Boosting the Digital Economy
It started with a video of a postal worker sorting a mountain of orange packages from Temu.
Rachael D'Amore hadn't heard of the online shopping site, but after watching the video she found good reviews, affordable products and free shipping on most orders — what she called "a unicorn in Canada these days."
"I had to double check the URL to make sure that I wasn't on the U.S. site," she said.
Temu also offered a $5 credit if an order took longer than 12 days to arrive — a quasi-insurance policy that gave D'Amore the confidence to place a $30 order for seven items, including an 89-cent necklace, earrings for $1.78 and hair clips for $3.59.
The package from the retail marketplace arrived 10 days later and "pretty much met my expectations," said D'Amore, a Toronto-based business director with a communications agency. "They may not be forever pieces, but the quality was fine."
Temu launched in Canada in early February — the same month it aired a Super Bowl ad with the tagline "shop like a billionaire" — offering consumers an alternative to online juggernaut Amazon.
The e-commerce marketplace is sometimes compared to Chinese shopping platforms AliExpress and Shein, underscoring the growing strength of companies and goods from China in North America's online retail landscape.
Though Temu is based in the United States, it is owned by a multinational holding company. That company, PDD Holdings, also owns Chinese shopping site Pinduoduo, seen as a sister to Temu.
Temu sells goods ranging from clothing and electronics to household and pet products. Shoppers can find dresses for $9.99, a lamp for $2.28 and wireless earbuds for $15.28.
Unlike Amazon, which warehouses most products at "fulfillment centres" in Canada for faster shipping, Temu allows vendors in China to sell and ship directly to customers in Canada.
"It's a typical example of disintermediation," said David Soberman, a marketing professor at the University of Toronto's Rotman School of Management.
"It's a lower-cost model," he said, explaining that Temu cuts out the middlemen. "They're able to offer cheaper prices because every time a product changes hands or has to be shipped to a warehouse and then reshipped, it costs more."
Amazon typically offers shipping within a day or two in much of Canada, whereas Temu's factory-to-consumer orders take about two weeks — still incredibly fast given the distance, Soberman said.
"Shipping companies experienced massive growth during the pandemic and have gotten really good at shipping across continents," he said.
"Because of the improved infrastructure of parcel delivery around the world, Temu has now become a viable business model. It wouldn't have been possible in the past."
Temu's advantage over other online shopping platforms is predominantly about price, with the cost of many goods starting under a dollar.
In a period of high inflation, the low prices may be a bigger draw than usual.
"The time is right for a platform like Temu," Soberman said. "In an inflationary environment where people are feeling strapped, they're more willing to shop around and bargain hunt."
Indeed, D'Amore said she found several items on Temu that were similar to ones offered on Amazon but at a lower price.
"It offers a level of accessibility to certain products that have maybe fallen out of reach for some Canadians as prices rise," she said.
"But there's an allure to everything being so cheap that you may end up buying more than you need. I definitely have some concerns about overconsumption and how sustainable it is."
Despite launching just over two months ago, Temu has become one of the most downloaded apps in Canada.
Its fast rise is due in part to its savvy use of social media, marketing expert Jon Davids said.
"Temu has tapped into a really effective way to market and reach consumers," said Davids, CEO of branding agency Influicity. "They're using influencer marketing and sending a lot of free product to people on Instagram and TikTok."
Temu also leans into the so-called gamification of retail, giving away free products and prizes to shoppers who play games on its app and refer new users.
"Retailers and brands are developing their own apps, which have become like the new front door of a retailer," said Tamara Szames, executive director and industry advisor of Canadian retail for Circana, the rebranded name of Information Resources Inc. and The NPD Group following their merger last year.
"It's become increasingly about discovery and entertainment rather than a need," she said. "Impulse purchases are an extension of that."
Meanwhile, it's unclear whether Temu will be able to sustain its low prices and free shipping for orders that meet its minimum threshold of $20.
Many of its top deals — with items up to 90 per cent off — are part of its Canadian grand opening sale.
"I would not be surprised if they're burning cash just to achieve market share," Davids said. "But not everything is that cheap. The top products you see are extremely cheap and that's how they draw you in, but other items are more comparable to other retailers."
While Temu continues to grow and attract new shoppers in Canada, it may experience bumps along the road.
In the U.S., where Temu has been shipping since last September, consumers have complained about late packages and poor customer service.
"When you're a new player you’re going to have a lot of growing pains," Soberman said. "I don't think it's a flaw in the model, but just adjusting to the market and figuring out how to meet the needs of consumers in an effective way."
This report by The Canadian Press was first published April 7, 2023.