PARIS — Sarah Lacoche, the new director of the French competition authority (DGCCRF), has invited a few journalists to her office on the top floor of a tower in Paris’s 13th arrondissement, which offers a breathtaking view of the capital. Today’s topic: the excesses of e-commerce.
“What about newcomers from China, such as Temu and Shein, are you investigating them?” one journalist asks.
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“Yes, we’re keeping an eye on them,” Lacoche replies. But that’s all she says. The institution is not very keen to “name and shame” companies that behave improperly. The Chinese retailer Temu is therefore on the authority’s radar. But will it act fast enough? The retail industry is worried about the French government’s slowness to respond to what it sees as a major threat.
A competitor for everyone
“The whole business of bargains is going to be swallowed up by Temu,” said a French industry heavyweight, who already attributes the current difficulties of French e-commerce platform Cdiscount to this new competitor from China.
Since arriving on the French market in April 2023, the brand has already climbed to 13th place among retailers (physical and digital combined, excluding food) where French shoppers spent the most in October, according to a study by the shopping application Joko. It surpassed major French retailers Boulanger (household goods and appliances) and Fnac (leisure and electronics).
Nearly 10 million French people visited the site in June, and Temu is nibbling away at the market shares of clothing retailer Kiabi, discount chain Action and fast fashion retailer Shein. “It’s a generalist, and therefore a potential competitor for everyone,” said Marc Lolivier, managing director of the French e-commerce and distance-selling federation (FEVAD).
Temu’s record in the U.S., where the brand launched in September 2022, does not reassure French companies. In one year of operation, Temu already has more than 70 million customers in the land of Amazon, according to Bloomberg. And it was Apple’s most downloaded free app in the U.S. in 2023.
Unprecedented conquest
“A site that reaches this level of penetration, this level of conquest, so quickly, is unheard of,” said one French industry observer. The phenomenon is even worrying Amazon, as demonstrated by the recent measure to reduce its commissions on clothing to under .
What can we explain such success and, above all, such speed? First, Temu’s recipe appeals to consumers amid inflation. The application promises customers they’ll able to “shop like a billionaire.”
The website offers thousands of items at prices of just a few euros, including clothing, kitchen utensils and decorative accessories. The prices are already low, but customers can also win generous discounts by spinning a virtual casino wheel on the website. What’s more, delivery from China is free.
Price wars among suppliers
To obtain such low prices, the platform consciously organizes price wars among its suppliers. “They have a strong database, that of Pinduoduo [the other brand of Temu’s parent company PDD Holdings, only present on the Chinese market],” said Jacques Penhirin, China analyst at consultancy firm Oliver Wyman.
For these retailers, the vast majority of whom are Chinese, Temu represents an alternative to Amazon (which is American) or AliExpress (which is Chinese).
The platform also attracts suppliers by promising access to a large customer base — and therefore spends heavily on marketing to remain among the most downloaded applications. But Temu then lists only the cheapest suppliers, forcing them to undercut their prices.
Cutting margins
Just as Amazon and AliExpress did in their early days, Temu is undoubtedly also cutting back on its margins, taking only a small percentage of sales to attract more and more suppliers. “When you start a business, it’s normal practice to have a low percentage,” said marketing specialist Monica Grosso.
The amounts of these commissions are, of course, unknown. “I imagine it’s a negotiation based on the weight of the supplier. Temu doesn’t share a lot of details about how it works, as they don’t want the competition to know their secrets,” Grosso said. The company is not only secretive about its business strategies. It is impossible, for example, to know the history of the platform.
All we know is that Temu is the international offshoot of Chinese online retail giant Pinduoduo, created by PDD Holdings to relaunch itself at a time when the domestic market is no longer as attractive. When asked by Les Echos about its origins, the company avoided the subject, replying “Temu was conceived with the main objective of giving all consumers, whatever their means, access to high-quality products at fair prices.”
Use of micro-influencers
Despite this pronounced taste for mystery, the company paradoxically knows how to get the word out, particularly on social networks. This is the second reason for its current success.
Their priority is to build up the widest possible customer base to attract sellers.
In a video posted on her TikTok account, Amélie takes to the stage in front of the camera, unpacking the products she ordered on Temu. She comments on the quality of the merchandise.
“This little garbage can is nice. It’ll be great for the bathroom,” says the woman in her 40s, who plans to use these objects to furnish a rental apartment. This short presentation alone attracted over 20,000 spectators. Amélie is a “micro-influencer,” meaning a videographer with an audience of between 5,000 and 100,000 subscribers (the most followed accounts have up to several million).
Like Shein, Temu favors partnerships with this type of profile, sending them free products or promo codes. “It’s less expensive and, by working with several of them, it’s still possible to reach a good audience,” said marketing specialist Grosso, adding “their priority is to build up the widest possible customer base to attract sellers, who will compete with each other on price, enabling Temu to keep its promise of low-prices.”
Massive marketing investments
Gamification, or the use of processes derived from online games to win promotions, also plays a part in this strategy, inciting customers to open the application again. A strategy that works, as Temu’s U.S. users spend an average of 23 minutes a day on the site, compared with 15 minutes for Shein users, according to GWS Consulting.
To reach out to older customers, Temu doesn’t hesitate to use traditional tools: for example, the company bought two commercials during the Superbowl halftime show in the U.S., a operation valued at million, according to specialists.
Temu’s total marketing budget is colossal: billion in 2023, according to analysts. It’s worth noting that its parent company, PDD Holdings, now weighs more than Alibaba on the stock market. But with a budget like that and prices so low, it’s hard to imagine the company making a profit.
A questionable business strategy
Temu loses around on each order, according to the American trade magazine Wired. Even though the company operates like a marketplace (producers deliver directly to customers) and saves on inventory management, the average shopping basket remains relatively low: 25 euros on average for a French consumer, compared with 52 euros for Shein, according to Joko.
It’s totally confusing for the consumer.
“It’s the basis of the economy: you need a minimum amount of material to make a product, then you have to protect it, put it in a package, and, finally, there’s the cost of transport. Shein, we can understand, but Temu, they never make a margin! They’re based on a model that’s incomprehensible to an unprecedented degree,” said an industry observer.
French e-commerce and distance-selling federation also believes that the platform flouts the rules governing the industry in France and Europe. “We expect the public authorities to ensure that these rules are respected by all,” said Managing Director Lolivier.
“I think the most serious aspect is that it’s totally confusing for the consumer. You can do 50 years of campaigning about ecology and product durability, and then a website comes along where everything costs 99 cents. And the delivery from China is free,” observed one industry player.
With this low-price strategy, Temu is looking to build up a large customer base, then discreetly raise its prices and become profitable. “It’s a bit like the logic of the online sales market: you attract customers with lots of promotions. Amazon sold at a loss for several decades,” Grosso said.
Temu denies losing money
According to the Oliver Wyman consultancy firm, Temu is considering reducing its promotions from 35% to 40% of the product price to 15%. The company is also looking to increase its average basket from 10% to 15%, to become profitable by 2027. A strategy that seems rather ambitious.
“It’s not completely crazy, but it’s far from a sure thing. You have to believe in a lot of things for it to work,” said analyst Penhirin. Temu did not confirm this strategy and, in email to Les Echos, denied that it is losing money.
“Temu’s ability to offer the lowest prices stems from putting customers in direct contact with highly efficient producers… By eliminating multiple intermediaries and shipping directly to the source, customers benefit from wholesale prices,” the company said, referring to PDD Holdings’ latest financial report, “which indirectly highlights our profitability and sustainability.”
The parent company’s revenues reached .43 billion in the third quarter, compared to analysts’ expectations of .63 billion. Operating income reached .28 billion. In the absence of any company statement, it is difficult to determine Temu’s share of these results — and, by the same token, to silence suspicions. This further fuels the growing concerns in the West, which goes much further than mere infringements of competition.
A data vacuum
“What if the app’s low prices were just a way of obtaining something more valuable: the buying habits of Europeans and Americans?” said personal data specialist Yosra Jarraya.
This accusation, already made by the U.S., could simply be a way of fuelling its trade war with China. But for Jarraya, the information made public by Temu validates U.S. concerns, noting “Temu writes that they can share data with their group companies, supplier providers and even third-party companies.”
They are creating an extraordinary database of Western consumers for their own benefit
The major risk, openly pointed out by the U.S., is seeing data vacuumed up and passed on to the Chinese government. “Through your purchasing behavior, they know your financial capacity, your family, or even how well your couple is getting along,” said Jarraya, co-founder of the data security service Astran. “This could be used, for example, to assess the socio-economic fabric of the U.S. in a much more detailed way than public data.”
Another industry player shared this analysis, saying “They are creating an extraordinary database of Western consumers for their own benefit” and noting that at the same time, Western players are subject to extreme surveillance in their own countries, where they must adapt to increasingly stringent legislation. “Now we’re seeing the arrival of foreigners, and we don’t know if they are subject to this type of constraint,” he said.
Temu, of course, defends itself against this accusation. While admitting to collecting data, the platform assures us that this collection has a “clear” and “unique” objective: “to provide and continually improve our products and services for our users.”
On the French side, the National Commission on Informatics and Liberty (CNIL) said that “to date, we have not received any complaints about the Temu application.”
“The speed at which we react as a state power is too slow,” said an industry observer, who believes that even if Temu is eventually forced to cease operations in France, it will already be too late. “They’ll relaunch something with the data they’ve acquired on their 10 million French customers.” Is Temu a new threat from China? Or just a fantasy?
