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Temu cools down US after paying out billions

Bargain app Temu, which has become spectacularly popular with American consumers, is shifting business priorities outside the U.S., people close to the company say.

Bargain app Temu, which has become spectacularly popular with American consumers, is shifting business priorities outside the U.S., people close to the company say.

Temu, owned by Chinese e-commerce giant PDD Holdings, wants to limit risks and look for other sources of growth. One catalyst for the shift is TikTok’s troubles with the U.S. government, the people said.

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Temu, owned by Chinese e-commerce giant PDD Holdings, wants to limit risks and look for other sources of growth. One catalyst for the shift is TikTok’s troubles with the U.S. government, the people said.

Temu focuses more on acquiring users in Europe and other countries. As a result, it now expects less than a third of its revenue to come from the U.S. this year, down from 60% last year, the people said, a forecast previously reported by business publication Information.

It’s a notable shift in strategy for a company that became the US’s second-most popular shopping app by monthly users in less than two years after Amazon.com, attracting them with its $5 water dispensers and $3 T-shirts .

Temu said the expansion into new markets does not reflect a reduced emphasis on the US. The retailer said it is looking to build a global e-commerce platform and that its decisions are not driven by the experience of another company.

Temu’s Super Bowl commercial in February, which featured the slogan “Shop Like a Billionaire,” highlighted the rise of American shopping. It also helped fuel a political firestorm surrounding apps with Chinese roots.

Then came the TikTok law, which required the Chinese owner of the popular video app to sell it or face a U.S. ban. TikTok’s protracted crisis, despite years of costly efforts to address data security concerns in Washington, has served as a wake-up call for Temu and its Chinese parent, the people said.

Concerns about similar actions against Temu have been percolating among the PDD leadership since late 2022, when the Biden administration threatened to ban TikTok, the people said, prompting Temu to accelerate expansion in non-U.S. markets.

When the House of Representatives passed the TikTok bill in March, those fears increased, the people said, and it was decided that Temu needed to take faster action to reduce its dependence on the U.S. market.

Temu’s search for new growth opportunities also comes as the app’s U.S. progress shows signs of losing steam. According to Earnest Analytics, US sales continue to grow, but at a slower pace. In the U.S., Temu’s ad spending is increasingly focused on retaining users rather than attracting new ones, the people said.

Temu has spent billions to acquire new US users; PDD paid Meta nearly $2 billion for advertising last year and was also a top advertiser at Google, The Wall Street Journal reported.

It is still one of the biggest advertisers on social media, especially on Facebook, but Temu has shifted more of its ad spend to Europe and other markets this year, said Seema Shah of market intelligence firm Sensor Tower. In April, the U.S. accounted for 38% of total advertising dollars, compared to 63% in the fourth quarter of 2023, she said.

In the US, the number of people using Temu at least once a month shrank to 50 million in the first quarter, down 10% from the peak of 55.6 million in the third quarter of last year, according to Sensor Tower. The monthly number of users in the rest of the world increased by 128% during the same period.

Intensify challenges

Temu’s shift comes as the company faces a series of legal and compliance challenges.

Lawmakers in Washington have accused both Temu and its Chinese-founded rival Shein, a fashion shopping app, of selling goods that may have been made with forced labor. The move is part of U.S. efforts to address Beijing’s treatment of Uighurs in China’s Xinjiang region, which lawmakers have labeled genocide. U.S. law bans most imports linked to Xinjiang.

Temu said the allegations of forced labor are completely baseless. The company told a China-focused U.S. congressional committee last year that it did not explicitly ban the sale of products from Xinjiang by third-party suppliers. The company has since said it is banning its suppliers from using forced labor. Shein said there is zero tolerance for forced labor.

Temu’s assurances have not satisfied US lawmakers. Ahead of the Super Bowl, lawmakers and attorneys general in several states called on CBS to pull Temu’s ads from its lineup.

Lawmakers also accuse Temu and Shein of abusing a U.S. tax exemption, allowing goods worth $800 or less to enter the U.S. tariff-free and without inspection. U.S. labor unions and industrial trade groups have joined to support bipartisan legislation that would block Chinese companies from taking advantage of the rule.

The U.S. Department of Homeland Security said in April it would tighten controls on low-value packages shipped to U.S. customers. Temu and Shein both say the tax exemption is not crucial to their success.

Temu is also facing two lawsuits alleging it collected more information from U.S. users than has been made public. The US fears that US user data collected by apps with China-based parents could fall into Beijing’s hands. Temu said the allegations are baseless and that the app has been independently certified and meets strict data security standards.

Another approach

Both TikTok and Shein have worked to address the criticism in the US. Temu, which faces similar challenges, appears to have taken a less intense approach.

Temu said it is working with regulators and other stakeholders in all markets where it operates.

Since 2022, TikTok’s parent company ByteDance has spent $16.4 million lobbying US policymakers. Shein, whose plans for a U.S. listing have suffered unusual delays, has spent $3.4 million on federal lobbying efforts. According to OpenSecrets, a nonpartisan platform that tracks political contributions, Temu has not invested in lobbying so far.

Over the past year, TikTok has expanded its presence in the U.S., which TikTok executives say would make it harder to ban the app. It has also increased its engagement with users, spending $1.5 billion on a data use compliance project.

Shein remains focused on U.S. expansion and has made compliance a strategic priority. The company recently set up a legal and compliance center and plans to spend $50 million on global compliance, according to a person close to the company.

Temu said it does not quantify compliance costs, but has made substantial investments, such as expanding its product compliance and intellectual property protection teams, and invested in technology to better oversee its processes.

While Temu still considers the U.S. an important market, it has become more cautious about investing there, people close to the company say. Instead of building fulfillment centers in the U.S., Temu wants to set one up in Mexico, from which packages can be delivered to U.S. consumers, they said.

Some suppliers said Temu had cracked down on problematic products, such as counterfeit Lego sets, but its product controls are not as strict as those of other platforms. Temu said the company has a “rigorous quality control process” that is stricter than that of its competitors to ensure compliance with the regulations and standards of the markets where it operates.

For the first time, PDD co-founder Chen Lei told analysts in March that Temu faces “many uncertainties and challenges ahead” and that the company will strive to communicate and cooperate with regulatory authorities where Temu operates .

In the same month, Goldman Sachs downgraded PDD shares from buy to neutral, partly due to geopolitical risks.

Write to Raffaele Huang at [email protected] and Shen Lu at [email protected]

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