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Saturday, January 28, 2023

The Truth About Temu, the Most Downloaded New App in America

The most downloaded free app on both the App Store and Google Play for much of the last two months wasn’t TikTok, YouTube, or Instagram, but a shopping app that didn’t exist just four months ago.

Temu offers steep discounts on a slew of products, mostly shipped directly from Chinese factories or warehouses. In addition to incredibly low prices, Temu can no doubt attribute its popularity to its strategy of giving free stuff to users who promote the app on their social networks and get friends and family to sign up.
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But the company—the U.S. offshoot of Chinese e-commerce giant Pinduoduo—is also starting to develop a reputation for undelivered packages, mysterious charges, incorrect orders, and unresponsive customer service. Temu has already been subject to more than 30 complaints to the Better Business Bureau, and has a BBB customer rating of less than 1.5 stars.

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“They’re making delivery promises, and people aren’t getting their stuff when they’re supposed to be,” Melanie McGovern, the director of public relations and social media for the BBB, tells TIME.

When contacted by TIME, the company did not directly address questions about customer complaints or the concerns of the BBB.

Temu’s business model—if it catches on—could also have major implications for U.S. retailers and the global supply chain in the coming year.

What is Temu and how does it work?

Upon first glance, Temu could leave some users questioning whether it’s legit. On top of really cheap consumer goods, Temu boasts opportunities to earn credits through spin-the-wheel games or if you convince your friends to join. Over the last couple months, posts praising Temu have spread like wildfire across Facebook, Twitter, and TikTok—though many of them use glowing language that appears to be recycled from one post to the next.

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But, at the moment, Temu is very much a real platform, offering a variety of real, heavily discounted products, from air fryers to wireless Lenovo earbuds ($8.98), computer keyboards ($15) to clothes ($1.69 for five pairs of socks). Users who turned to Temu this month as a lifeline for holiday shopping in the face of the highest inflation in a generation made it one of the fastest growing platforms in the U.S.

What does Temu sell?

The better question is what Temu doesn’t sell. Users on the Temu website or app are immediately besieged by deals of all kinds: running shoes for $17.48, universal wrenches for $4.48, talking toy hamsters for $6.99. A banner brags about items up to 90% off retail prices, thanks to a new year’s sale. The breadth of items and prices is remarkable, and the site’s aesthetic comes off as something like a virtual dollar store.

Temu Screenshot
TemuTemu offers extremely low prices on a range of inexpensive consumer goods shipped directly from Chinese factories and warehouses.

But the strategy makes sense once you realize that Temu is a “sister company” of the Chinese e-commerce giant Pinduoduo, which has offered similar deals in China for the last few years. Pinduoduo has found success in China selling heavily discounted products straight from manufacturers to low-income buyers, as well as agricultural products to farmers. The company now has a market cap of $102 billion, and its stock price increased during a year in which competitors like Alibaba took severe hits.

Pinduoduo launched Temu in September in order to court the American market, and Temu’s website lists an office in downtown Boston. A Temu spokesperson responded to questions from TIME with a statement from its website: that the company’s prices are enabled by a “deep network of merchants, logistic partners, and [Pinduoduo’s] established ecosystem built over the years.”

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How are people getting stuff for free on Temu?

While Temu’s prices are cheap, many new customers actually aren’t paying anything at all. That’s because Temu has launched a campaign on social media in which the more you convince others to sign up, the more credit you earn. This has enabled some people who have earned enough credit to receive home goods without even giving Temu their credit card information.

“It seems like they’re being subsidized to be a loss leader in order to gain market share, which is not unlike what Amazon did for a long time,” says Douglas Schmidt, a professor of computer science at Vanderbilt University.

Brianna Lukey, who lives in Fort Worth, Texas, says she’s received $200 worth of items from Temu for free. She first heard about the app from a friend a month ago, and was initially leery of it: “I know there’s a lot of things that go around that may not be legit,” she says. “But this was.”

Lukey posted about Temu on Facebook, TikTok, and Snapchat, and eventually convinced friends to join the app, in the process earning a bunch of credits. She used them to order a ring light (priced at $25.48) for her plaster-art small business, Array of Aura’s, as well as an oils diffuser ($5.48), several necklaces, and a mouse and keyboard for her daughter ($19.98). Lukey says the keyboard works fine: “I didn’t think it would be that great quality. But it’s pretty good for being free,” she says. “So I’m grateful for it.”

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Temu may have given Lukey many items without her turning over any cash, but the company free advertising via Lukey’s social network in return. Temu is branding the campaign as a way for communities to band together to save money: their slogan is “Team Up, Price Down.”

The strategy appears to be working: When Lukey posted a photo of her Temu shipment on Facebook, her post was soon deluged by 70 comments from her Facebook friends, which mostly consisted of people posting their own referral links in the hopes of scoring similar hauls.

What’s the catch?

One of the comments on Lukey’s post, however, was significantly less positive than the rest. Julie Roper Malloy wrote that the package she ordered from Temu containing Christmas gifts never arrived, despite the company’s pledge it would be delivered Dec. 19 at the latest. “Still waiting for my order from November! Thanks Temu, you’ve ruined Christmas!” she wrote.

In a series of Facebook messages with TIME, Roper Malloy says she spent $178 on gifts from Temu for her family, including two drones and some makeup for her daughter. But the items never arrived. Malloy says she has contacted the company several times for a refund, which has also yet to arrive. “I will definitely be more diligent in the future when ordering online,” she wrote.

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Roper Malloy is not the only one to encounter problems with a Temu order. Temu itself acknowledges that its orders take longer to arrive than those from Amazon—typically 7-15 business days—as they come from “overseas warehouses.” But it appears that Temu also has had trouble delivering inside that larger time window. In October, the Boston branch of the Better Business Bureau opened up a file on Temu and has received 31 complaints about the website.

Temu currently has a C rating on the BBB, and an average customer rating of 1.4 stars out of 5, albeit from only 20 reviews. (Complaints are separate from reviews, which do not factor into BBB’s official rating.) McGovern at the BBB says it’s unusual for such a new company to receive so many complaints in such a short amount of time. She notes that Temu has acknowledged and responded to every complaint posted to the BBB website, but many of those complaints remain unresolved.

Temu’s parent company, Pinduoduo, has long been accused of hosting sales of counterfeits, illegal goods, or products that do not match their descriptions. (Pinduoduo wrote in its SEC filings that it immediately removes unauthorized products or misleading information on its platform, and freezes the accounts of sellers on the site who violate its policies.)

There have been no BBB complaints that allege the goods Temu ships are counterfeit or fake.

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Additionally, in 2021, the deaths of two Pinduoduo employees spurred investigations and boycotts over the company’s working conditions, according to the New York Times.

How Temu could affect the U.S. economy

Schmidt, at Vanderbilt, who specializes in security and privacy, says that Temu’s data and privacy practices aren’t out of the ordinary: The company collects lots of personal data about users and then deploys that data to sell ads. However, he says that Temu’s rise could have a bigger impact not in terms of privacy concerns, but in terms of pressure on American companies and workers.

If more and more American consumers flock to Temu to buy cut-rate goods, that could pressure Amazon and other competitors to slash their prices too, which would affect wages, Schmidt argues.

“This is an interesting example of the manufacturing base in China getting sufficiently sophisticated that it no longer feels like it needs to go through distributors. They’re selling directly to consumers. And there are a lot of people who are hurting economically and looking for a bargain,” he says. “This is obviously going to put pressure on producers of goods to further slash their cost basis and profit structure—which could have the consequence of further eroding domestic manufacturing in the U.S.”

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