Temu Watch #3: Revenue, costs and profitability
Temu Watch #3: Revenue, costs and profitability
How are the fully managed and semi-managed models doing financially? And what are Temu's plans for the future?
Contents
Things that caught our attention
Tech Buzz China’s Research Editor Ed Sander was a guest on the ‘The Negotiation’ podcast, which was recorded in two episodes. In the second episode, Ed and host Todd Embley take ‘A Deep-Dive Into Alibaba, JD, Douyin, and Little Red Book’. You can listen to the podcast here.
TechPlanet published a report on the current state of shared bikes in China. Ed shared a summary here.
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Introduction
This is the third Temu Watch article we are publishing in August. After investigating the status of the semi-managed model, in which Temu lets merchants ship goods to overseas warehouses and deliver them to customers in these markets, we looked at how Temu is trying to deal with compliance issues and merchant complaints.
In this third Temu Watch, we update you on the platform's main statistics, costs, advertising spending, and overall profitability. We also discuss the route Temu might be taking from here.
The Temu Watch reports have been compiled from over 30 expert interviews we track in our partner Six Degrees Intelligence's steadily growing database. Many of these interviews are packed with valuable insights, and we will continue our Temu Watch series periodically in the future. To get access to the full reports, do consider supporting our work with a paid membership.
We will return to our regular biweekly publication schedule and topics like EVs in September.
Ed Sander, Research Editor
General Developments
Let’s start with a collection of general statistics about Temu’s development.
According to Sensor Tower, the Temu app has been downloaded more than 600 million times since its launch in September 2022. It was the eighth most downloaded app globally last year and remains number one in the US. [1]
Other sources claim Temu’s user base is between 400 million and 500 million, with about 200 million active users per month.
In Q1 2024, Temu’s GMV was about $9 billion. In the second quarter, this grew to $13 billion. After deducting cancelled and refunded orders, the net transaction volume in the first half of 2024 was $18 - $19 billion, more than the GMV over the whole of 2023. 2023’s GMV figures were $18 billion and $16.4 billion respectively.
The share of the European market in Temu’s sales is expected to be 37% this year, while its share in the North American market will shrink to 33%. As we explained in our May article this is an intentional strategy to make the platform less dependent on the American market. But make no mistake, in absolute terms the US market it is still growing.
Smaller markets such as Canada, Australia, New Zealand and Africa have little impact on overall performance.
USA
In the first half of 2024, Temu’s US performance did not meet expectations. The last week of April especially saw poor performance. US sales dropped 25% month-on-month, mainly due to reduced advertising volume and two-day delivery delays caused by customs inspections (see Temu Watch #2).
Temu and Shein have equal shares in the U.S. market. Together, they account for 70% of the total cross-border goods to the United States. Especially from September 2023 to Black Friday, Temu's shipment volume exceeded Shein in most cases. Although Temu may not be as good as Shein in terms of the number of clothing SKUs, it may have more advantages in other product categories.
Temu noticed that 70% - 90% of traffic is concentrated on popular products with lower prices, which is its main strategy for attracting consumers.
Europe
In the first half of 2024, growth rates in Europe have exceeded those in the US.
In the European market, the five countries of the United Kingdom, France, Germany, Italy and Spain account for 75% of the total European order volume.
According to Fox Intelligence, part of NielsenIQ, Temu had already entered the Top 5 platforms of several European countries by June 2024. [2]
Source: [2]
For example, in a year of operation in France, Temu has reached nearly 12% penetration, with an average of 3.3 purchases per year and an annual average spending of €112.50. Baby boomers and Gen X (index 146) are overrepresented among its French customers. Meanwhile Gen Z is overrepresented in Shein’s customer base (index 122) and underrepresented in Temu’s (index 76). Temu’s French customer profile stands out in their overall annual online spending (€2,500) and frequency (45.8) compared to the average French online shopper (€1,800 / 27.7). 96% of Temu’s French customers were returning customers from the previous 90 days. [3] The average French Temu order reached €25, exceeding AliExpress' €21.
Since entering the European market in April 2023, Temu has increased its advertising spending by 100 times, mainly on social media platforms. This aggressive marketing strategy has undoubtedly contributed to Temu's rapid growth in the European market.
Asia
In the Asian market, Japan shows fast growth but is unstable, South Korea has developed but fluctuates greatly, and Southeast Asia performs the worst.
When Temu entered Southeast Asia, its first stop was the Philippines in August 2023, because the Philippines' e-commerce growth rate ranks first in the world in 2023 (24.1%). It is also Southeast Asia's second most populous country: approximately 114 million, of which young people under 30 account for about 60%. [4]
However, despite the potential, the Philippines only accounts for 0.3% of Temu’s global traffic. Based on Temu's total monthly global traffic of 446 million (average in the past three months), the traffic of the Philippines site is estimated to be about 1.3 million, equivalent to the level of an independent website of a large-scale merchant. [4]
Malaysia was launched in September 2023. It took almost a year until Temu launched in another Southeast Asian market, Thailand. Recruitment of local sellers in Southeast Asia has been weak. [4]
Temu has encountered many obstacles in Southeast Asia: [4]
Strong positions and defence by Shopee, Lazada (Alibaba). The traffic of these webshops in the Philippines is almost 40 and 20 times higher than Temu’s. In Malaysia, these factors are nearly 100 and more than 20, respectively. TikTok is also very active in some Southeast Asian markets.
Southeast Asian Prices are already low, so Temu doesn’t make the same impression as elsewhere. What’s more, Shopee, Lazada and TikTok have all implemented their own versions of the fully managed model and further lowered their prices.
Southeast Asian countries are not friendly to foreign low-price platforms. This is because the industrial system in Southeast Asia is not yet developed and is highly sensitive to the impact of foreign low-priced goods on local industries. For instance, after its e-commerce business was banned in Indonesia, TikTok had to acquire Tokopedia to be allowed to sell in that country again.
Sellers are not very interested in joining Temu, a platform that is new to the market and keeps pushing down prices. At the same time, from an operational perspective, platforms such as Shopee and Lazada have built mature ecosystems, including promotion systems and live shopping systems.
South Korea is the fourth-largest e-commerce market in the world. Nearly half of the country's retail spending comes from online, and the per capita online consumption level is second only to the United States. At the same time, this is also a very competitive market. Even Coupang, which currently leads by a number of users, only has a market share of about 20%. [5]
According to data from Wiseapp Retail Goods, a third-party market research agency, Coupang has 30 million monthly active users, ranking first in South Korea. However, AliExpress and Temu are growing faster. In February 2024, AliExpress' local monthly active users reached 8.2 million, while Temu, which has only been in the country for half a year, had nearly 5.8 million monthly active users. By March, Temu’s monthly active users exceeded 8 million. [5]
AliExpress and Temu are aggressively attacking South Korea's market. Advertisements of the two platforms are all over South Korea's TV, social media and subways. Before the end of March 2024, AliExpress used a "zero commission" policy to attract Korean merchants. Under normal circumstances, e-commerce platforms charge merchants a commission of 10% to 20%. They have also expanded the warehouse capacity in Shandong province, near South Korea, to speed up logistics. [5]
There are many reasons for Temu's success in the Japanese market. The platform entered the market through low-priced products, which initially did not attract much attention. However, it subsequently launched a continuous price reduction promotion strategy, which attracted many consumers who frantically bought during various flash sales and events, and sales fluctuated significantly. This shows that Temu's marketing strategy caters to the needs of some Japanese consumers. Although they pursue high quality, they also accept low-priced products.
Having said that, Japanese consumers' recognition of brands requires long-term effort. Established brands can form high stickiness. Temu has only been in the Japanese market for about a year. Although its sales volume is good, overall, it is still a long way from deep penetration. It is not clear what Temu's specific share of the Japanese e-commerce market is, but it certainly ranks behind Rakuten and Amazon. Although Temu's growth rate in Japan ranks second, gaining a real foothold will take a long time.
Logistics
In recent years, the structure of air cargo has changed significantly. Currently, the main items exported by air transport include clothing, cosmetics, and various small daily necessities. These products mainly come from e-commerce platforms, such as Temu. In today's air cargo, e-commerce-related goods account for 60%, while traditional trade goods account for 40%. The proportion of e-commerce goods in air transport is expected to continue to increase.
Especially in South China, including Hong Kong, e-commerce goods account for more than 60% of air transport volume. Shenzhen Airport has a higher proportion of e-commerce products, and many newly opened routes are dedicated to serving large e-commerce platforms such as Temu.
In some all-cargo flights, Shein's cargo accounts for nearly 60%, while Temu's cargo accounts for 40%. This e-commerce-led trend has also impacted the seasonal fluctuations in the air transport business. Traditionally, March to August is usually a low sales season, but due to the development of cross-border e-commerce, sales levels during this period remained high.
If these import policies remain unchanged, the proportion of e-commerce goods may reach 80%. These changes have also had an impact on cross-border logistics prices. Currently, the transportation cost from Shenzhen to Los Angeles is about RMB 40 per kilogram. Looking ahead to the next few months, due to the arrival of Black Friday and the Christmas shopping season, prices are expected to rise to around RMB 60 per kilogram in September and October.
Geographical Expansion
This year, Temu has adopted a relatively cautious strategy in terms of market expansion compared to 2022 and 2023. No large-scale new market expansion is expected this year or next year and only a few new markets will be added this year.
In 2024, Temu plans to expand to 10 new countries, including 3-4 European and some Asian countries. The goal is to control the number of covered countries to about 80; the current count is 77 (August 25th, 2024). Temu may exit some markets due to low order volumes and eventually operate in slightly over 60 countries.
Seven major European countries have started the semi-managed model (see Temu Watch #1). Meanwhile, the fully managed model was launched in 4 new countries at the start of 2024, and Temu planned to increase this to 8 countries, mainly in Europe and Africa. Temu also plans to expand the semi-managed model to Japan, South Korea, and Mexico by the end of August. [10]
Temu launched in Mexico in May 2024 and quickly became the most popular e-commerce app in terms of monthly active users (MAU). By the end of May, it had 19 million users, more than the 15.3 million for MercadoLibre and 4.8 million for Amazon. [6]
Temu launched in Brazil in June and is also considering entering large markets such as Taiwan, Hong Kong, India and Indonesia, although the negotiations in these markets are relatively complicated. Temu expects the legal and tax issues it faces in some of these regions to be resolved soon.
In addition, Temu is also paying attention to the development of emerging markets such as Latin America and the Middle East, as well as the Japanese and Korean markets, and plans to expand the African market further this year. The Middle East and Latin America are key markets for Temu. Still, the return rate in the Middle East is high due to the cash-on-delivery method, and the performance of the Brazilian market is lower than expected.
Temu has entered over 20 European countries, but some small countries remain. If US market access is affected, Temu will respond by opening more countries in Europe, northern Africa, and countries with better-developed economies.
The rest of the article, which includes insights into marketing expenses, customer retention, profitability and expectations for Temu’s future, is available to paid subscribers.