Shoppers Are Abandoning Temu—Here’s Why

Over the past half-decade, Temu has become a bastion of bargain hunting for practically any type of product imaginable (even if the questionable quality of these items has made it something of a meme). But despite its rock-bottom pricing strategy, shifting economic winds and consumer habits are beginning to affect the retailer and its bottom line. Now, Temu finds itself struggling as increased competition and rising costs have shoppers abandoning the online shop in droves.

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Temu is struggling due to new tariffs.

The beginning years of the 2020s were nothing short of a golden era for Temu.

By pushing a “everything costs $5” pricing scheme, the online retailer saw its customer base skyrocket to roughly 292 million active monthly shoppers around the world in the second quarter of this year, AInvest reports. It also saw the amount of its total merchandise sold explode to $70.8 billion last year, constituting a staggering 24,400 percent spike from 2022.

However, even such a sharp rise doesn’t make the company immune to economic gravity. Earlier this summer, Temu’s parent company, PDD Holdings, reported that it had seen a nearly 50 percent drop in its daily users in May versus March in the immediate wake of new tariffs imposed by President Donald Trump, Reuters reported.

And the changes took a serious toll on the company’s bottom line. PDD Holdings said Temu’s profits had suffered significantly with a 47 percent decline compared to the same quarter last year, per AInvest. The company cited the newly imposed tariffs as a major contributor to the change.

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Now, Temu is facing new competition from Amazon.

As the economic realities of the post-tariff market sink in, Temu is facing another significant issue holding back its growth potential.

Last November, e-commerce juggernaut Amazon entered the bargain buying space with Amazon Haul, a service emulating Temu’s low-quality, low-cost marketplace. The offshoot carries goods all priced at $20 or less, with the vast majority costing under $10.

Amazon Haul had success right off the bat, reporting $155.7 billion in revenue in the first quarter of this year, as well as an operating income of $18.41 billion, AInvest reports. Inventory is similar to Temu, too, with items like $6.99 sunglasses, $19.99 Bluetooth speakers, $5.99 facial exfoliant, and men’s shorts for $12.87.

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Now, Temu is trying to rein in costs.

To circumvent the massive price increase following the removal of the de minimis tariff exemption on low-cost goods, Temu is searching for suppliers stateside.

However, PDD Holdings’s efforts to source its products domestically have hit something of a dead end, The Financial Times reports. Namely, the company can’t find anyone who can go lower on pricing than their newest competitor.

“We’ve told them they can’t undercut Amazon with the same stuff, it’s going to have to be materially different [products],” an executive at a major third-party seller told The Financial Times.

At the same time, PDD Holdings decided to stem some of its staggering financial losses by pausing its advertising in the U.S. But while the company may be saving $1.4 billion on social media advertising compared to the previous year, the timing might be ill-suited given Amazon’s entry into the segment.

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Temu faces significant hurdles in the coming years.

It’s not just operations stateside that are working against Temu. Government regulators in both the U.S. and the European Union are targeting the service.

On the American side, the Consumer Products Safety Commission (CPSC) said last September that it would be investigating the retailer (along with its low-cost counterpart Shein) for potentially dangerous items, especially “deadly baby and toddler products,” CNN reported.

The move came after a congressional commission called out the two Chinese companies for using exploited labor practices, intellectual property theft, and trade loophole exploitation.

At the same time, E.U. regulators are cracking down on the retailer. Recently, the European Commission said the site presented “a high risk for consumers in the E.U. to encounter illegal products,” the Associated Press reports.

The latest statements come after the international organization kicked off an investigation into whether Temu was in violation of the Digital Services Act, which requires companies to protect users and their data. If found liable, PDD Holdings could be fined up to six percent of its annual revenue, per AP.

Some experts point out that Temu’s short runway is now growing shorter, mainly thanks to Amazon’s deeper pockets and more entrenched position in the U.S. market. This likely means the company will have to change up its tactics.

“Unless PDD [Holdings] is willing to lose billions of dollars each year to gain market share over the next five years, it will have to be smarter,” Martin Heubel, a liaison between Amazon and product vendors, told The Financial Times.