Why Is Temu So Cheap? It’s Losing Billions, That’s Why

The Chinese retailer's "Shop Like a Billionaire" strategy is proving popular but expensive. How long can it go on?

If you're still wondering if Temu is legit or not, then a new report shedding light on its rock-bottom prices and overall financial health is something you'll want to read. Despite smashing its US sales targets, the company's bottom line suggests it's set to end the year $3.56 billion in the red, meaning the real reason Temu is so cheap is because it's losing money.

Since entering the US market, Temu's minuscule price tags and promise of free delivery propelled it to the top of the US app store charts and enabled its sales to overtake its fast-fashion rival, Shein.

However, it's uncertain whether the company's “loss leader” strategy will secure its success outside of China in the long run, especially as criticisms over its product quality and data collection practices continue to mount. Here's what the latest figures reveal about why Temu is really so cheap.

Temu's Low Prices Places It in the Red

Temu's endless product selection and unbelievably low prices have dazzled American consumers since it first expanded into the US market last September.

However, new findings reveal that sky-high sales numbers aren't necessarily translating into profits for the ecommerce retailer. Wealth management firm Sanford C. Bernstein estimates that while Temu made around $13 billion globally this year, it may still be incurring a loss of $3.65 billion.

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If Bernstein's estimates are correct, there's no denying these are massive losses. However, the researchers also point out that the company's losses may shrink to $1.9 billion by 2025 if the app keeps hitting targets.

Temu's revenue figures are also on track to double the predictions made by the retailer in January. So how exactly did the Chinese app rise to such heights so quickly throughout 2023?

Temu's Meteoric Rise in the US

While Temu is headquartered in Boston, Massachusetts, the company is owned by Chinese-based company PDD Holdings. PDD Holdings has connections with direct wholesalers throughout China, allowing Temu to significantly undercut its competition.

Its high-profile backer also allows it to operate with a “loss leader” strategy when entering a foreign market. This is essentially when a company accepts it won't be making a profit immediately, but still offers low prices to stimulate sales and to improve its brand exposure.

These tiny prices, alongside perks like free shipping and no minimum spend, made Temu an instant hit with cash-strapped US shoppers, especially as the cost-of-living crisis continues to drive up the price of everyday goods.

However, it wasn't until the landslide success of Temu's February Super Bowl ad that the website really started to take off in the US. In the wake of the 30-second commercial, Temu saw a 45% surge in downloads, and its growth even superseded major retail competitors like Target.

Temu's success wasn't fleeting either. Its app secured the number one position on the iOS App Store for most of 2023, and still retains the top spot to this day.

Temu's meteoric rise also saw its sales overtake fast-fashion rival Shein, as the two engage in a heated legal battle over market monopolization and copyright infringement behind the scenes.

Temu's position in the iOS App Store in the US

Temu's position in the iOS App Store in the US.
Source: apptopia.com

Temu's Cheap Products Also Cost Consumers

Unfortunately, it's average US consumers looking for bargain clothes and home essentials that are losing out from Temu's radical business strategy too.

Temu has routinely come under fire for its inconsistent and poor product quality, as well as misrepresenting goods with false photos. The company isn't accredited by the Better Business Bureau (BBB) either — it only secured a user rating of 2/5 stars on the platform.

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Aside from cutting corners, Temu has also been called out by the US government for its shady data hoarding practices — with accusations against the site reflecting those recently levied against fellow Chinese-based company TikTok.

All things considered, while Temu is probably the only place online that sells sneakers for under five dollars, it's definitely sensible to approach the app with caution. If you're realistic about what to expect, our first-hand experience shopping on Temu suggests it's not all that bad, though much depends on what you're looking for.

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Written by:
Isobel O'Sullivan (BSc) is a senior writer at Tech.co with over four years of experience covering business and technology news. Since studying Digital Anthropology at University College London (UCL), she’s been a regular contributor to Market Finance’s blog and has also worked as a freelance tech researcher. Isobel’s always up to date with the topics in employment and data security and has a specialist focus on POS and VoIP systems.
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