How Are Temu Prices So Much Lower Than Amazon?
“Shop like a billionaire.”
That’s the Temu tagline, and it’s not hard for its customers to do that because the e-commerce platform offers such low prices.
But how is Temu able to offer lower prices compared to sites like Amazon and even eBay? It has something to do with its business model and the fact that it lacks a few key features of other e-commerce sites. But is there more to it?
Related Article: How Is Temu Different from Amazon and Wish?
What Is Temu and How Did It Become a Household Name?
Temu is an online marketplace owned by PDD Holdings. While PDD describes itself as a “multinational commerce group”, it’s really largely Chinese and was founded by Colin Huang in 2015.
Temu was first launched in 2022 in Boston, Massachusetts, and eventually went global, spreading across the UK, France, Netherlands, and Spain. Despite it being relatively new, it has become one of the most popular online shopping sites in the United States. In fact, it even surpassed Amazon as the most downloaded free app in the US at one point.
This success is largely due to the low prices offered on the site, but what sealed the deal was their 2023 Super Bowl commercial that was seen by 62.5 million viewers.
How Temu Keeps Its Products Cheap
Shipping Directly from Manufacturers
Prices are jacked by middlemen who take a cut. Temu avoids this by completely eliminating the need for middlemen by shipping products directly from its Chinese suppliers. Although if we get technical about it, Temu is the middleman in this case.
Every Temu order is shipped directly by the supplier in China straight to the customer’s doorstep. In contrast, Amazon sellers import products by bulk, so they have to spend on storage, FBA, and other Amazon seller fees.
So in this case, Amazon third-party sellers are akin to middlemen. Instead of the products being sold and shipped directly by those who made them, they go through sellers who of course have to pay themselves in the process.
This is a general overview of how Temu orders are shipped from the sellers to the customers:
De Minimis Rule and Trump’s Tariffs
Temu sellers are able to take advantage of the de minimis rule, exempting packages worth $800 or less from tariffs. The de minimis rule allows goods with a value of $800 or less per shipment to enter the US duty-free. This is a big advantage to Temu sellers that most Amazon third-party sellers don’t enjoy.
Let’s say you’re an Amazon seller who is importing from China. If you import $3,000 worth of products from China, with a duty rate of 6.5%, this means that you have to pay $195 for duties. You will then have to consider this when pricing your products, resulting in your price to be higher compared to a seller who didn’t have to pay an additional $195 in duties.
In addition to not enjoying the de minimis rule, Amazon third-party sellers who are importing from China will also have to pay the so-called Trump’s tariffs, unless their products are excluded. When Trump was president, he imposed additional tariffs (most commonly 25% or more) on imported products from China.
In May 2019, nearly half of all goods that America imports from China were subject to an additional 25% tariffs. In August 2019, those products not covered by the 25% were subjected to a 10% increase. This means that Amazon sellers had to deal with these additional tariffs, causing their products to be more expensive.
Longer Shipping Times
An unpleasant result of shipping items directly from Chinese suppliers to US customers is the latter have to wait much longer for their orders to arrive. There’s no such thing as same-day or next-day delivery that Amazon Prime members enjoy.
Temu orders to the US take around 4 days (with express shipping) to 22 days, so customers need to be a bit more patient when ordering from the site. It does offer free shipping on all items, but if you want to expedite your order, you can pay $12.90 for purchases that are less than $129.00.
Track Record of Temu’s Parent Company
While Temu was launched in 2022, its parent company, PDD Holdings, already has a few years of experience and resources under its belt. PDD Holdings was founded in 2015 and has since established long-term relationships with suppliers, giving it more leverage when it comes to negotiations. This means that Temu can more easily convince its suppliers to offer lower prices.
Amazon vs. Temu: Which Has Better Quality?
There’s currently a 14-piece “luxury” brush set sold on Temu at 88% off. This brings the price down from $39.93 to $4.48. With this kind of price, you wouldn’t really expect it to be high-quality and durable.
However, this doesn’t mean that Temu products are always inferior in terms of quality compared to Amazon as evidenced by this Reddit thread. In fact, some buyers look for product recommendations on Amazon and buy similar ones from Temu.
So while there are low-quality products on Temu, it’s not necessarily the reason why its products are much cheaper than Amazon.
Is Temu Subsidized by the Chinese Government?
There is no direct evidence of China supporting Temu in the same way that it supports companies like Huawei. However, China is indirectly helping Temu in that the Chinese government is heavily supporting exports.
The support includes tax rebates and infrastructure that facilitates exports. This export-heavy strategy by the Chinese government may prove to be not the best idea for its economy, but that’s a discussion for another article.
According to a study by the University of Nottingham, China may be spending as much as 1.5% of its GDP to support exporters. This results in over ⅓ of Chinese manufacturing exporters selling more than 90% of their products abroad.
Thus, while there is no evidence that China is subsidizing Temu directly, its export-focused policies contribute to the success of Temu sellers who are mostly based in China.
Does Temu Collect and Leak Customer Data?
Unsurprisingly, Temu is catching the attention of US regulators because of its connection to China.
According to Washington Times, “China’s National Intelligence Law of 2017 mandates that all Chinese companies are legally obligated to share all collected data with the Communist Party regardless of whether it is collected in China or overseas.”
Arkansas Attorney General Tim Griffin accused the company of allegedly taking more data than necessary to make purchases on the site. He even went on to say that Temu is secretly malware and spyware. He says “It is purposefully designed to gain unrestricted access to a user’s phone operating system. It can override data privacy settings on users’ devices, and it monetizes this unauthorized collection of data.”
This isn’t surprising especially because this is a largely Chinese-owned company. We can expect Temu to be treated like TikTok soon and questioned about potential security breaches.
To “appease” regulators, PDD Holdings moved its headquarters from China to Ireland in 2023.
Temu Is Not Profitable (Yet) and Its Sellers Are Paying for It
In mid-2024, Temu had already surpassed its 2023 total revenue of $18 billion. In fact, it’s growing much faster than TikTok Shop and Shein.
However, the company does spend quite a lot to get the site out there. In the fourth quarter of 2023, Temu’s Meta ad spend increased 318%. According to The Wall Street Journal, Temu spent nearly $2 billion in 2023 for advertising on Meta. The site also offered $15 million in coupons and giveaways during the 2024 Super Bowl. This is on top of the estimated $21 million they spent on the ad itself.
So the question is, Is Temu even profitable?
According to Wired, the answer is no (at least for now). The company is allegedly losing around $30 per order, trying to get people to download the app and start shopping on the platform. This includes marketing and bearing the costs of shipping (they’re offering free shipping on all orders). According to Haitong International Securities Group, Temu shoulders $9 to $10 per shipment.
Plus, they’re also squeezing their Chinese suppliers to a point where it’s almost impossible to turn in a profit.
This isn’t surprising, considering that the prices are impossibly low and they offer free shipping. This is understandable for now because it’s a relatively new marketplace, and it’s still trying to get the word out and increase its market share.
So despite its consistently increasing revenue, Temu is not profitable just yet. For reference, Amazon was launched in 1994 and started to turn a profit in 2001.
However, Chinese site 36kr.com reports that in order to lessen the impact of expansion costs, Temu is turning the knife against its sellers. Specifically, Temu is reported to tighten up its measures in terms of freight subsidies, quality review, product ratings, etc. In addition, shipping to domestic warehouses will no longer enjoy the 100% free logistics policy, something that they were promised when they signed up on the platform.
Just like Amazon, Temu also charges a commission fee on each sale, ranging from 15% to 30%, depending on the product category. It’s free to list a product on it though, which also helps lower the price.
| Temu | Amazon | |
| Duties | 0% for those valued at less than $800 | Depends on HS Code (could be duty free) |
| Selling Fees | Commission fees (2% to 5% of item’s selling price) Service fee: 0.5% Entry fee: 200 to 500 yuan Operating expenses: 100 to 200 yuan per month Commission fee: 6 to 10% | Referral fees (8% to 15%) Seller Plan ($0.99 per item or $39.99 per month) FBA fees (starts at $3.22) Inbound placement fees (At least $0.12 per unit but could be avoided if shipments are sent to multiple fulfillment centers) |
| Shipping Fee | DHL, USPS, UPS, Fedex | Minimum $2.50 |
| Average Return Rate | 30% to 35% | 5% to 10% |
| Transaction fee | 2.9% + $0.30 | 2.9% + $0.30 |
Will Temu Decline Just Like Wish Did?
You might have seen memes like this:
These memes are ubiquitous online because Wish.com has been known for its low-quality products that expecting orders from the site to look exactly as advertised is bordering on comical. This is just one of the reasons for Wish.com’s decline. In the third quarter of 2023, Wish reported a 52% YoY decrease in revenue.
Considering that Temu and Wish have a lot of similarities, will the PDD Holdings company suffer the same fate?
Of course, we can’t categorically say, but here are the salient differences between the two:
| Temu | Wish | |
| Shipping Times | Shorter (4 to 22 days) | 2 to 3 weeks |
| Period for Returns | 90 days | 60 days |
| Shipping fee | Free for almost all orders | Starts at $2.99 |
As you can see, Temu does have a bit of advantage over Wish. However, it’s possible for the company to make the same mistakes, especially since Temu is growing so fast and is bleeding money.
A few mistakes Wish made was focusing too much on growth that the quality of the products and customer service have suffered. There were even reports of fake listings that offered unbelievable discounts.
Final Thoughts
Temu is still exerting efforts to get more people to buy and stay active on the platform. Its main strategy is to lower its prices and offer free shipping. The company is starting to get closer to the West and is in fact planning to expand to US and European sellers.
We’ll have to see in a few years how it fares. Do you think it has the capacity to beat Amazon or is the e-commerce giant too big to be conquered? Leave your thought in the comments section.
