Temu cools on the US after shelling out billions

Temu spent heavily on Super Bowl ads to attract U.S. users. PHOTO: TEMU
Temu spent heavily on Super Bowl ads to attract U.S. users. PHOTO: TEMU

Summary

The Chinese-owned bargain app is looking to reduce reliance on American shoppers as growth slows and scrutiny of TikTok grows.

The bargain app Temu, which has gained spectacular popularity with American consumers, is shifting business priorities beyond the U.S., people close to the company said.

Temu, owned by Chinese e-commerce giant PDD Holdings, wants to limit risks and seek other sources of growth. One catalyst for the shift is TikTok’s troubles with the U.S. government, the people said.

Temu is focusing more on acquiring users in Europe and other countries. As a result, it now expects less than a third of its sales to come from the U.S. this year, compared with 60% last year, the people said, a prediction earlier reported by the business publication the Information.

It is a notable strategy shift for a company that in less than two years became the U.S.’s second-most popular shopping app after Amazon.com by monthly users, attracting them with its $5 water dispensers and $3 T-shirts.

Temu said that its expansion to new markets doesn’t reflect a reduced emphasis on the U.S. The retailer said it is looking to build a global e-commerce platform and that its decisions aren’t driven by the experience of another company.

Temu’s Super Bowl ad blitz in February, centered on the slogan “Shop Like a Billionaire," highlighted its rise in American shopping. It also helped fuel a political firestorm around apps with Chinese roots.

Then came the TikTok bill, requiring the popular video app’s Chinese owner to either sell it or face a U.S. ban. TikTok’s prolonged crisis, despite years of costly efforts to address Washington’s data-security concerns, has served as a wake-up call for Temu and its Chinese parent, the people said.

Worries about similar actions against Temu have percolated among the PDD leadership since late 2022 when the Biden administration threatened to ban TikTok, the people said, and had prompted Temu to speed up expansion in non-U. S. markets.

When the House passed the TikTok bill in March, those fears intensified, the people said, and a decision was made that Temu should move faster to reduce its reliance on the U.S. market.

Temu’s foraging for new growth opportunities also comes as the app’s U.S. advances show signs of losing steam. U.S. sales continue to grow but at a slower pace, according to Earnest Analytics. In the U.S., Temu’s ad spending is increasingly focused on retaining users rather than attracting new ones, according to the people.

Temu has shelled out billions to acquire new U.S. users; PDD paid Meta nearly $2 billion for ads last year and was also a top advertiser at Google, The Wall Street Journal has reported.

It is still one of the top social-media advertisers, particularly on Facebook, but Temu has pivoted more of its ad spending to Europe and other markets this year, said Seema Shah at market-intelligence firm Sensor Tower. By April, the U.S. made up 38% of its total ad dollars, compared with 63% in the fourth quarter in 2023, she said.

In the U.S., the number of people who used Temu at least once a month shrank to 50 million in the first quarter, down 10% from the 55.6 million peak in last year’s third quarter, according to Sensor Tower. Monthly users in the rest of the world surged 128% in the same period.

Intensifying challenges

Temu’s shift comes as it faces a series of legal and compliance challenges.

Washington legislators have accused both Temu and its China-founded rival Shein, a fashion-bargain app, of selling goods that may have been made using forced labor. The push is part of U.S. efforts to target Beijing’s treatment of Uyghurs in China’s Xinjiang region, which lawmakers have labeled as genocide. U.S. law bars most imports with links to Xinjiang.

Temu said the forced-labor allegations are completely unfounded. The company last year told a China-focused U.S. congressional committee that it didn’t explicitly prohibit the selling of products from Xinjiang by third-party vendors. It has since said it prohibits its suppliers from using forced labor. Shein said it has zero tolerance for forced labor.

Temu’s assurances haven’t satisfied U.S. lawmakers. Ahead of the Super Bowl, lawmakers as well as attorneys general in several states called on CBS to pull Temu’s ads from the lineup.

Lawmakers also accuse Temu and Shein of taking unfair advantage of a U.S. tax exemption that lets goods worth $800 or less enter the U.S. tariff-free and without scrutiny. U.S. labor unions and manufacturing trade groups have joined to support bipartisan legislation that would bar Chinese companies from benefiting from the rule.

The U.S. Department of Homeland Security in April said it would heighten scrutiny of low-value packages sent to U.S. customers. Temu and Shein both say the tax exemption isn’t critical to their success.

Temu also faces two lawsuits alleging it collected more information from U.S. users than disclosed. The U.S. has feared that American user data collected by apps with China-based parents could fall into the hands of Beijing. Temu said the allegations have no merit and that its app is independently certified as meeting strict data-security standards.

Different approach

Both TikTok and Shein have worked to address criticism in the U.S. Temu, which faces similar challenges, appears to have taken a less intense approach.

Temu said it engages with regulators and other stakeholders in all the markets where it operates.

Since 2022, TikTok’s parent, ByteDance, has spent $16.4 million on lobbying U.S. policymakers. Shein, whose plans for a U.S. listing have faced unusual delays, has spent $3.4 million on federal lobbying activities. Temu so far hasn’t invested in lobbying, according to OpenSecrets, a nonpartisan platform tracking political contributions.

Over the past year, TikTok has expanded its U.S. presence, which TikTok executives believed would make the app more difficult to ban. It has also increased its engagement with users and spent $1.5 billion on a data-use compliance project.

Shein remains focused on U.S. expansion and has made compliance a strategic priority. The company has recently set up a legal and compliance center and plans to spend $50 million on global compliance, according to a person close to the company.

Temu said it doesn’t quantify compliance expenses but has made substantial investments, such as expanding its product-compliance and intellectual-property-protection teams, and invested in technology to better oversee its processes.

While Temu still sees the U.S. as an important market, it has grown more cautious about investing there, the people close to the company say. Instead of building fulfillment centers in the U.S., Temu is looking to establish one in Mexico, from which parcels can be delivered to U.S. shoppers, they said.

Some vendors said Temu had cracked down on problematic products, such as counterfeit Lego sets, but that its product checks aren’t as rigorous as other platforms. Temu said the company has a “rigorous quality-control process" that is more stringent than those of its competitors to ensure compliance with the regulations and standards of the markets where it operates.

For the first time, PDD co-founder Chen Lei told analysts in a call in March that Temu faces “many uncertainties and challenges ahead" and that the company will strive to communicate and cooperate with regulatory bodies where Temu operates.

The same month, Goldman Sachs downgraded PDD’s stock to neutral from buy, citing geopolitical risks, among other reasons.

Write to Raffaele Huang at raffaele.huang@wsj.com and Shen Lu at shen.lu@wsj.com

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