Is Temu Really Too Good To Be True?

In the world of e-commerce, Temu has emerged as a fast-growing player. After launching its business in the US in September 2022, Temu has quickly gained a reputation as an online superstore for its wide selection of everyday products at super-low prices. The Boston-based e-commerce platform has now expanded to 48 markets and is available to residents in countries including the US, Mexico, France, Germany, Italy, and Spain. 

Why is Temu so popular? “We are in a cost of living crisis and people are looking for anything to save a bit of money,” says Miya Knights, the publisher of Retail Technology magazine and the co-author of a book about Amazon. “Everyone likes a bargain and Temu ticks those boxes.” 

Many consumers are both enamored by Temu’s ultra-low prices and also a little wary, believing in the old adage that “if it’s too good to be true, it probably isn’t.” In this article, we take a close look at how Temu operates its business and how it can achieve the balance of offering functional merchandise at factory-like prices.  

A Brief Overview Of Temu 

Temu, headquartered in Boston, operates an online marketplace that offers a wide selection of products from international suppliers at competitive prices. The platform was launched in September 2022 and has since attracted a global user base by providing a convenient website and application, emphasizing value and customer service. 

Following its launch, Temu has expanded its inventory to include a vast variety of products, such as electronics, home essentials, clothing, and beauty products, covering more than 30 primary categories. 

What does Temu mean? 

Temu means “Team Up, Price Down.” The name Temu is derived from its motto, which expresses the goal of helping consumers fulfill their aspirations by lowering costs using economies of scale generated on the platform.  

How can Temu achieve such low prices? 

Feedback regarding Temu merchandise often highlights the exceptionally low prices. Customers can purchase a decent dress for under $2 and obtain wearable electronics for less than $5. Temu also carries a wider product variety compared to many local dollar stores, and it maintains lower prices than most e-commerce platforms, even during discount periods.  

The secret recipe behind Temu’s price competitiveness is its “fully-entrusted business model,” according to Wendy Chen, senior investment analyst at GAM Investments. Temu’s model which stands between the usual first-party (1P) e-commerce model (where the platform acts as a retailer to sell products directly) and third-party (3P) e-commerce model (where the platform acts as a marketplace for retailers to sell product themselves).  

Temu operates under a model where it sources products directly from factories, which are responsible solely for shipping to Temu’s warehouses in the destination countries, according to GAM. Thereafter, Temu manages customer acquisition, pricing strategies, logistics, and after-sales service.  

This approach allows Temu to maintain control over quality, delivery, and customer satisfaction—advantages typically associated with a first-party (1P) model. At the same time, it enjoys the diverse product selection and scalability characteristic of a third-party (3P) model. By streamlining the supply chain from the factory to the platform, Temu not only reduces costs but also minimizes inventory risk, says GAM’s Chen. 

Temu Explains Its Business Model 

By streamlining the supply chain and cutting out extraneous costs, Temu says it is possible to achieve both quality and affordability. 

Temu says that its ability to offer competitive prices stems from establishing a direct connection with cost-efficient producers, eliminating the need for middleman fees and enabling consumers to purchase goods at factory wholesale rates. The company's direct-to-consumer model is designed to avoid the additional markups that are common in retail, thereby providing products at substantially lower prices. 

The company also states that it leverages the consolidation of tens of thousands of consumer orders into bulk shipments to achieve economies of scale, which significantly lowers the shipping cost per item. According to Temu, this strategy ensures that the gross profit covers shipping costs and allows for fair profit margins for merchants on the platform. 

According to the company, its direct-from-factory model disrupts traditional retail by minimizing the number of times goods are transferred, which leads to significant cost reductions. By dispatching goods directly from the production source, Temu bypasses multiple levels of transportation and warehousing, addressing what it views as one of the biggest costs and inefficiencies in conventional retail operations. 

Temu says that its business model is strategically efficient, ensuring that the pricing not only covers the costs of products, transportation, and sales but also provides sellers with ample margins for business development and expansion. 

Is it safe to shop on Temu? 

 Temu says that unlike other e-commerce platforms, it does not allow dropshipping. Dropshipping refers to the retail method where a store sells products without keeping them in stock, instead purchasing items from a third party to ship directly to customers after a sale. 

Instead, Temu follows a model where listed merchandise must be in stock by the merchants themselves and stored in or sent to Temu-affiliated warehouses. Temu says that it conducts quality control spot checks on these goods, ensuring adherence to quality and compliance standards. Temu states that its clear chain of custody for products reduces the incidence of wrong or empty package deliveries, thereby increasing customer satisfaction.  

The company maintains that shopping on its site is safe, highlighting its status as a TrustedSite Certified Secure Site and its adherence to the Payment Card Industry Data Security Standard (PCI DSS) for encrypting card information during storage and transmission. 

Furthermore, Temu collaborates with major payment networks that have robust security and authentication protocols, including Visa Secure, MasterCard ID Check, American Express SafeKey, Discover ProtectBuy, and JCB J/Secure, according to its website.  

Lastly, according to the company, Temu's purchase protection program ensures a secure shopping experience by offering refunds to customers for orders that are not as described or if the products arrive damaged, giving buyers the peace of mind to “shop like a billionaire.”