Temu is an e-commerce platform that connects third-party sellers with consumers. It offers a diverse range of products across 29 categories, from electronics and appliances to fashion and cosmetics. Launched in September 2022, Temu has quickly become the most downloaded app in the United States.
The app’s popularity is tied to its affordable products. A musically inclined shopper in Temu can find earbuds for $5 or a well-functioning ukulele for $25. A craft enthusiast can find a 25-piece set of sewing needles for $0.38, or a 1,000-piece bead set for $1. Women’s jeans are priced as low as $8; men’s dress shirts cost as little as $6.
Price reductions can reach 90%, nearing wholesale cost for some items. In many cases, shipping is free.
These low prices stand out even in a competitive e-commerce space that includes giants like Amazon and Alibaba. While the discounted products have consumers paying attention, many might still wonder: Why is Temu so cheap?
Temu is so cheap because it works directly with manufacturers to reduce production, marketing, and shipping costs. The company uses a Next-Generation Manufacturing model that connects manufacturers directly to consumers and involves collaborating with sellers and brands to design products and match supply to demand. This eliminates costs associated with wasted inventory and inefficient marketing spending.
The saved costs are passed to the consumer in the form of lower-priced items. Manufacturers can afford to charge less for quality items because Temu helps reduce the cost of production and shipping. Margins remain profitable despite the dramatic reduction in prices and sellers can reach more customers looking for value buys.
Temu is headquartered in Boston. Its name (pronounced “TEE’-moo”) comes from the phrase “Team Up, Price Down,” which refers to the company’s guiding philosophy of reducing e-commerce prices through collaboration with sellers.
While it’s less than a year old, it’s remained the No. 1 most downloaded app since shortly after its establishment. Temu received the eighth-most downloads of any shopping app in 2022 despite being active for only four months of the calendar year after its launch in September.
The company is rapidly expanding and currently has approximately 10,000 employees and a merchant base of over 11 million. It handles $61 billion in orders annually.
How Does Next-Gen Manufacturing Work?
So, what’s responsible for this rapid growth, and how does a nascent company like Temu challenge established online retailers?
According to Temu’s website, the answer has to do with its cost-saving approach to manufacturing, which relies on the company’s “ability to source the best products globally, experience in managing complex logistical supply chains.”
Manufacturing and inventory management have undergone a sea change in the 21st century with the rise of retailers such as Walmart and Amazon, and Temu’s strategy is to take the evolution of manufacturing one step further. Larger online retailers have streamlined inventory management using technologies such as barcode and radio frequency identification (aka RFID) scanners, automated order-filling software, and cloud computing. But these companies’ strategies involve handling a finished product.
Temu’s innovation is to work with manufacturers in the product development process in addition to providing the infrastructure for an efficient supply chain. Using advanced analytics, Temu can determine consumer preferences and behaviors and apply these insights to anticipate demand.
Companies often spend millions of dollars on consumer surveys or their own analytics to gain these consumer insights, but Temu gives its insights to its partner sellers for free. The reasoning behind this is that more-informed sellers can make better decisions and cut costs, and Temu asks that those cost cuts be passed on to the consumer.
Sellers are willing to lower prices not only because their production costs are down, but also because lower prices generate more sales — and more sales mean more valuable consumer insights that can help them further improve their products and supply chains.
In addition to reducing production costs by avoiding wasted inventory, the Next-Gen Manufacturing approach removes the need for expensive marketing strategies. Temu does the work of identifying target customers and helping sellers and brands tailor their products to speak directly to the most relevant trends and client needs on the platform.
The approach is analogous to Google’s use of analytics to study users’ search history and better serve them with the kind of results they prefer. And as with any analysis of this kind, the results become richer with more information. Temu’s low prices generate more sales, so it can home in on true demand and preferences as more items are sold. As Temu learns more about customers, the insights are shared with manufacturers, so manufacturers hone in on optimizing production strategies and eliminating waste.
This collaborative approach to consumer-to-manufacturing sales is coupled with Temu’s extensive network of suppliers to deliver products quickly at low cost. The company’s online platform eliminates the middleman and facilitates a direct connection between the buyer and manufacturer, which cuts down both on the cost and time needed to deliver an item once an order is placed.
Is Temu Here To Stay?
All signs point to Temu remaining a relevant player in the e-commerce space. Consumers are particularly attuned to low prices as inflation continues to drive the costs of goods up, and the company’s next-generation marketing strategy is particularly attuned to identifying consumer preferences and speaking to value-seekers.
Some consumers, particularly in the U.S., may not be used to such drastically lowered prices, and one might think they’d be wary given the association of low price with low quality. Yet, Temu’s user adoption numbers continue to increase in the U.S. This suggests that consumers who have either grown up with or logged decades of experience with low-priced online shopping are open to the idea that prices drop because of improved technology, not because of lower quality.
Temu is banking on this mindset continuing to drive growth in the coming years. While the usual e-commerce giants will of course continue to be present, Temu is an interesting upstart with a novel approach to a fast-growing market.