In the current economic climate, consumers are becoming increasingly discerning, seeking more value for their money and stretching their budgets, according to leaders of major retailers.
BJ’s Wholesale CEO Bob Eddy said recently that its customers are becoming more conscious of their spending amid the “bumpy economy” as they “work to stretch their dollar.” This sentiment is echoed by Brian Cornell, CEO of Target, who observed consumers spending more on household essentials and food items while being more cautious with discretionary purchases.
This penny-pinching is becoming a dominant theme in the retail sector, with even high-income earners seen “trading down” to generic brands. Meanwhile, Fitch Ratings is predicting that tighter lending standards and weakened consumer sentiment due to inflation are expected to contribute to a slowdown in consumer spending this year.
Against this backdrop of economic uncertainty and financial caution, e-commerce platforms and retailers known for offering value for money are gaining traction with consumers looking to afford more with less.
One such example is Temu, the Boston-based online shopping app that has topped download app charts in the US since its debut last September. Millions of consumers have flocked to Temu’s website and apps, attracted by a wide selection of general merchandise and prices that are consistently among the industry’s lowest.
“The timing is very advantageous,” said Michael Felice, an associate partner in Kearney’s communications, media and technology practice. “You have extreme pressure on the consumer wallet right now.”
How can Temu be so cheap?
However, Temu’s incredibly low prices have left many consumers and industry observers scratching their heads. Some attribute the platform’s affordability to aggressive discounting and coupon strategies aimed at gaining a foothold in the competitive US e-commerce market. Others point to Temu’s sourcing of products from manufacturers in lower-cost countries. Yet, this explanation only scratches the surface and does not fully account for the price difference, given that many big-box retailers and e-commerce marketplaces, including Walmart, Target, and Amazon, also source extensively from overseas.
Instead, Temu’s winning formula lies in its ability to use information technology to align manufacturing capacity with consumer demand, which the company calls “Next-Gen Manufacturing,” according to Harvard Business School Professor John Deighton. Temu’s model leads to higher sales, lower costs, and ultimately, lower prices for consumers by guiding factories to produce what shoppers want, as and when they want them.
Temu is an example of a “tech-enabled platform that is changing the very nature of business,” and its model may hold lessons for innovators in other sectors, according to Deighton. “Could YouTube and Spotify better match users to artists by playing a more assertive role in artists’ production decisions? Could Airbnb better coach its hosts on guest needs? Could Amazon Marketplace propose product ideas to merchants?” Deighton asks.
Temu offers affordable shopping choices
On Reddit, a subthread dedicated to frugal living is filled with users sharing their shopping experiences on Temu. Many of these users have noticed that products sold on Temu are often priced lower than on other e-commerce platforms.
One Redditor, known as “Freefromcracy,” vouched for the platform’s legitimacy, stating, “Most of their prices are half of what Amazon sells for. They are cutting out the middle man.” However, they also noted some downsides, including slow shipping times and a smaller product range compared to Amazon.
Customer reviews on various platforms such as Trustpilot, Sitejabber, and the Google Play and App Stores, indicate a general appreciation for Temu’s customer-friendly policies. These include a 90-day returns window and free shipping, which contrasts with the industry trend toward shorter grace periods and charging fees to accept returns. Users also highlighted Temu’s policy of compensating customers with a small store credit for late deliveries. a unique feature in the industry.
Temu expands to overseas markets
Since launching in the US last September, Temu has expanded its operations to a total of 10 countries, including Canada, Australia, New Zealand, UK, Netherlands, France, Germany, Spain, and Italy.
Consumers elsewhere are already asking when Temu would expand and ship to their markets. By increasing its network of sellers and buyers, Temu is able to achieve a critical mass and leverage the economies of scale to drive down costs and create benefits for all parties involved. This approach aligns with Temu’s motto, “Team Up, Price Down,” which also inspired the platform’s name.
Ashlee Nordquist, a 39-year-old optician from Fargo, North Dakota, used to rely on other e-commerce sites and grocery stores for her household shopping needs. However, she now prefers to shop on Temu because of its significantly lower prices, which can be as little as one-eighth of those at her local supermarket.
Reflecting on her previous shopping experiences, Nordquist said, “I felt like I was getting robbed, shopping at other places.”
McClatchy newsroom and editorial staff were not involved in the creation of this content.