What is Temu and How Does Temu Make Money?

What’s up with Temu, and can you really shop like a billionaire? How will that affect your e-Commerce customers; will the e-Commerce platform steal your consumers away from Amazon? And most importantly – how in the world does Temu make money given the platform offers incredibly low prices – including free Temu credit? In this week’s blog, we ask, what is Temu, and what do Amazon sellers need to know about this platform?

Temu is owned by PDD Holdings, the company that also own Pinduoduo, the second-largest online marketplace in China. PDD Holdings is registered in the Cayman Islands and lists Dublin as its primary address, but it is still a Chinese company, and 98% of its GMV comes from China.

Download Temu from the app store and Google Play, and you’ll get bombarded by tons of discounts, offers, rebates, freebies, and more. It’s definitely seductive for shoppers, who are likely to find products on Temu for dirt cheap – or for a song! So, how do sellers make money with Temu, and should a savvy Amazon seller explore selling on Temu as part of their omnichannel approach? After all, the shopping app Temu was the most downloaded free app after its 2024 Superbowl ad – so this online retailer must be doing something right.

Let’s uncover what Temu really is, why it attracts customers at exponential rates, and how it compares to Amazon. We’ll also touch on security issues that Temu is currently facing.

So, is Temu legit? Read on; let’s uncover the answer together.

What is Temu?

Before we  understand who Temu is, we must first understand the parent company. Because of its incredible success, investors eye PDD Holdings Inc. – but eCommerceDB takes a cautious approach.

PDD Holdings achieved a Gross Merchandise Volume (GMV) of U$14 billion in its first year, and is projected to hit US$30 billion by the end of 2004. With a market capitalization of US$151 billion, PDD Holdings is the third largest eCommerce company, after Amazon and  Alibaba.

In spite of these seemingly favorable statistics, the company’s complex corporate structure and reliance on Variable Interest Entities (VIEs) to navigate Chinese regulatory restrictions introduce significant risks, as these arrangements’ legality and enforceability within China remain uncertain.

PDD Holdings employs a VIE structure to maintain control over its Chinese operations while being incorporated in the Cayman Islands and listed on the Nasdaq. This allows PDD to benefit from favorable tax structures, access to capital markets, and ease of conducting business in Europe and the Americas. However, this arrangement doesn’t come without risks. Potential regulatory changes from the Chinese government could impact PDD’s operations and shareholder value.

Nevertheless, the company’s substantial growth continues to influence the strategies of eCommerce players like Amazon and Alibaba, and its progress is starting to change the eCommerce landscape indefinitely. Temu launched in the USA in September 2022. It expanded to Australia and New Zealand in March 2023, then France, Germany, Italy, the Netherlands, Spain, and the UK the month after. They’ve also expanded to the Latin American market. By January 2024, Temu launched in South Africa. The platform is now present in 49 countries.

So, how do people sell on Temu? And why is a product on Temu so cheap? Vendors that are based on China are allowed to sell directly to customers without the middleman, making products much more affordable. Imagine if your China manufacturer were able to sell straight to your customers without passing through a sourcing agent – or you. Those prices would be pretty low as a result. In fact, some sellers report that Temu tells them to lower prices – even sometimes at a loss. Sellers are supposed to offer prices lower than what consumers see on AliExpress. Offering an identical product? Only if you can sell it at a lower price. If your prices don’t meet minimum sales requirements, your products will be removed from the platform.

Purchases can be made through a web browser or through the Temu mobile app. Temu advertises heavily on Facebook and Instagram, and its Super Bowl LVIII ads really pushed their presence to consumers. Users spent an average of 23 minutes a week on the app in late 2023, compared to 18 minutes on Amazon and 22 minutes on eBay.

Now that we’ve answered the question, what is Temu, we wonder – is it here to stay? And what can Amazon Sellers do about the competition?

What is Temu and How Does it Compare to Amazon?

Temu’s business model sounds like it doesn’t leave much room for profit. Any seller that’s curious about selling on Temu as well as Amazon would do well to keep this in mind.

Here are other differences between Temu and Amazon:

Aspect	Temu	Amazon
Age and Reputation	Recent entry into the market	Established presence
	Mixed consumer reviews and reputation issues	Well-established reputation
Product Range	Multiple categories and subcategories	Larger number of categories and subcategories
	N/A	Additional services and global marketplaces
Pricing Strategy	Low pricing model and continuous discounts	Competitive pricing with value-added services
Returns and Shipping	Free returns within 90 days	30-day returns, benefits of FBA (Fulfilled by Amazon)
	Longer shipping times	Fast Prime shipping
Seller Expectations and Policies	Customer service requirements	Customer service requirements
	No drop shipping allowed	Allows drop shipping with specific policies

On a Reddit thread, a customer said:

Do you use Amazon? If so, I hate to break it to you.… but 90% of the items I see on Amazon are on Temu, you were just buying directly from sellers in China on temu (sort of like Ali express). The only difference between Temu and Amazon a reaaaaaaalllllyyyyy good amount of the time is somebody in the US generally buys sh** in bulk from Alibaba, and then sells it for a markup.

Scared yet? If your manufacturer(s) are based in China, you might want to look around Temu to make sure your private label product isn’t being sold for cheaper by your Chinese vendor.

The platform’s ability to offer extremely low prices may have a negative effect on your Amazon business, especially if your customers discover that they can get the same product for cheaper – if, of course, they don’t mind the data privacy concerns, which is something we’ll get into a little later in this blog.

Pros and Cons for Temu Sellers

Nevertheless, the idea of adding one more platform to your growing collection is not a bad one at all. Plus, you don’t necessarily have to be a China-based manufacturer to sell. In fact, it’s one of the easier platforms to sell on, which is attractive to a lot of eCommerce beginners.

To become a seller on Temu, you need to create a seller account, which can be done by registering through Pinduoduo, Temu’s parent company, or by signing up directly on Temu as a cross-border merchant. You must meet specific eligibility requirements, such as being at least 18 years old, having a valid government-issued ID, a bank account in the selling country, and providing proof of address and tax information. Temu also has product and seller performance standards, including accurate product descriptions, timely shipping, and maintaining high customer service levels (contrary to popular belief).

Additionally, Temu’s selective onboarding process may require you to email seller@temu.com to request an invitation code. Once you have a seller account, submit the necessary documents to verify your identity, including your ID card, business license, and tax registration certificate. After filling out your store details and waiting for approval, which takes around three days, you can start selling on Temu. To withdraw funds, link your bank account to the Temu app. Be aware of restrictions, such as prohibited products, quality standards, intellectual property rights, professional conduct, and compliance with all applicable laws and Temu’s policies.

If you’re interested in becoming a Temu seller yourself, here are the advantages & disadvantages:

• Advantages:
  • Potential to reach price-sensitive consumers
    • Anyone who tries to shop on Temu will notice that Temu’s prices are incredibly “friendly” to consumers. Their ability to offer competitive prices makes it attractive to customers that prioritize cost savings. People who shop on the platform are highly motivated by price, and this is the target market you’ll be catering to. It’s a pretty wide base; the app has over 100 million active users in the USA alone.
  • Early adoption benefits
    • Temu is the New Kid On The eCommerce Block, so joining the platform as a seller definitely gives you an advantage as one of the first sellers to express confidence. You can establish a strong presence and brand recognition before the app gets oversaturated.
• Disadvantages:
  • Challenges with competing on price
    • Word on the street is that Temu is not profitable; the rumor is, it loses US$30 for every order placed. Plus, remember that if a competitor wants to sell exactly the same product, they’ll be forced to sell it at an even lower price. The competition is pretty steep.
  • Longer return windows affecting profits
    • Temu has a 90-day return policy. Although this is attractive to customers, it can result in higher return rates and additional costs for sellers. That’s likely to impact overall profitability.
  • Limitations on drop shipping.
    • Fond of drop shipping? Temu’s restrictions can limit the flexibility and scalability of drop shipping business models.

Keep in mind that Temu charges sellers several fees, including referral fees (a percentage of the item’s sale price) and a monthly subscription fee for professional sellers. As with any eCommerce endeavor, factor in shipping costs, packaging materials, and marketing expenses into your gross profit – and see where you wind up with your net profit at the end of the day.

Should You Avoid Temu? Data Privacy Concerns

Here comes the big part.

Temu has taken quite the hit from many critics for its too-good-to-be-true remarkably low prices, and the fact that it’s a China-run company. Many people claim that the app collects your data and gives it to the Chinese government. Let’s explore.

Is Temu Legit?

It’s a legitimate eCommerce site and company. Its sister company, Pinduoduo, is quite well-known – and trusted – in China. Nevertheless, Temu is not yet accredited by the Better Business Bureau (BBB), which is standard practice for many major retailers. Since it launched in the US and all over the world, customers have noticed that tech items resemble the ones from Dell or HP – but aren’t authentic. (Looking for verified tech brands sold by the brand itself, like Lenovo and Xiaomi? Look for the blue tick.)

Sure, customers have complained of poor-quality items or fake brands, but these come from vendors on the platform as opposed to Temu itself, which means that the site itself is not a scam.

What Data Does Temu Collect?

Temu collects extensive user data, including your name, email address, home address, phone number, payment information, purchase history, and media files. Most of this data is used for app functionality and is listed as optional, but users often consent to these practices for the app to function properly. So, it’s standard practice for many online retailers.

Nevertheless, Pinduoduo, the sister company of Temu, has been accused by cybersecurity researchers of bypassing phone security to monitor other apps, check notifications, read messages, and change settings, according to this article by CNN. Experts believe that Pinduoduo has escalated privacy violations, with investigations revealing malware that exploits Android vulnerabilities, allegedly to spy on users and competitors. Once installed, the app is difficult to remove.

And if Pinduoduo is doing that, who’s to say that Temu is not following in the footsteps of its big sister?

Even more worrisome, AP reports that Shein and Temu are under scrutiny for lacking a meaningful compliance program to prevent goods made by forced labor from being sold on their platforms. The House Select Committee on the Chinese Communist Party noticed that Temu’s business model allows it to avoid responsibility for complying with U.S. laws that prohibit shipments from China’s Xinjiang region, unless businesses can prove that the items were made without forced labor.

So, it appears that products sold on Temu are manufactured with forced labor, and it takes the data of its customers without consent. The question arises – is this really true, or anti-China politics? We may never really know.

Will Safety Measures Guard Customers When They Shop on Temu?

Temu insists that it has safety measures in place to protect the data of its shoppers.

• Purchase Protection Program: This program allows customers to return items within 90 days for a full refund if the order doesn’t match the description, arrives damaged, or is lost in transit.
• Payment Handling: Temu uses standard security measures like HTTPS, TLS, and SSL encryption protocols for transaction processing.
• Security Tips for Users: Temu provides guidance on avoiding scams, protecting against phishing, creating strong passwords, and identifying Cash App scams. While these tips are basic, they show the company’s awareness of its responsibility to protect customers.

It appears that Temu itself lacks the monitoring and vetting procedures to ensure that their customers are protected. So, although it appeals heavily to a money-conscious population, the platform itself is either failing to protect its customers from vendors that use its platform to sell – or it’s falling under major scrutiny by the US government.

Customers have complained as well about Temu:

• Some merchants use Temu to sell off low-quality, expired, or outdated products.
• In 2022, Temu customers reported undelivered packages, product discrepancies, mysterious charges, and unresponsive customer service (Andrew Chow, Time).
• Sarah Perez (TechCrunch) noted that while Temu’s ads boost installs, reviews highlight complaints of scammy listings, damaged and delayed deliveries, incorrect orders, and poor customer service.
• In March 2024, BabyCenter reviewed Temu and found products that were recalled, potentially counterfeit, or bypassing U.S. safety standards, raising concerns about choking hazards.
• In May 2024, the European Consumer Organisation filed a complaint against Temu with the European Commission for breaching the Digital Services Act, particularly regarding trader traceability and algorithmic transparency. The European Commission demanded Temu’s compliance with the Act the same month.

So, ask yourself – is Temu really going to compete with Amazon?

Can Your Customers Shop Like a Billionaire? Advice for Amazon Sellers

Before you choose Temu as part of your omnichannel approach, do your due diligence first. Since profits are likely to be low (if not nonexistent altogether), do your other platforms support this loss leader? Can you provide products that hit Temu’s low prices, and will your supply chain accommodate the low profit margins? Is your product a match for the platform – so, does it appeal to the price-conscious shopper – or are you better off keeping your efforts on Amazon, Walmart, eBay, Shopify, and the like?

If you do choose to sell on Temu – especially if you fear your product is already being sold – then here’s some advice for you:

• Market Research: Conduct thorough market research to understand the pricing strategies on Temu and identify whether your products can competitively and profitably fit into the platform’s ecosystem.
• Quality Control: Ensure strict quality control and authenticity of your products to stand out amidst concerns about counterfeit and low-quality items on Temu.
• Pricing Strategy: Develop a strategic pricing plan that considers Temu’s low pricing requirements while maintaining reasonable profit margins.
• Compliance and Documentation: Adhere to all of Temu’s eligibility requirements and performance standards to avoid any issues with account suspension or product removal.
• Monitor Competitors: Keep an eye on competitors both on Temu and Amazon to adjust your strategies accordingly and stay competitive.
• Stay Informed on Data Privacy: Stay updated on data privacy concerns and regulatory changes that might affect operations on Temu. Consider the potential risks of data handling practices by the platform.
• Diversify Sales Channels: While exploring Temu, continue to strengthen your presence on Amazon and other platforms to diversify risks and revenue streams.

Furthermore, you might want to read up on listing hijacking. It’s a huge reason why people expand their businesses globally, and potentially a reason for you to expand to Temu, if you’re a victim of it.

It’s also a good idea to keep an eye on Temu’s growth and reputation. It’s already fallen under fire in the US and EU; is it really worth the risk? Only you can answer that.

Conclusion: Will Temu Steal Your Shopper?

Without a doubt, Temu is influencing the eCommerce landscape. Bargain basement prices and products, free shipping, aggressive marketing programs including the Temu affiliate program, and a wide array of items and prices, all make the platform a force to be reckoned with. But will Temu stick around for the long haul, or will its data privacy issues, rumors of forced labor and affiliations with the Chinese Communist Party, impossible profit margins, and customer complaints interfere with its long-term success?

Perhaps Temu is offering its items at a loss – right now – as it establishes itself in the homes of its customers. One thing’s for sure, with inflation rising all over and money as tight as it is, many people like Temu as a source for cheap items – stuff you won’t cry about if it’s broken or lost. You’ll “shop like a billionaire” indeed.

But what about sellers? Will Temu steal your shopper? Rather, will your vendors and manufacturers sell your product – or a product almost identical to yours – for dirt cheap on the platform? Will that provide a threat to your Amazon business?

The answer to this question all depends on you. After this Temu review, ask yourself, is it worth it? Should I do it?

Temu is still around. And it doesn’t seem to be going away. As people get more price-conscious as political climates influence economies, perhaps it’s something to look into.

Did this article on Temu interest you? We’ve got the lowdown on another eCommerce competitor that claims it’s from Singapore, but whose parent company is from China…TikTok Shop!