Will the Chinese Temu succeed in conquering Serbia at the same speed as it conquered the world - What is the secret behind RSD 125,0 lipstick and RSD 4,0 temporary tattoo

Temu has recently arrived in Serbia, which it is conquering with a proven recipe - cheap products and an aggressive marketing campaign. Thanks to this invincible cocktail, it managed to impose itself on users around the world and give Amazon and other giants of online commerce a headache. Along the way, it hs also become the target of criticism directed at him from various quarters, from the business community to environmental activists and state regulators.

It hasn't been on the market for two full years - it was launched in September 2022 - and the results are already impressive. According to Business by Apps, the app was the most downloaded in the US, UK, Germany, France and Italy in 2023. In June of this year, the app was downloaded more than 50 million times worldwide, making it more popular than Amazon, according to Statista data.

How Temu works - There are no middlemen, the goods arrive directly from the manufacturer

China is known for cheap production costs, incomparably lower than in Europe, but goods reach customers in the West mainly through intermediaries who are hired for their service. Temu has now cut out the middleman, offering goods directly from manufacturers and independent sellers. It also means it doesn't have to spend money on storage.

Even the little ones will be happy, five mini cars for children cost RSD RSD, and 20 colorful balloons cost RSD 210. Cooking enthusiasts will find a device for washing fruits and vegetables for RSD 1,521, a cake mix dispenser for RSD 886, and a kitchen scale for RSD 624.

The estimated monthly gross value of goods sold on this platform, according to Statista data, is 635 million USD. The same products are significantly cheaper than competitors. True, the wait is longer compared to Amazon's fast delivery, but the data shows that customers are willing to wait. Free shipping and 90-day returns also help.


The USA fell first - 150 million Americans and 45 million Europeans

The owner of Temu is PDD Holdings, which also owns Pinduoduo - an online platform focused on the sale of traditional agricultural products. PDD has a market capitalization of about USD 208 billion, overtaking Alibaba with a market capitalization of USD 196 billion, according to data from financial analyst company London Stock Exchange Group.

In conquering the market, Temu started off with the biggest bite - the USA. It turned out, it wasn't that big at all - Reuters data show that the platform occupied 17% of the American market. Inflation-stricken Americans have turned to a retailer that offers low-cost products -- 150 million Americans use it each month, according to SimilarWeb.

After the USA, the invasion of Europe followed - according to the data provided by Temu to the European Commission, there are an average of 45 million monthly users in the EU. Today, Temu delivers goods to 50 countries around the world and, as of recently, to Serbia.


How does it pay off to sell such cheap goods?

An investigation by Wired magazine in May 2023 revealed that Temu loses an average of $30 per order and could lose up to $927 million per year. Also, according to researchers, Temu puts a lot of pressure on Chinese manufacturers to reduce costs or even ship products for free.

However, others argue that this business model works because it attracts a large number of customers with low prices. This means that although its profit margins are lower than those of domestic retailers, the number of items sold is high enough that the company still makes a profit.


Aggressive marketing pays off

What certainly pays off is aggressive marketing, which Temu does not skimp on. According to AdExchanger, Temu spent USD 3 billion on digital marketing in the US last year, making it one of the largest advertisers in the country. We don't know how much they spend in Serbia, but you will hardly miss their ad while searching for anything on the Internet.

If you really don't like it, you will be captivated by the opportunity to play, spin the virtual wheel and win a 96% discount. And when they finally entice you to go to the site, or download the app, there are "time-limited offers", "lowest prices ever", "almost sold out", "just bought", "fewer returns than similar products" waiting for you.

Every click you make is more information for them. Data on searches, trends among consumers, and the most sought-after products are analyzed in order to achieve the main goal - better sales.


Criticisms – from forced labor to malware

The collection and handling of sensitive data is one of the areas that have made Temu the target of criticism in the US and Europe. Regulators in South Korea have been investigating allegations of false advertising and unfair practices.

Grizzly Research, which compiles reports on large public companies, accused Temu of hiding a large amount of malware and spyware inside its mobile app. They stated that this "could potentially allow bad actors full access to almost all data on users' mobile devices".

Temu repeatedly emphasized that the use of the application and the site is completely safe and insisted that he does not sell user data.

As the EU recently announced, Temu will have to comply with the strictest rules under the DSA (Digital Services Act) within four months of notification (i.e. by the end of September 2024), including the obligation to properly assess and mitigate any resulting systemic risks from their services, including advertising and selling counterfeit products, unsafe or illegal products, and items that infringe intellectual property rights.

A US government investigation found an "extremely high risk" that products sold on Temu may have been made using forced labor.

Temu, on the other hand, claims that it "strictly prohibits" the use of forced, penal or child labor by all of its merchants.

Criticism also comes from environmental activists who accuse them of encouraging consumerism and unnecessary waste generation, as well as that orders arrive in excessive and non-recyclable packaging.


Future - Will it attract local retailers

While some believe that Temu is an example of a company that will last a short time, others argue that if it does business smartly, it will survive in a harsh market.

That the platform has cause for concern is shown by research from Goldman Sachs which suggests that user retention rates are below 30% – while Amazon Prime, by comparison, is over 90%. So, to attract users in the long run, it will have to offer something more than cheap goods.

The company is already doing this - this year it began looking for warehouses in the US, which will provide it with the faster delivery that Americans are used to.

Another area they will need to work on is the offer. According to Marketplace Pulse research, Temu has 5,000 sellers and almost all of them are from China. In March of this year, they started inviting Western manufacturers to join the platform. These sellers will have to set up logistics from their domestic warehouses, which means customers will get their goods faster. It remains to be seen if Temu will succeed, as the likes of AliExpress and Wish have failed to attract domestic sellers.

- We think that the profitability of Temu will grow faster than previously estimated due to the introduction of the semi-consignment model, according to which the logistics costs will be borne by the merchants. We also believe that PDD's domestic platform will be able to defend its position given the strong consumer impression of value for money - concludes Morningstar in its analysis.

M. D.

Toemu

PDD Holdings

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