industry insiders watching closely. For now it’s still a startup – albeit a very large one – and whether it can maintain its low prices and global market share amid controversies is still a live question.

Yang says if it wants to survive alongside giants like Amazon, the company must improve the shopping and delivery experience, and ensure higher and more consistent product quality.

“If the merchant economic dynamics continue to disproportionately favour the platform at the expense of sellers, and Temu fails to foster organic repeat purchases, its current rate of subsidized growth is untenable.”

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