Temu hits a snag

Pinduoduo is experiencing new challenges and opportunities in its overseas expansion. After successfully occupying the US market with low prices and subsidy strategies, its platform Temu began to expand to the Middle East, Japan, South Korea, and Southeast Asia. However, in the expansion of new markets, Temu not only has to face fierce competition, but also has to solve multiple problems such as logistics and localized services.

The four little dragons that went overseas with low prices and subsidies have finally reached new markets outside the United States.

Recently, people close to Pinduoduo told Alphabet List that in 2024, Temu, which has shifted its focus to globalization, is promoting a semi-hosting model in new markets such as the Middle East, Japan and South Korea, with the Middle East having the highest growth target.

On August 18, Temu will open semi-hosting in Japan and South Korea. Unlike AliExpress, SHEIN and TikTok, which are still waiting and have not invested in local warehouses, Temu is actively looking for suitable local warehousing service providers in Japan and South Korea.

After expanding local warehouses, Temu's semi-managed business in Japan can achieve same-day ordering and next-day delivery. This will be a big blow to Amazon, which is known for its logistics and delivery timeliness.

In March this year, The Information reported that Temu is setting a goal to reduce the proportion of US market sales to Temu's overall merchandise sales from 60% to 30% by 2025.

A Temu spokesperson said at the time that although the U.S. market will continue to grow and remain important, its contribution percentage to GMV will be adjusted as the company expands to more markets around the world, which is a natural result of the company's global expansion.

Accelerating expansion into other global markets has become Temu’s new mission.

However, Temu, which is good at becoming a catfish to stir up the market, also ran into competitors who were actively planning while looking for new markets.

Southeast Asia is a battleground for overseas e-commerce companies. In August and September 2023, Temu entered Malaysia and the Philippines, and provided benefits such as free shipping, 90-day free returns, and discounts of up to 90% as soon as it went online. However, facing Shopee and Lazada, which have already started live streaming and short videos to sell goods, and TikTok, which has accumulated highly active users through social networking, Temu's low-price strategy has had little effect.

According to data from Momentum Works, Temu's GMV in Southeast Asia will be US$100 million in 2023, lower than TikTok Shop's US$16.3 billion. Although this is related to Temu's relatively short entry time, Temu's performance in Southeast Asia is obviously not as dazzling as when it first invaded the United States.

Temu, which is actively looking for new markets, has also made a lot of new gains. According to FoxIntelligence, four months after Temu was launched in France, its market share has surpassed SHEIN, its penetration rate has reached 11.9%, and its customer base is almost the same size as SHEIN. At the same time, according to Nikkei, Temu will be launched in Japan in July 2023, with a monthly user growth of 2.2 million. Currently, Temu has 15.5 million monthly active users in Japan, surpassing Japan Amazon (Japan), Rakuten and Yahoo Shopping.

"Last Saturday, when Japan was still on holiday, Temu's investment manager not only took the initiative to contact us, but also quickly sent us all the information needed for Temu's certified warehouse," said Chen Lei, founder of Japan Panda Overseas Warehouse. Temu, which used to ship goods from China to the world, is now actively recruiting local warehouse service providers. Obviously, Temu is accelerating its pace in finding new markets.

01

Temu, which had been on a rapid pace in its search for new markets, also encountered setbacks.

The Thailand site, which was launched on July 29, became Temu's third site in Southeast Asia. It has been a full year since Temu was launched in Malaysia and the Philippines.

According to Bain & Company statistics, the GMV of Southeast Asian e-commerce is expected to reach US$211 billion by 2025. The Southeast Asian market with huge potential is not only a battleground for Alibaba AliExpress, Lazada, Shopee and other predecessors who have gone overseas, but also a new arena for new forces going overseas such as TikTok and Temu.

When entering Southeast Asia, Temu not only offers free shipping, 90-day free returns, and up to 90% discounts, but also develops its own logistics system, allowing sellers to ship goods from Guangzhou to Bangkok by truck. "This saves time compared to shipping by sea, and the time it takes to deliver goods to your doorstep can be shortened to less than 5 days," said Zhang Yang, a cross-border merchant in Southeast Asia. The cost of truck delivery is slightly higher than shipping by sea, and the initial freight costs are also subsidized by Temu.

However, although the five-day delivery cycle is a significant improvement for Temu, which ships from domestic warehouses, both Shopee, in which Tencent previously invested, and Lazada, which is backed by Alibaba, have already established logistics systems in Southeast Asia.

Taking Lazada as an example, Cainiao has started trial operation of Southeast Asia's cross-border express delivery service in June 2024. "The fastest delivery time to Singapore, Malaysia, Thailand and the Philippines is 3 days. In comparison, Temu's delivery advantage is not obvious," said Zhang Yang.

Even the low-price strategy that Temu is good at is not as effective in Southeast Asia as in the United States.

Zhang Yang, who has opened stores on both Temu and Shopee, told Zizibang that when Temu launched a big promotion in the Philippines, Shopee's various discounts were "aimed at Temu". Taking women's clothing, which is the most competitive in Southeast Asia, as an example, Temu has a 90% discount for new users, and Shopee immediately launched a "1 peso free shipping zone". Temu's women's clothing unit price is as low as US$2.8-3.5, while Shopee's is reduced to less than US$2.

At the beginning, the main reason why Temu was able to sweep the United States was that its prices were low enough and the main categories of the platform were different from those of its competitors. However, in Southeast Asia, Temu encountered street fighting, and targeted counterattacks by competitors such as Shopee in the same category prevented Temu from winning the absolute low price.

Not to mention TikTok, which has been very popular in Southeast Asia. According to Momentum Works data, by 2023, the Thai e-commerce platform market will be divided into three parts: Shopee (49% market share), Lazada (30%) and TikTok Shop (21%).

It seems that there are not many opportunities left for Temu in the Southeast Asian market. As a latecomer, Temu will obviously have to pay a higher price to compete for market share.

CICC predicts that in addition to Southeast Asia, in 2024, Temu will shift its focus from North America to Europe, the Middle East, Japan, South Korea, and Latin American markets.

In March 2024, at Temu's official Middle East Ramadan clothing and apparel special investment promotion meeting, Temu's relevant investment promotion person in charge said, "Temu will be more aggressive in globalization in 2024, with the Middle East market having the highest growth target."

In August 2023, Temu launched the Israeli site, and then the Saudi site in September. Temu has covered the largest e-commerce market in the Middle East. Facing the rich in the Middle East, Temu still focuses on low-price promotion strategies. When checking the prices of goods at Temu's front desk, Lin Zheng, who opened stores on both TikTok and Temu, told Alphabet List, "For the same category, the discounts on Temu's best-selling products can reach 50% or even 70%. After subsidies, the unit price of goods on the Israeli site has dropped to less than US$21, which is 10% or even more lower than other platforms."

Facing the approaching Temu, AliExpress not only signed two famous Saudi football stars as spokespersons, but also promoted the brand in offline shopping malls through TVC channels. In just one Ramadan, AliExpress launched four waves of promotions. SHEIN, which specializes in women's clothing, entered the Middle East in 2015.

It should be noted that when entering new markets outside the United States, a low-price strategy may not always work miracles. It does not seem to be easy for Temu to catch up.

02

Temu, which encountered setbacks in Southeast Asia and the Middle East, is gaining momentum in Japan.

In July 2023, Temu was launched in Japan. The big red "up to 90% discount" was quite eye-catching on the shopping page. The limited-time discount sales with prices as low as 100 yen also allowed Temu to reach 1 million downloads in just 35 days after its launch. In Japan, where the population is only one-third of that of the United States, Temu easily broke the record of one million downloads in 45 days after its launch in the US market.

According to Diandian Data, Japan is undoubtedly a new market that Temu has invested heavily in and has high hopes for. Half a year after its launch, as of January 23 this year, Japan ranked second among all markets Temu has entered in terms of the number of ASA bidding words and new words in the past 30 days, with the United States ranking first. As of August 14, Temu has been online in Japan for more than a year. Among all the markets it has entered, except for Southeast Asia and Europe, Japan still ranks at the forefront.

Figure: Temu’s bidding word country ranking chart, source: Diandian Data

In addition to low prices, Temu also seeks new growth space through differentiation. Facing Amazon and SHEIN Japan, users have set a basic shipping fee of 400 to 500 yuan, while Temu has set a policy of reducing shipping fees for purchases over 1,400 yen, which quickly attracted a group of Japanese users. "For the same product, the price difference between Temu and Amazon can sometimes reach 10 times. Although Temu's delivery time is more than a week, the price is too tempting." said aiyo, an international student living in Tokyo.

Not only in Japan, but also in South Korea, Temu has made great achievements. In August 2023, Temu had only 520,000 registered users in South Korea. Six months later, in January 2024, its number had increased more than 10 times to 5.7 million. The latest set of data shows that the number of registered users of Temu in the Korean market has achieved amazing growth. As of August, Temu's ranking in the monthly active list of shopping apps has jumped to third place, and the monthly active data difference from AliExpress, which ranks second, is only about 100,000.

In addition to Japan, Europe has also become a new source of growth for Temu.

On April 21, 2023, Temu launched in the UK market, and in just two days, it opened six sites in Germany, the Netherlands, Italy, France and Spain. So far, Temu has opened about 76 sites, covering all continents, with the largest number of sites in Europe.

According to Diandian data, as of August 14, among Temu’s ASA bidding words and new words in the past 30 days, France, Italy, and Germany ranked 3rd, 4th, and 5th respectively among those that have entered the market, which shows that Temu attaches great importance to the European market.

Take France as an example. According to FoxIntelligence data, Temu’s penetration rate reached 11.9% after one year of launch in France, approaching SHEIN’s penetration rate of 12.8%. At the same time, Temu’s average order value is 13 euros, which is lower than the average price of 15 euros. The continuous advertising flow and low prices under subsidies have undoubtedly allowed Temu to gain a firm foothold in Europe.

03

Be it failure or rapid growth, finding new markets has obviously become the top priority for Temu.

Once upon a time, Chinese cross-border e-commerce giants represented by SHEIN, Temu, and AliExpress were the new and powerful sponsors of American digital advertising.

Whether it is Temu buying the Super Bowl for two consecutive years, or in the first two weeks of November 2023, during Black Friday, Shein's advertising spending increased by 60% year-on-year, while Temu's increased by 100%. Meta, the parent company of Facebook and Instagram, also stated in a conference call that Chinese advertisers such as Temu accounted for 10% of its revenue, almost double that of two years ago.

However, according to estimates by investment bank Bernstein and other institutions, in Q2 2024, Temu and SHEIN's advertising expenses on Meta totaled nearly US$400 million, a significant drop from the peak in Q3 last year.

At present, Temu is actively adjusting its strategy. According to CICC's forecast, Temu is accelerating its business expansion in Europe, the Middle East, Japan and South Korea. As of July this year, Temu has entered more than 70 countries and regions.

But the new market undoubtedly also brings new challenges to Temu.

In Japan, where Temu has high hopes, logistics and delivery have become a pressing problem for Temu. Previously, Temu, which quickly gained users with its fully managed low prices, still had a big gap in logistics speed compared to Amazon, which delivers the goods the next day after placing an order on the same day.

"Although Amazon's prices are high, its delivery speed is fast and returns are more convenient." Miyo told Zizibang that she once tried to return a product on Temu, but because Temu does not have a local warehouse in Japan, she could not make an appointment to pick it up at home. Compared with Amazon, which allows you to return the product by scanning a code, going to a street convenience store or making an appointment to return the product at home, "it's too inconvenient."

Miyo is often disappointed every time she receives Temu goods. "The cartons that Temu delivers are all broken when you open them, and no matter how big or small the items are, they are packed in plastic bags and wrapped tightly with tape, making them very difficult to open." Miyo, who is used to Japan's exquisite packaging, feels that "Temu's packaging is too rough."

"After Temu quickly found a local warehouse to cooperate with, it was able to quickly align with Amazon in terms of delivery, and could place an order on the same day and have it delivered the next day." Chen Lei, the founder of the Japanese Giant Panda Overseas Warehouse, who lives in Japan, told Alphabet List that in addition to the original cost-effectiveness, if Temu could make changes in delivery time and packaging, it would have more advantages in competing with Amazon.

According to Temu's official investment promotion manager, in 2024, in addition to globalization, semi-hosting will also be Temu's focus, precisely to meet users' new demands for logistics timeliness and product packaging.

For Temu, as it enters more and more global markets, it will also need to deal with more and more complex challenges.

(Lin Zheng and Zhang Yang are pseudonyms in this article)