afterwards. The 7-month-old marketplace has even begun outpacing China’s national retailers, establishing itself as a major player in the industry – and raising the eyebrows of competitors like Shein with its aggressive customer acquisition tactics. Launched in September 2022, the Boston-headquartered platform boasts the resources of a powerful parent – China’s Pinduoduo Holdings. Like Shein, Temu offers discounted fashion and lifestyle goods, but unlike Shein it sources and ships directly from manufacturers in China. That means it can promote thousands of Chinese small businesses and micro-brands yet need not store any inventory. Data analytics firm YipitData shows that Temu achieved a staggering $500 million in sales during its first five months and is already projected to reach $3 billion in gross merchandise volume (GMV) this year. With an ambitious vision, disruptive strategy and impressive growth trajectory, Temu has established itself as a major contender, achieving milestones that Shein has only imagined during its 15 years of operation. Next-generation manufacturing A study by market research agency YPulse revealed Amazon as the favourite retail brand among Gen Z,with its growing appetite for online marketplaces. Notably, 75 per cent of vendors on Amazon originate from China. This should come as no surprise, given China’s rapidly growing cross-border e-commerce market is projected to reach a staggering $2.8 trillion this year, capturing a significant share of theglobal market. Behind Temu’s extensive catalogue of discounted products is Pinduoduo’s 11 million suppliers. As part of the Pinduoduo Overseas Support Program 2022, Temu has exempted sellers from commission and deposit fees and has also invested in building more than 100 overseas brands with the support of itsmanufacturing partners. Through Pinduoduo’s proprietary supply-chain resources, Temu is also able to replicate its success and profitable model by slashing intermediary costs, connecting consumers with high-quality manufacturersat competitive prices and amassing high sales volumes. Rather than producing its own goods, Temu leverages its army of independent sellers, manufacturers and brands from China to sell to shoppers and ship directly from factories, eliminating the need for storage in US warehouses. Traditionally, small businesses have struggled to break into a retail market dominated by global brands and manufacturers, lacking the marketing strength to become a cross-border retailer on their own. Nowwith Temu, Pinduoduo is helping incubate the next generation of up-and-coming brands and creates products based on consumer demands as part of its next-gen approach to manufacturing. Also, manufacturers tend to lack first-party data on consumers but with Temu’s partnership and data insights, they can use market intelligence to develop trendy products customers want. Suppliers can design more personalised products, accurately plan production volumes and efficiently manage warehousing and shipping. Gen Z’s new trend In the era of duplicates, Gen Z has developed a passion for finding affordable alternatives to branded items, prioritising low-cost items over paying for brand names, especially in the period of inflation. Temu has successfully tapped into this segment, targeting price-conscious young consumers. More than half of its followers are Gen Z consumers who prioritise low-cost goods. Temu’s marketing strategy relies heavily on social media and fosters a community whilst building a commerce channel throughout. Notably, the brand has invested significantly in its marketing efforts, enlisting celebrity endorsers such as TikTok star Jason Derulo and paying social media influencers in the US up to $1000 an hour for content promoting the Temu marketplace on TikTok, Instagram and YouTube. Understanding the importance of a social community shopping experience, Pinduoduo has duplicated its successful group buying model in its Temu platform, allowing consumers to link up with peers to leverage collective bargaining power and bag steeper discounts. Despite initial scepticism towards Chinese-made goods from older generations, Temu has gained popularity among Gen Z as a favoured shopping destination. This can be attributed to the fact that Amazon has been predominantly featuring Chinese-made products, thereby instilling confidencein Chinese goods and leading to increased trust in Chinese-based marketplaces like Shein, Wish and nowTemu. Once perceived as anonymous factory-made products, private labels are now being embraced by consumers in the US, even if they are from China. The TaoBao effect Known for its cheap goods and quirky items, Alibaba-owned consumer-to-consumer marketplace Taobao has become a destination shop for just about every product imaginable – a go-to site for Chinese locals. Now, this phenomenon is carrying over to the West, but instead of heading to TaoBao, Western consumers are looking to Temu for necessities and knick-knacks. In the past, consumers purchased goods at wholesale prices through the AliExpress marketplace, but thatshopping ‘hack’ lacked a fun user experience. Now, where Amazon is mainly a search-focused marketplace, Temu, Shein and the like have embodied a discovery-based model – an experience similar to wandering through physical stores, treasure hunting for goods. Unlike Amazon’s app, Temu’s is user-friendly with a cleaner interface, suited for the West, that makes shopping enjoyable. Its community element and focus on social media prompt users to seek feedback from friends, enabling a social shopping experience. Dethroning Amazon So the billion-dollar question remains: Can Pinduoduo – using Temu – replicate its success in the West? Alibaba’s earlier attempt with its US e-commerce marketplace, 11 Main, failed after just one year in a mature market dominated by Amazon. And despite Alibaba’s increased efforts to expand cross-border operations in recent years, the results have been lacklustre. Spearheaded by Shein, new-generation Chinese marketplaces and platforms have drawn American youth into an intense focus on fast-fashion and low-priced goods, despite the controversial environmental impact behind every purchase. However, Temu’s future success may be affected by the escalating tensions between the US and China, illustrated by the continuing attacks in the US on Chinese tech giants and their presence in America. Nevertheless, the marketplace has successfully captured the loyalty of American Gen Z consumers,who transcend borders and align their preferences with dominant Chinese brands. Next up? After its rapid success in the US, Temu is planning to roll out into Canada, Australia, New Zealand and the UK by the end of this year. This story first appeared in the May 2023 issue of Inside Retail Magazine – Asia.