Saturday, July 13, 2024

Is Temu legit? The Chinese shopping site debunked by one of its shoppers

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Temu is the online shopping app that has taken the world by storm. According to one third-party analysis, Temu has 15.6 million monthly users – perhaps better described as bargain hunters – in the UK. That’s around one-in-four people.

“Temu has built a significant and resilient user base, with particular popularity amongst older women,” said Paul Carter, CEO of Global Wireless Solutions, which compiled the user data. “Key to Temu’s enduring success is its clear focus on user engagement. The company has not just succeeded in securing user downloads and sign-ups, but encouraging long-term engagement on its app.”

But lately Temu – and its seemingly too-good-to-be-true prices – has been in the headlines and dominated the social media discourse.

What is Temu and where has it come from? 

Temu is a shopping app with eye-poppingly low prices – T-shirts can cost just a few pounds – and the tagline “shop like a billionaire”.

It was born in China out of a larger company, PDD Holdings, which runs the Chinese e-commerce app Pinduoduo, a general online retailer that bolstered its reputation by helping farmers sell their produce during the Covid pandemic. “PDD Holdings is the largest e-commerce company in China by market capitalisation,” said Rui Ma, a Chinese tech analyst who has been tracking Temu’s rise in the West.

At the end of 2023, PDD Holdings – worth around $157bn – overtook Alibaba as the largest e-commerce company in China. Previously Alibaba had dominated the space, and through its website and platform, AliExpress, offered cheap products from Chinese manufacturers to ship to the West. AliExpress was regularly used by businesses to bulk ship items. Think of it more as a cash and carry-style shop, similar to Costco, where you have to buy in bulk, compared to a high street retailer where you can buy individual items. “Alibaba and [similar to Amazon] confirmed the Western world’s appetite for cheap goods delivered quickly from China,” said retail analyst Miya Knights. “Temu is doing that on steroids, basically.”

Temu took inspiration from Alibaba and from another Chinese e-commerce success story – Shein – and decided to try and enter the US in 2022, and the UK last year.

“Temu looked at what Shein was doing and said that’s a good model,” said Rui Ma. “They thought: ‘We can also do the same business – international e-commerce – and can basically make it a full consignment model.’”

In short, that means that rather than acting solely as a shop front and asking manufacturers to then ship the products themselves, which can be slow, cumbersome and result in variable quality of packaging, Temu took that all under their wing.

“Most of the goods from Temu are shipped directly from China,” said Charlie Xiaofeng Gu, head of intelligence at Jing Daily, a Chinese consumers strategy and insights company. The manufacturers produce the items and deliver them to Temu, which then distributes them.

It can seem impossible to escape the grasp of Temu, with adverts for the app peppering social media feeds and offering too-good-to-be-true prices. That visibility is deliberate, said Knights, and the result of massive advertising spending by its parent company. “They’ve invested so much over the last few years in acquiring customers. Temu has deep pockets, and that’s why it’s been able to make the headway it has so quickly.”

How can they do things so cheap? 

Load up Temu and one of the first things you’ll notice is how cheap a lot of the products are. In part, it’s down to that consignment model that means Temu can take advantage of economies of scale. But there’s plenty more going on there.

“Temu leverages the efficiency and relatively low cost of Chinese manufacturing, which saw a decline in demand since the pandemic,” said Gu.

Temu also knows that it has market power – not just thanks to the 15.6 million Brits that log on every month, but also the hundreds of millions more that use the products developed by its parent company. “Temu could also leverage the tremendous negotiating power of its parent company Pinduoduo to get products at very competitive prices,” said Gu.

Ma admits that PDD Holdings’ bargaining hand is a strong one, and that it often uses it. “If you go online, and watch videos of merchants telling each other which platforms are the best [to sell their products], they’ll typically say Temu makes you drop your prices.

“[Temu will] keep on asking you. It’s not like they can force you to, they’ll just ask you like, ‘Hey, can you drop this more?’ Because they can always go to another supplier making something very similar and just be like, ‘Hey, can you make this price cheaper?’” she said.

That drive to push down prices does cause a vicious circle in which Temu optimises products for price, rather than quality, suggests Ma.

Full disclosure: Drawn in by the low prices, I have bought a number of items from Temu including spider kitchen strainers, holiday cotton shirts and canvas trainers. A decent proportion have broken or have not been precisely as described, and for which, to Temu’s credit, it has given no-quibble refunds. I have an informal policy of rarely buying electronics from the app.

However, Gu doesn’t agree that low prices mean low quality. “Many of its competitors try to suggest that Temu’s low price was achieved at the cost of product quality, but the platform seemed to have found the sweet spot between price and quality for it to remain competitive.”

Retail analyst Knights explains that Temu’s growth is unlikely to be welcomed by competitors. “They drive down prices, but they also set up some really high expectations in the mind of the consumer, in terms of cost versus speed.” Orders can arrive within a week, even from China.

Beyond all that, there are other factors at play. A US government report published in June last year warned American consumers over the “extremely high risk that Temu’s supply chains are contaminated with forced labour”.

But the prices could also be subsidised. “It’s also not unheard of for Chinese ecommerce companies to subsidise the cost of the products in order to capture market share,” said Gu. In essence, he reckons that Temu could be offering some products below the price it costs to make and ship them as loss leaders to build market share – similar to how Uber, for instance, undercuts taxi prices.

Is it safe to shop on Temu? 

This is the multi-billion dollar question for Temu and its customers – because if the latter abandon the platform over safety fears, Temu has lost its income.

On Temu, what you order will arrive and often speedily, even if it won’t always be as high-quality as you might hope. For instance, I’ve had short sleeve shirts that were marketed as 100 per cent cotton that were 100 per cent polyester, and odd-sized shoes that likely wouldn’t last long wear and tear.

But beyond the quality of some items, others are concerned about deeper issues.

Some shoppers on social media have claimed that Temu’s user agreements are unusually draconian. One post on X, formerly Twitter, went viral for claiming that “signing away the right for Temu to use your likeness and voice, worldwide, forever, with no legal protection for £40 is wild”.

The user was referring to an issue that brought concerns about Temu to a head: a new user referral campaign that offered shoppers £40 or £50 credit to buy items through the app if they referred enough new users to Temu. The terms and conditions of the offer stated that the company could use and publish – “in perpetuity” – customers’ “photo, name, likeness, voice, opinions, statements, biographical information, and/or hometown and state”.

The UK’s Information Commissioner’s Office, the data watchdog, said it was “considering the concerns raised” by some about the overly broad data collection. But Temu has since changed the terms and conditions to “make it clear that we only ever use username and profile pictures in this promotion for referral functionality and winner announcements”.

The firm previously said that the initial terms and conditions were standard – which is true. I’ve been covering tech for a decade or more, and we’re only just realising how much data we’re required to give over to tech companies in exchange for low prices. If something is cheap or free, it often turns out you’re the product, not what you’re buying.

So yes, it’s safe to shop on Temu. But no, I’ll still generally shy away from electronics. It’s personal preference.

Responding to this story, Temu said: “Temu is a secure shopping platform used by millions of customers. Our app holds DEKRA certification, meeting the Open Web Application Security Project’s Mobile Application Security Verification Standard. Customer transactions are protected by the Payment Card Industry’s Data Security Standard, and access is secured with two-factor authentication. For additional security, we collaborate with HackerOne on a bug bounty programme and are a member of the Anti-Phishing Working Group.

“Temu offers lower prices by enabling consumers to purchase directly from manufacturers. This eliminates the costs and markups associated with traditional retail middlemen, offering significant savings to buyers.”

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