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Temu’s Super Bowl return highlights e-commerce anxieties in the US

Written by KrASIA Connection Published on   6 mins read

Given the significant differences between the US and Chinese markets, is PDD Holdings risking a pyrrhic victory by emulating Pinduoduo’s strategy with Temu?

Last night, Temu, an e-commerce platform operated by Pinduoduo’s parent company, PDD Holdings, aired its second Super Bowl ad in as many years. The ad appeared multiple times throughout the game, including after the game-winning touchdown. With each placement estimated to cost USD 7 million, Temu is believed to have spent a whopping USD 21 million on this campaign, while also offering USD 10 million worth of gifts during the game.

Companies that invest voraciously in Super Bowl ad time typically go to great lengths to produce commercials worthy of the highest echelons of marketing—the kind of content that people might genuinely enjoy or at least discuss, rather than simply endure. However, Temu’s Super Bowl ad this year has faced criticism for adhering to the same dated formula: repeatedly running a jingly, animated ad.

Despite the backlash, Temu may have its reasons for sticking to a strategy that seemingly worked well the previous year. When the company first entered the US market about a year and a half ago, it was relatively unknown, along with its parent company, PDD Holdings. However, by the end of 2023, it had emerged as one of the most prominent e-commerce apps in the US. Data from Sensor Tower also indicates that Temu ranks as the second most popular shopping app in the US based on monthly active users.

While criticism has been abundant, statistics from Edo suggest that Temu may have disproven its critics this time around, with its Super Bowl airings generating 1,343% more engagement than the median Super Bowl ad.

From the outset, Temu has seemed to grasp that one of its greatest challenges in its endeavor to dominate American shopping is simply achieving brand recognition. The US presents a vastly different landscape from the home turf Chinese companies are accustomed to competing on. It’s a mature consumer market where Amazon reigns supreme in online retail, while Walmart and Target, longtime competitors of Amazon, also dominate brick-and-mortar shopping. At the lower end of the market, Dollar Tree and Dollar General operate tens of thousands of stores in North America, primarily targeting customers in less well-off or rural areas.

Given this perspective, it’s not hard to understand why Temu opted to spend tens of millions of USD on Super Bowl ads once again, encouraging more Americans to “shop like billionaires” and hope these efforts extend beyond a one-time occurrence.

Temu’s success in the US hinges on offering ultra-low-priced products and committing billions of dollars to advertising, including this year’s Super Bowl. This development strategy appears to mirror what Pinduoduo adopted to effectively compete with Alibaba in the domestic market: enticing shoppers with rock-bottom prices and extraordinary subsidies. After gaining market share, Pinduoduo achieved profitability by gradually reducing customer acquisition costs, obtaining more advertising fees from merchants, and diversifying into higher-profit categories.

It’s noteworthy that Shopee, the e-commerce leader in Southeast Asia, has once embraced a similar approach, albeit encountering some obstacles along the way.

However, it remains uncertain whether this strategy can be replicated, noting that American consumers still possess considerable purchasing power despite the cooling-off of the US economy. Therefore, the demand for low-priced products may not be as robust as it once was, unlike in China.

As it stands, Temu lacks any significant size advantage compared to Amazon or Walmart. Its retail sales in the US grew by about 5% in 2023, outpacing all other retailers except the two giants.

In the US, Temu’s sales surpassed those of fast fashion giant Shein in May last year, outperforming its rival by approximately 20%, according to Bloomberg Second Measure, which analyzes consumer credit and debit card transactions. The data indicates that Temu has extended its lead every month since then, and in September 2023, it recorded more than double Shein’s sales in the country.

However, despite its achievements, Temu’s absolute share of retail sales in the US remains extremely low, accounting for only about 0.2%. Furthermore, its sales dropped by 12.5% month-on-month in December 2023 and by 4.8% in January, representing a significant decline from the Chinese e-commerce app’s growth of over 50% in mid-2023. The overall increase in US retail sales in December paints a stark picture.

For Temu, the gradual decline in consumer interest following the initial excitement might explain why it cannot afford to scale back its extensive marketing efforts. According to Yiyu Guancha, Goldman Sachs’ latest research indicates that 21% of surveyed respondents had shopped on Temu in the past three months. In comparison, this figure was 25% in November and 27% in September, illustrating an overall downward trend in Temu’s shopper penetration rate since its peak in mid-2023.

Temu may face a USD 3.65 billion operating loss this year, despite achieving global sales of USD 13 billion, before potentially narrowing to USD 1.9 billion in 2025, according to a forecast by Sanford C Bernstein.

Besieged on all fronts, Temu also grapples with growth concerns. In addition to sustaining consumer interest, Temu must navigate geopolitical tensions and regulatory risks.

Changes in US import tariffs and tax policies could impede its prospects, prompting Temu to experiment with a semi-fulfillment model at the end of last year, aimed at encouraging more merchants to establish warehouses in the US. However, simply exporting large quantities of low-cost goods overseas risks triggering anti-dumping investigations by the US and the European Union.

Even if Temu manages to address regulatory concerns, it still faces an uphill battle, particularly against the American e-commerce behemoth Amazon. With its extensive product range and rapid delivery services courtesy of highly loyal Prime members, Amazon maintains a dominant position in the minds of American shoppers.

Simultaneously, confronted with Temu’s aggressive expansion, Amazon isn’t taking it lightly. Last December, Amazon announced a reduction in platform fees for sellers of clothing items priced below USD 20, likely in response to the rise of Shein and Temu. Amazon stated that the fee reduction aims to offer consumers more competitively priced product choices.

In response, Temu recently unveiled plans to open its marketplace to sellers in the US and Europe, initially targeting Amazon China sellers with inventory in the US. However, the core issue remains—what value can Temu, which focuses on keeping prices low, offer to these merchants?

As it stands, Temu hasn’t amassed the user base advantage that Pinduoduo enjoyed in its early years, meaning brands like Nike and Apple, among others, have little incentive to join. While the extremely low logistics costs in the domestic market may accommodate Pinduoduo’s stringent unconditional return policies, the international logistics landscape and the higher costs of the US market would undoubtedly present a greater challenge.

Moreover, Temu faces pressure not only from domestic giants but also from Chinese “frenemies” that understand its strategies better and are more inclined to obstruct it. Citing data from AlphaWise, Yiyu Guancha said that over half of AliExpress shoppers (52%) also use Temu, while the percentages for TikTok Shop and Five Below are 43% and 36%, respectively. The lowest overlap is with large retailers such as Walmart, Amazon, and Target.

Another competitor not to overlook is Shein, which directly competes with Temu in terms of supply chain, talent recruitment, and legal disputes.

Although often lumped together, the two firms possess significant differences. Shein has predominantly operated under its own brand and specializes in fashion, whereas Temu serves as an intermediary facilitating direct purchases from suppliers, spanning numerous product categories.

In this context, Temu’s Super Bowl advertisement serves as a reminder to American consumers not to overlook a platform where they can find affordable goods, while also keeping Temu at the forefront, as both regulators and competitors maintain a close watch.

Temu’s unexpected appearance in last year’s Super Bowl undoubtedly caught many by surprise, but its return to the Super Bowl stage once again reveals its underlying anxieties.


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