Why is Temu changing its strategy after spending heavily to enter the US market?

As economic growth slows down and scrutiny of TikTok grows, Temu aims to reduce its reliance on US consumers.

Insiders who know about Temu say that the app is very popular among US consumers and is currently shifting its business focus to outside the US.

Chinese e-commerce giant PDD Holdings' Temu wants to limit risks and seek other sources of growth. Insiders say that one catalyst for this shift was the trouble between TikTok and the US government.

Temu is now focusing more on acquiring users in Europe and other countries. Insiders say that the company currently expects less than a third of its sales this year to come from the US, compared to 60% reported earlier.

For a company, this is a significant strategic shift, becoming the second most popular shopping app in the US in less than two years. It attracts them with $5 water coolers and $3 T-shirts.

Temu says that its expansion to new markets does not reflect a lack of importance to the US. Retailers say that it is seeking to establish a global e-commerce platform, and its decision is not driven by the experience of another company. In February this year, Temu's Super Bowl advertising blitz campaign, with the slogan "Shop like a billionaire," highlighted its rise in American shopping. It also helped spark a political storm around the Chinese homegrown app.

Then came the TikTok Act, which required the Chinese owner of the popular video app to either sell it or face a US ban. Insiders say that although TikTok has paid a heavy price for years to resolve data security issues in Washington, its long-term crisis has sounded an alarm for Temu and its Chinese parent company.

Since the Biden administration threatened to ban TikTok in late 2022, concerns about similar actions have spread, prompting Temu to accelerate its expansion in the US.  When the House passed the TikTok bill in March, these concerns intensified and decided that Temu should accelerate its actions to reduce its dependence on the US market.

Temu was seeking new growth opportunities, and the progress of the app in the US showed signs of losing momentum. According to carefully analyzed data, sales in the US continued to grow, but the growth rate slowed down. According to informed sources, in the US, Temu's advertising spending has increasingly focused on retaining users rather than attracting new ones.

Temu spent billions of dollars acquiring new US users; according to the Wall Street Journal, PDD paid nearly $2 billion in advertising fees to Meta last year, and is also a top advertiser on Google.

Market intelligence company Sensor Tower's Seema Shah said that it is still one of the top social media advertisers, especially on Facebook, but this year it has shifted more of its advertising spending to Europe and other markets. She said that as of April, the US accounted for 38% of its total advertising revenue, while the fourth quarter of 2023 was 63%.

According to Sensor Tower data, the number of Americans using Temu at least once a month fell to 50 million in the first quarter, down 10% from the peak of 556 million in the third quarter of last year. Meanwhile, the number of monthly users worldwide increased by 128%.

Intensifying challenges

Temu's pivot comes at a time when it is facing a series of legal and compliance challenges.

Washington state lawmakers have accused Temu and its Chinese-based competitor Shein of selling goods that may have been produced through forced labor. This effort is part of the United States' efforts to address Beijing's treatment of Uyghurs in Xinjiang. Lawmakers have called it genocide. U.S. law prohibits most imports from Xinjiang that are linked to the region.

Temu says that the accusations of forced labor are entirely unfounded. The company told a U.S.-focused Congressional committee last year that it had not explicitly banned suppliers from Xinjiang from selling products. The company later stated that it prohibits its suppliers from using forced labor. Shein says that it has a zero-tolerance policy towards forced labor.

Temu's assurances did not satisfy U.S. lawmakers. Before the Super Bowl game, several state lawmakers and attorneys general called on CBS to remove Temu's ad from its advertising lineup.

Lawmakers also accuse Temu and Shein of unfairly exploiting the United States' tax-free policy, allowing goods worth up to $800 to enter the United States duty-free. The American labor unions and manufacturing trade organizations have jointly supported bipartisan legislation that would prohibit Chinese companies from benefiting from the regulation.

The US Department of Homeland Security said in April that it would step up its review of low-value packages sent to US customers. Temu and Shein both stated that tax-free status was not crucial to their success.

Temu is also facing two lawsuits, accusing it of collecting more information from US users than it disclosed. The