Temu’s Rise: Driving The Future of E-Commerce and Cutting Supply Chain Costs

Temu, an e-commerce platform that’s been gathering millions of users since its September 2022 launch, has maintained the top spot as the most downloaded app in the U.S. throughout 2023. The Temu app was recently recognised as an Editor’s Choice on the Google Play app store. 

In the wake of a splashy Super Bowl ad encouraging users to “shop like a billionaire” on the app, Temu garnered a reputation for offering surprisingly inexpensive products, from clothing to electronics. These low prices have spurred a trend of shoppers posting about their “Temu hauls” on social media, but they’ve also led some to question how such low prices are possible.

The Google Play recognition lends credence to Temu’s claim that its low prices are not due to lower quality items but rather to its Next-Generation Manufacturing model. The company’s name comes from its motto: “Team Up, Price Down,” which describes a strategy of collaborating with manufacturers to spot inefficiencies and lean into matching production to demand.

“Temu might be exposing a white space in the market wherein brands have been producing at extreme low cost, and along the value chain there’s been so much bloated cost passed on for margin,” said Michael Felice, an associate partner at management consulting firm Kearney, in a recent CNN piece on Temu’s eye-catching rise. 

“Many of the sellers in our global network have accrued years of experience and expertise in supplying products to global brands and consumers. They can produce quality prices at the most efficient costs as a result of the economies of scale and technological innovation they have built up over the years,” said a Temu spokesperson.

What Is Temu?

Temu is a Boston-based online platform that connects shoppers to thousands of brands and sellers. The platform offers products that can reach near-wholesale price levels across 29 major categories and 250 subcategories. Sample sections include men’s and women’s clothing, automotive supplies, and musical instruments.

Temu doesn’t construct the items it sells. It partners with manufacturers around the world and postal carriers such as UPS and USPS to facilitate the retail process, trimming costs tied to unnecessary processes and intermediaries. Since launching in the U.S. in September, Temu has expanded on a global scale and now sells to consumers in Canada, New Zealand, Australia, and several European countries.

The company’s business model is designed to optimise manufacturing and shipping operations to enhance cost efficiency. Leveraging retail insights and collaborating closely with manufacturers, Temu aims to reduce excess inventory and improve marketing effectiveness. This approach allows the company to offer competitive pricing to its customers while maintaining a more customer-centric product selection.

What Is Next-Gen Manufacturing?

By meticulously serving its users to understand how they shop, Temu can uncover valuable retail insights without relying on expensive market research. These insights guide the company’s strategic decisions and enable it to help fine-tune its partners’ manufacturing processes.

Through shared knowledge and data-driven collaboration, Temu and its manufacturing partners work together to eliminate inefficiencies in the production process, reduce waste, and minimise excess inventory. This streamlined approach results in cost savings that can be passed on to consumers in the form of lower prices.

Traditional retail players have long grappled with the challenge of guessing what products will resonate with customers, often leading to excess inventory and wasted resources. Temu’s approach is to apply advanced analytics to identify purchasing patterns that lead to informed decisions regarding product design, features, and quantities. Sellers can afford to offer high-quality products at lower prices on the platform because they can count on the analytics underlying Temu’s approach to help their products reach their target audience and increase sales.

In addition to cutting inventory management costs, the Next-Gen Manufacturing model tackles the challenge of ineffective marketing. E-commerce sellers often struggle to effectively target their customer base, leading to wasted advertising dollars and diluted messaging. However, armed with comprehensive retail insights, Temu can create targeted marketing campaigns that resonate with its customer base. It’s a focused approach that allows for a more efficient allocation of marketing resources and a higher return on investment for sellers, which ultimately enables them to lower prices.

The Future of E-Commerce

Temu’s more collaborative approach has the potential to upend traditional approaches to e-commerce and retail. Rather than engage in wasteful product development guesswork that’s both expensive and harmful to the environment, Temu helps sellers make products that their target audience actually wants. The prices on the platform are low enough to draw both attention and skepticism, but they may simply be the result of an evolution of inefficient manufacturing processes.

The growth trajectory for Temu rests on shoppers’ preferences for lower prices, but it also involves the app’s design, which highlights frequent flash sales, rewards, coupons, and trending items. Temu’s exponential user adoption in just its first year of operations speaks to the demand for this new approach to e-commerce. While it remains to be seen if the company will continue to expand at such an unprecedented pace, its analytic approach to lean manufacturing is likely here to stay.

Online shopping has been heading in this direction for some time, and Temu may just be the natural culmination of shoppers’ increasing expectations for affordability and convenience.