A Chinese e-commerce giant is looking to build the next big thing in Internet shopping inside an office in Boston’s Back Bay.
It’s called Temu, an online store that is attracting millions of US shoppers by offering a vast selection of consumer goods — clothing, electronic gadgets, tools, and more — all sold at remarkably low prices and shipped directly from manufacturers mostly based in China. It’s reminiscent of Shein, the Chinese “fast fashion” clothing store, but with a much broader inventory, filled with the kind of stuff you might scoop up at Walmart or Costco. Only it’s even cheaper — sometimes a lot cheaper.
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Temu and its low prices have been a welcome surprise for millions of US consumers. Since it launched in September, the Temu smartphone app has become the number-one retail app in both the Apple and Google app stores, with over 24 million installs, according to research firm Sensor Tower. And the company’s Super Bowl TV ad generated a 53 percent day-over-day spike in downloads.
So, why set up shop in Boston? A Temu spokeswoman declined to comment on how many people are employed at the Boston office, located on St. James Ave. But she said Temu chose Boston as its US outpost because of the ample supply of high-tech talent, and also due to its proximity to Canada, where the company opened for business earlier this month.
It’s an open question whether the Temu boom will last. US-based Wish, which prospered for a time using much the same business model, has since faded in popularity as customers tired of low-quality products and spotty deliveries. Besides, it’s hard to see how Temu can generate a profit while selling so low.
“I am shocked at how inexpensive a lot of this stuff is,” said Gregory Stoller, senior lecturer at Boston University’s Questrom School of Business.
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But Stoller figures the super-cheap pricing strategy is all about market share. “It isn’t a long-term play,” he said. “I think they are dipping their toe into the water.” He said that as Temu makes a name for itself in the United States, it’ll gradually add more costly and profitable items to its inventory.
Temu is the US outpost of Chinese e-commerce giant PDD Holdings, founded in 2015 by Colin Huang, who earned a master’s in computer science at the University of Wisconsin and worked as an engineer at Google. The company’s online shopping service Pinduoduo turned shopping into entertainment by letting consumers get together online to buy food, clothing, and consumer items in bulk, at substantial discounts.
To keep its millions of Chinese customers satisfied, Pinduoduo built up relationships with 11 million suppliers, ranging from farms to clothing and electronics manufacturers. That means it’s got a deep and efficient supply chain, capable of delivering inexpensive products directly from factories to consumers.
Now, PDD is extending that supply chain across the Pacific and looking to challenge the dominance of e-commerce titan Amazon. For now, it’s more of a nuisance than a threat to Amazon, which sold an estimated $356 billion in goods and services in the United States alone last year, according to research firm Statista.
The young company has run into some customer service problems. While Temu has earned an A-minus rating from the Better Business Bureau, it has also run up 134 complaints from dissatisfied customers and a performance rating of 1.9 stars out of a possible five.
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Still, Stoller sees a sizable opportunity for Temu to take on Amazon in the United States. “They’re looking at this and thinking… ‘Why can’t we effectively go after the same consumer? Even if we can reduce Amazon’s market share by 3 or 4 percent, it’s found money for us.’ ”
Temu’s key gimmick lies in connecting manufacturers directly to sellers, rather than shipping goods stockpiled in its own network of warehouses. There’s a downside for consumers — slow deliveries as goods make their way from China to the United States. Temu provides free shipping, but tells customers to expect a 7-to-15-day wait. The company is betting that even impatient US consumers won’t mind waiting for prices this low.
For Temu and its suppliers, the direct approach offers a number of benefits. The company doesn’t need a vast network of US warehouses, for instance. The sellers also get a break on the tariffs they’d have to pay when shipping their products to the United States in bulk.
“In US tariff law there’s an exception for low-value imports,” said Brad W. Setser, a senior fellow at the Council on Foreign Relations in Washington. “Imports with a stated value of under $800 don’t pay any US tariffs.”
So, by separately shipping each order of earbuds or pajamas or screwdriver sets, the manufacturer lawfully avoids paying the tariff, making it easier to keep prices low.
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US manufacturers have urged Congress to close the loophole, known as the “de minimis” rule. But for now, it’s wide open and Temu is making it pay off.
But Setser warned of an unsavory aspect of direct sales. Since 1930, federal law has banned the importation of products made using forced labor. In 2021, the Biden administration enhanced this law by banning imports from China’s Xinjiang region, unless the manufacturer provides proof that the goods were not made by enslaved members of China’s Uyghur group. US Customs officials inspect bulk imports of products from Xinjiang to confirm compliance. (As of December, the United States had blocked the importation of nearly $740 million in Chinese goods for suspected violations of the law.)
However, said Setser, “items entering under de minimis are not inspected. There’s no way for the United States to make sure that they meet expectations about the absence of forced labor.”
Temu’s team says they evaluate all suppliers to ensure they comply with all relevant laws. But US customers will have to take their word for it. And the site’s popularity suggests they’re willing to do so, at least for now.
Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.