China’s Temu launches $3bn US online ads blitz in challenge to Amazon

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Chinese internet marketplace Temu has launched a multibillion-dollar internet advertising blitz in the US, as it seeks to grab market share from Amazon in the world’s biggest consumer market.

Shanghai-based ecommerce giant PDD Holdings launched Temu in the US in September 2022 and then spent close to $3bn in marketing last year, according to estimates from research group Bernstein. Analysts at Goldman Sachs have found that Temu paid about $1.2bn for Meta advertising alone in 2023.

The huge outlay has vaulted the online marketplace, which offers shoppers cheap goods shipped from China, into the ranks of the biggest online advertisers in the US, alongside the likes of Amazon, Target and Walmart.

“Temu is blasting every channel with cash,” said Mike Ryan, head of ecommerce insights at Smarter Ecommerce.

Analysts have increasingly questioned the sustainability of the high-spending strategy, even as Temu, which sells everything from toys to car tyres at far lower prices than established western brands, grows in popularity.

In a company presentation on Tuesday, the Chinese group said it had 70mn monthly active users in the US. Temu had an estimated 13mn in the country in January 2023, according to SensorTower data. However, it has captured just 1 per cent of the US ecommerce market in 2023, according to Bernstein. That trails behind Amazon’s roughly 40 per cent.

Blake Droesch, a senior analyst at eMarketer, said that while Temu had spent billions to grow its brand and acquire customers “the big question is, is that model of growth sustainable?”

PDD has not released a breakdown on Temu’s financial performance to date. But Temu’s US growth along with its parent company’s increasing sales in China led PDD to overtake Alibaba last year as the largest Chinese ecommerce company by market capitalisation, currently worth $173bn.

This week, Alibaba reclaimed its top position after investors reacted to a report that Donald Trump was mulling a 60 per cent levy on all Chinese imported goods if he was reelected US president.

Despite the heavy marketing spend, industry watchers have raised concerns that the quality of Temu’s products quality may deter repeat customers.

Analysis by Similarweb of all advertising that drove traffic to Temu in the US — including social media, display ads and paid search — showed that the proportion of site visits that resulted in sales dipped towards the end of 2023. 

“It’s one thing to attract people to your site but it’s another one to convert them into paying customers,” said Similarweb analyst Inès Durand.

Temu said it was “refining” its marketing strategy for each market, and spending “depends on how well they’re doing and what we’re learning”.

“We’re seeing the impact of word-of-mouth referrals grow and become even more influential than advertising,” it said.

In January, Bernstein analysts said there was a “growing overlap” between the consumers visiting Temu and “incumbent US marketplaces”, including eBay and Amazon.  

Droesch from emarketer added that Amazon has a huge and loyal base of customers who are members of its Prime fast delivery subscription service, and was insulated by its “very diversified” product range and customer base, even if Temu steals some market share from the company in the clothing and accessories segments.

During the company presentation on Tuesday, Temu said it was recruiting Chinese suppliers with warehouses in the US and wanted to “compete with Amazon and Walmart internationally” by cutting down delivery times.

It currently takes Temu between one to three weeks to send packages from China to the US, with express delivery taking between four to nine days. By contrast, Amazon customers often receive orders within two days.

While Temu invests in improving its service, its already vast marketing spending was raising costs for rival ecommerce groups.

Josh Silverman, chief executive of US ecommerce platform Etsy, which specialises in craft goods, said in November that Temu and Chinese fast-fashion group Shein were “almost single-handedly having an impact on the cost of advertising” on Meta and Google.

Temu’s marketing strategy echoes that adopted by US ecommerce player Wish, which sold cheap goods made in China to shoppers in the US and spent billions on marketing.  

Although it initially soared in popularity, that waned as Wish struggled to maintain high levels of spending and retain customers, and faced scrutiny in relation to the sale of counterfeit items. Wish’s share price has collapsed since it listed in 2020, with its market capitalisation now $107mn compared to $14bn when it went public.

Temu said the comparison with Wish “overlooks fundamental differences in our business model and strategy” and that its “growth is not rooted solely in advertising, but grounded in providing consumers with exceptional value and service”.

“Temu is growing faster and to a higher level of penetration than Wish,” said Ryan from Smarter Ecommerce. “The question is will the bubble burst or will PDD keep financing this.”