Temu poses threat to US retailers targeting low-income young adults
Published: 12:30 22 Nov 2023 EST
Temu has experienced incredible growth in the United States and may pose a risk to other retailers targeting low-income young adults, analysts at the Bank of America believe.
The Boston-based, Chinese-owned shopping app which offers a range of low-priced goods launched in the United States in September 2022.
The analysts highlighted that Temu, the sister company of Pinduoduo Inc (NASDAQ:PDD) under Dubin, Ireland-based parent company PDD Holdings, launched two years after fast fashion company Shein became prominent in the United States during the pandemic-fueled eCommerce boom.
“By sourcing products directly from manufacturers worldwide, companies like Temu and Shein are able to lower costs and keep prices low,” they wrote in a note to clients.
The analysts wrote that transaction, web, and app data suggest Temu is ramping up fast in the United States.
US spending on Temu is already equal to about 12% of Target Corporation (NYSE:TGT) levels up from 4% just six months ago and daily users of the app are above that of Walmart Inc (NYSE:WMT) and are 40% of Amazon.com Inc (NASDAQ:AMZN) levels, they highlighted.
“Temu has advertised aggressively, using influencers, social media and Google search,” they wrote. “Temu offers ‘lighting’ limited time deals, bonus cash and even mini-games which encourage usage.”
Overlapping retailers vulnerable to being out-priced by Temu include Gap Inc (NYSE:GPS)'s Old Navy and some private brands at Kohl's Corporation (NYSE:KSS), the analysts wrote.
Investor concerns that it could threaten Five Below (NASDAQ:FIVE) are overdone while Walmart and Target have key competitive advantages that should insulate them from Temu and Shein, they noted.
“Revolve, Urban Outfitters, Inc. (NASDAQ:URBN), American Eagle Outfitters Inc. (NYSE:AEO) and in Europe, Boohoo Group PLC (AIM:BOO), are among those at risk from Shein given a fashion focus,” the BoA analysts wrote.
Posing a risk to Temu’s growth in the United States are two bills in Congress that, if passed, could hamper Chinese direct-to-consumer companies by targeting the de minimis shipments these retailers send to American consumers.
“Press outlets have estimated Temu may lose $1 billion in 2023. Still, the Street expects PDD will grow its advertising spend year-over-year in 2024 which may help prevent a slowdown over the medium term,” they wrote.
Contact the author at emily.jarvie@proactiveinvestors.com
Follow her on X, formerly known as Twitter, @emilyjjarvie
