In the world of e-commerce, Temu immediately made great strides. After launching its business in the United States in September 2022, Temu quickly earned a reputation as an online superstore for its wide selection of everyday products at rock-bottom prices. The Boston-based e-commerce platform has now expanded to 48 markets and is available to residents in countries such as the United States, Mexico, France, Germany, Italy and Spain.
But what makes Temu so famous? “We’re in a cost-of-living crisis, and people are looking for any means to save,” says Miya Knights, publisher of Retail Technology magazine and co-author of a book on Amazon. “Everyone likes to do business and Temu allows it,” she adds.
Many consumers are in love with Temu’s very low prices, but also a little wary, believing that not all that glitters is gold. In this article, we take a closer look at how Temu runs its business and how it can achieve its goal of offering functional products at factory-like prices.
Who is Temu
Boston-based Temu operates an online marketplace that offers a wide selection of products from international suppliers at competitive prices. The platform was launched in
September 2022 and has since attracted a global user base by launching a website and app, focusing on value and customer service.
Since its launch, Temu has expanded its inventory to include a wide range of products, such as electronics, home essentials, clothing and beauty products, covering more than 30 categories.
What does Temu mean?
Temu means “Team Up, Price Down”, in Italian “Let’s join forces, let’s lower prices”. The name Temu comes from its motto, which expresses the goal of helping consumers realize their aspirations by lowering costs using the economies of scale generated on the platform.
How can Temu have such low prices?
Feedback on Temu merchandise often highlights the exceptionally low prices. Customers can purchase a dress for less than $2 and electronics for less than $5. Temu also offers a wider variety of products than many budget shops and maintains lower prices than most e-commerce platforms, even during discount periods.
The secret sauce behind Temu’s price competitiveness is its “completely reliable business model,” according to Wendy Chen, senior analyst at GAM Investments. Temu’s model lies between the usual first-party (1P) e-commerce model (in which the platform acts as a retailer to sell products directly) and the third-party (3P) e-commerce model (in where the platform acts as a marketplace for retailers to sell the products themselves).
Temu operates under a model in which it purchases products directly from factories, which are solely responsible for shipping to Temu’s warehouses in destination countries, according to GAM. Subsequently, Temu manages customer acquisition, pricing strategies, logistics and after-sales service.
This approach allows Temu to maintain control over quality, delivery and customer satisfaction, benefits typically associated with a first-party (1P) model. At the same time, it benefits from the diverse product selection and scalability characteristic of a third-party (3P) model. By streamlining the supply chain from factory to platform, Temu not only reduces costs but also minimizes inventory risk, says GAMs’ Chen.
Temu explains his business model
By simplifying the supply chain and cutting extra costs, Temu says both quality and convenience can be achieved.
Temu says its ability to offer competitive pricing comes from creating a direct connection with cost-efficient manufacturers, eliminating the need for brokerage commissions and allowing consumers to purchase goods at factory wholesale prices. The company’s direct-to-consumer model is designed to avoid the additional markups that are common in retail, thereby providing products at substantially lower prices.
The company also says it leverages the consolidation of tens of thousands of consumer orders into bulk shipments to achieve economies of scale, which significantly reduces the cost of shipping per item. According to Temu, this strategy ensures that gross profit covers shipping costs and allows for fair profit margins for merchants on the platform.
According to the company, its factory-direct model disrupts traditional retail by minimizing the number of times goods are moved, which leads to significant cost reductions. By shipping goods directly from the manufacturing source, Temu bypasses multiple layers of transportation and storage, addressing what he sees as one of the biggest costs and inefficiencies in conventional retail operations.
Temu says its business model is strategically efficient, ensuring that prices not only cover the costs of products, transportation and sales, but also provide sellers with ample margins for business development and expansion.
Is it safe to shop on Temu?
Temu says that, unlike other e-commerce platforms, it does not allow dropshipping. Dropshipping refers to the retail method in which a store sells products without keeping them in stock, instead purchasing items from a third party to ship directly to customers after a sale. Temu instead follows a model where the goods listed must be in stock by the merchants themselves and stored or sent to warehouses affiliated with Temu. Temu says it conducts random quality checks on these goods, ensuring quality and compliance standards are met. Temu says its clear chain of custody for products reduces the incidence of incorrect or empty package deliveries, thus increasing customer satisfaction.
The company claims that shopping on its site is safe, highlighting its status as a TrustedSite certified safe site and its adherence to the Payment Card Industry Data Security Standard (PCI DSS) for encrypting card information during storage and transmission .
Additionally, Temu partners with major payment networks that have strong security and authentication protocols, including Visa Secure, MasterCard ID Check, American Express SafeKey, Discover ProtectBuy and JCB J/Secure, according to its website.
Finally, according to the company, Temu’s purchase protection program ensures a safe shopping experience by offering refunds to customers for orders that are not as described or if products arrive damaged, giving shoppers the peace of mind to “shop as a billionaire.”
In collaboration with: Corrado Lombardi