Behind the frog shirt: the most honest conversation about Temu yet

Welcome to the Offstage Report. I am your co-host Vinny O Brien, dialing in as ever from the southwest of Ireland. Further south below me, my good friend Hendrik Lautscher. Hendrik, say hello to everyone.

Uh, Vinny, a good afternoon. How are you? Um, I was saying pre-show that I'm not sure whether you are being a scarecrow or I'm seeing some version of the Sesame Street on your shirt, but, um, I'm really interested in today's conversation, number one. Number two, it's good to be recording again because there's a lot going on in our world.

There is, yeah. The, the way I feel about this shirt, you know, there's lyrics to a very famous song and the lyrics go, you can tell by the way I use my walk I'm a woman's man. Well, you can tell by the way I wear my shirt I'm a Temu guy. Bit of a giveaway there up top. Today we're going to talk about Temu, right? Um, a lot of people have different views on, on Temu, right? Good, bad, and indifferent. We're here to give our opinion on it, and, and we want to talk a little bit about a couple of stories as well. But as ever, we don't like the straightforward route. We like to go backwards to go forwards. Um, so maybe just kind of set the scene for, for everybody. Tell them who Temu is, set out why they are so synonymous now with modern commerce.. And I think probably the most interesting thing that we'll get to as well is not just the meteoric rise, but the way the business model has impacted advertising, fulfillment, the way that we think about gamifying retention and cross-sell and upsell. Bring us up to speed on Temu, Hendrik.

So Temu was founded from where I'm sitting, feels like 2, 2 and a half years ago. They're a subsidiary of a Chinese marketplace, Pinduoduo. Um, and think of, uh, the largest cross-border marketplace that has, in a, in a span of, it feels like months, they've gone from zero to shipping to over 70 countries worldwide in a manner in which we've not seen from any other marketplace before, Vinny. Um, when you think about marketplaces, generally Western consumers think about Amazon. Amazon is nowhere near in terms of how many countries Temu's in. Um, Temu has also, as you mentioned rightly, it's, it's, it's one of those topics in our sector that it's, it's like a love-hate relationship. I'll be the first to admit that I got Temu badly wrong in the sense that I didn't appreciate the innovation and the strategy behind it, but rather just saw it as yet another Chinese cross-border business that is shipping goods from China at scale.

Um, let's just pause there for a sec because I, I think it's worthy of taking time to, to go through the scale and speed piece because, as you said, they're shipping over 70 countries. Many of them, they're already in situ. I know in Cape Town, where you're situated, they have opened a distribution center. In North America, where they have been dominating quite a lot over the last number of years, I think it's over 50% now of all their $35+ billion GMV. Comes from local sellers, i.e., people who are fulfilling from the US. So this is not some sort of flash in the pan, this is not fluke, this has been well considered, well thought out, and probably even better executed. I hope they've been able to move at such speed and, and stealth as well. Like, what are the— how's this been able to happen?

So I think we need— this is one of the things that I wanted to say out loud today. I think we in the West need to realize that Chinese marketplaces, they are like living organisms in the sense that they continuously move forward, they continuously change. I wouldn't say they're chameleons because, you know, I don't want to get into that discussion, but these companies are able to morph forwards and basically do things at a scale and speed that I've not seen in any other— in any other market. If you've been to China once or twice in your life, you understand that this, this business is very different than— and the country is different from any other business ever. So what Temu has done is Temu has played to his core strengths. So they don't own the, the their warehouses. That for me is a big deal. So if, if I talk about investors and people in our sector, what is the first thing I'm going to say? This is an asset-light business in the sense that they don't own the infrastructure. They've bought— they have partnered with third-party logistics providers in many countries, including South Africa, where you now have local sellers that are able to get goods into these warehouses and then ship them to local consumers. But this is not what they started with. Temu started as, let's move manufactured goods from China into the West by using de minimis. Um, I know that is a— that's also a topic that people will frown upon, but I think we need to be honest. It's not Tmall's fault, or any of these Chinese marketplaces' fault for that matter, that nobody in the West ever looked at the de minimis and thought that there was an opportunity to ship goods to consumers and pay less taxes on it. Yes, I know you're most probably going to throw something at the screen now and saying, but they've evaded taxes, they've been naughty, and they've been bad. But for me, one of the biggest parallels that I draw is that— and this kind of gets lost, these two things that gets lost for me in the conversation about Temu is— and you've said it to me privately in conversation, so maybe I'm not talking out of house, but I'm going to say it anyway— one, marketplaces are no saints. I need to say that out loud. There are pains and perils in every marketplace around the world, from the high and mighty Amazon all the way through to Takealot that operates in South Africa. That's number one. Number two, these businesses are able to do things that no one else is willing to do, yet especially people in the e-commerce sector If you looked on LinkedIn, you looked on, on forums, you would swear that Temu is the only one to have done this. The other thing that I wanted to mention was, is that if you've been around as long as we've been both, and I'm not saying we are old, let me just say that out loud, I'm saying we are experienced. In, from 1994 when Amazon was founded until 2017, that's 23 years Amazon did not collect seller's tax. What am I trying to tell you? I'm trying to tell you that marketplaces look for opportunities in regulation, or opportunities, and then it's on regulators to close the loop and say no. We're doing this Temu conversation at a time when the US has pretty much shut down de minimis. You are now going to see American consumers starting to buy goods and having to pay duties for the first time in their life. Now, listeners to this podcast will know that Vinny sits on Ireland, I sit in South Africa. I have bought from Temu. I'm not ashamed to admit it. I do it for competitive intelligence purposes. And Vinny, in his quirky humor, said to me, that's where people go buy their underwear. Or shirts like he's wearing at the moment. But the point is this: this business has done stuff and has evolved before our eyes, yet they are seen as the worst thing ever to happen to our sector. I don't want to hear that. We need to give this business the same amount of eyeballs and ears, but it's for the consumer to decide.. It's not for the sector to decide how this business is seen by the public. Newsflash: they have gone from zero to, I would say, guesstimating $30, $35, $40 billion in total business in a space of 2 and a half years. It's ridiculous.

So, so again, just want to pause here and bring a few points home that, that I think are worthwhile. The current estimates, depending on who you read, was that Shein and Temu account for about 30% of all products brought into the country using the de minimis principle, or up to when it was available. That's about 1.36 billion parcels per year. So it's not an insignificant number. I think it's the speed at which they scaled scared people quite readily. But we've been buying these products through these sellers for a number of years. Amazon, eBay, Wish.com. Wish.com, I hear you say. Whispers in the wind. They were never going to survive, let's be honest. But I think the model is the thing that's really interesting because if you're now a mom-and-pop seller, you're a small business that was a marketplace seller for the last 10 years, Temu is now a viable option for you. It's got to be one of those ones that's on your radar. Temu have put a team on the ground in the UK. I know a few ex-Ebay colleagues of mine are working with them and seem to be enjoying it as well. They're going through all the same growing pains that marketplaces do, but what they seem to have brought is the ability to sell long-tail products really, really well through an aggressive advertising strategy, which they've been working on for 2 or 3 years right now. That was not just about market entry, that's about providing a leveler playing field for long-tail sellers, which is something I thought was interesting. The other thing that they've now started bringing into the mix as well was high-price, high-value goods. So they're now increasing the portfolio of products that they have, which probably represents an opportunity beyond what Amazon is on. Amazon is struggling in fashion, struggling in high-value goods as well. There's certain categories through which they've never done well. Then there is the product efficacy complaint, I guess, that holds up. Again, we have to go through ISO standards for many, many products. They have got to comply with certain standards to be able to manufacture it. Our view, and this is something we talked about, our view is formed when we receive the parcel. A parcel coming in a plastic bag, not a brown box, is a new thing for us to get our heads around. Personally, and I've bought from Teemut quite a bit, and some for competitive purposes, some to put up this great art I have around my office or wear this great shirt, or buy things that I feel I really need and I am actually getting better value. So I'm a value shopper right now. Things have got more expensive. I will look to marketplaces when that happens to buy certain things, more so home supplies or garden stuff. So I think what they've done is infiltrated categories. But if you're a seller in those spots right now, you're paying less commission. There's less—

there's a much bigger topic here that there's an elephant in the room that I think we also need to talk about. And, and it's something that for me kind of has gotten lost in this conversation as well, and that is that you, if you are in the West, so if you're in Europe, the US, South Africa, or all over the world, what have we've done for 50+ years? We've bought goods that are, that has been made by China. That's not nothing new. The, the thing that I, I did some research this afternoon in preparation for our call, our chat today, and 25 to 30% of global goods manufactured that is sold in the world comes from China. Yet if you buy from Temu, Shein, insert whatever Chinese platform, suddenly you are doing, you're doing a crime. For me, the truth is, is that what Temu has done is they have, one, provided value-based consumers that are looking for goods I bought Christmas decorations from them in 2024. Let me just say that out loud. And the goods were considerably less than what they were in our stores. And yet, even after paying in duties, because that's what South Africa has been doing, it was still cheaper than buying it from a local store. So as a consumer that has— it's— I'm not frugal, but I'm, I'm very aware of where I spend my money. Why am I not gonna buy from a platform that is giving me access to goods that are lower priced, that's going to do exactly what stuff that I buy from, from, from stores? Yeah, the thing is, private label brands and branded goods are made in China. Temu has just said that there's going to be no branded goods on our platform. These things need to be a specific size or weight. If it makes our, our, our, like, guidelines, we will shop it and have it available to be shipped globally. Now version 2, which is important, is now we are saying, now we are going to markets like Europe, like Africa, like Latin America, and we are saying we are now starting to going to offer smaller shops and businesses the opportunity to reach a huge audience. So it's a huge audience.

So I want to kind of put this kind of part of the conversation to bed shortly, but I mean, we look at fast fashion anywhere in the world, again, looking at product efficacy and, and sourcing and things like that. It's no different in Temu than it is anywhere else in the world. Like, let's call a spade a spade. They have legitimized quite well and quite quickly as well. They've done partnerships with people like Adyen for entering the US market. They have partnerships with DHL. They have partnered and lobbied through government agencies as well all around the world. I don't think there's any doubt as to the legitimacy or anything of Temu at this point in time. And I think that's the first major myth, not even a myth, but it's that first piece of the puzzle that we need to put to bed. I think the second piece is that we want to get into is around that business model aspect. You consider it to be one of the most innovative platforms that has emerged maybe in the last 10 years. Kind of without comparing them necessarily to some of the incumbents, what's the innovation that is interesting or exciting to you? Because there's quite a lot— I'm on to the gamification side of it, but from your perspective, what is that innovative or that innovation cycle that you're seeing?

So as you write, you mentioned the first one, and that is that they don't do boxes from a logistics standpoint. Say they do plastic bags. That's a, that's a major shift. I was shocked when I got a parcel, but they, they did that. Secondly, from a business standpoint, they have essentially started, you know, different business models that help factories and businesses reach consumers. So If you think about it from a marketplace standpoint, one of the biggest like pain points, points of friction, whatever you want to call it, is listing products, setting product pricing, doing all the stuff that's required in order to be available on a platform. Well, Temu said, you know what, we'll take care of all of that. We only want factories to set a price and then we will do all the rest. That's So that for me is mind-blowing in the sense that if you think about it, you have now significantly lowered the barriers to entry to a marketplace. Secondly, you have, you have enabled a whole new sector access to e-commerce. We, we, we talk about digital transformation, all these big words from agencies, yet Temu has said Guys and girls, we are going to help businesses that are either quiet or need inventory, which is demand generation, which most digital business do. And we will find you businesses, and then you can do your, your production, and then, um, you can sell to the rest of the world. The, the third thing for me, which is a big deal, and, and I can hear listeners most probably just wanting to scream at me because my voice is continuously gonna go in. But guys, Temu showed us that there's no need for 2 and 3-day shipping. I can wait 7 to 10 days for an item that's going to be delivered to me. Why?

Because again, the revelation— we've talked before about the diseconomies of scale that marketplaces have provided. This is evidence that we are willing to wait longer for things that we want to get a value proposition based around price. So let's just say that again. People are prepared to wait 7 to 10 days, not 2 to 4, not next day, to get products that they don't need but want. I would argue that that is probably 70% of all e-commerce orders could fall into that bracket quite comfortably.

Yes. And yes.

That's one of the major barriers to delivering profitability in e-commerce. The other thing that's an output of that, a direct output, is they are— and I'd have to provide more evidence to this, but anecdotally, they're providing shorter distances now between end product and end user, which is giving them an ability to have a shorter time frame, which is not their desire, but it means products are traveling less further as well.

As you said, they're like Can I quickly tell you a quick story? So last week I opened the Temu app. Do you know why? I have a— I need a standing lamp for one of the rooms in my house. So what did I do as a consumer? I went to the Temu app, I opened it, and I looked for a standing lamp. What is the first thing I see? Oh, holy hell, they have one available in the local market, in a— where— in the warehouse. And it can be shipped to me within 2 days if I'm willing to wait. I looked at the pricing and the pricing is very similar to what is available in other retail locations in South Africa. So I hear what you're saying about the value situation and the value creation that they've done with lower-priced items that are— that have been available to consumers, but they are slowly evolving to where they, they're able to also grow average order value. Vinny, what do you think, as a matter of interest, what do you think is the, the order value size for Temu project, or like projected in Europe? What is the basket size without looking at number of items?

Or you're asking me number of items, not value, right?

No, I'm asking you value. I'm asking what is the value estimated per European customer who checks out on Temu? What is that number? You can't look at the Google document, how dare you. What is the number? Because this is—

I'm thinking of what I'm doing. I've ordered maybe 6 times off, but I'm thinking of the number of items that I normally get to. I'm probably hitting somewhere around the €35 mark on average with, with say 6 items in How close am I, dude?

You are bonkersly close. So, uh, estimated order value in Europe is between 35— between €30 and €35. In the US, it's $40 per order. In Southeast Asia and in other locations, it's between $20 and $25 range. There's a reason why I'm mentioning these values. And it's important that I— that our listeners listen to this. These are similar amounts that incumbent marketplaces that you shop from daily are doing as well. This is not a $5 item or a $10 item. This is, for me, where Temu is an absolute mind meld. I, I'd almost use a swear word for it, but I'm not because we don't have somebody that's gonna have to make this beautiful podcast, you know, contain— it's a mind meld in the sense of that this business— the other innovation, Vinny, that I didn't speak of, and I think this is a big deal, is Temu has gotten a new demographic to shop online. Anecdotally, I'm hearing people that are over older than 55 all the way up to 75 years old asking me how to shop on Temu. Pre-Temu, this did not exist. These people did not care about online shopping. So I know that this, this company gets a bad rap, but if you live in any, in an emerging market like I do— I live in South Africa, e-commerce is 5% of, of total, uh, retail. So it's tiny. This business has literally, in my opinion, given us 2% growth over the last 2 years because these people now wanting to buy online because of the things that they want. That's a big deal.

Yeah, bringing new people into the fold is something that we're always trying to do. We talk about acquiring customers, usually it's cannibalization. From someone else. But you're saying that Temu's real innovation here is that they're bringing new people into the e-commerce sphere which didn't exist before, and I just wanted to clarify that. That's a rather unique position. It's also net new. Yeah, net new. And it's something that SHEIN have done well in the fashion side of things as well. They're bringing more Gen Z through. Not that we need too many more of them, but they're engaging an audience in a way that is kind of different. And rather than create, kind of try to create false demand for products through Google Advertising and so on, they're using social media to spot trends and start delivering products in as well. Temu have actually come under scrutiny for the level of cross-selling and upselling that they do. And I know there's a case that was brought in Germany where they're challenging the level of gamification It feels like all of the cases that are being brought against them, and there are many different types, are actually— when you think about it, they're trying to— I wouldn't say block the utopian view, but you think about any e-commerce manager around the world, they're being told, no, do better cross-sell, do better upsell, merchandise better, know your customer, provide something new every time they get there, incentivize the retention. Temu do this to a level that I've never seen in my life before. It is quite frightening. Yes, just how good they are, one, at executing, but they know all of the cues. Like, this is a platform that is born out of really strong, um, understanding of user experience and ultimately consumer behavior, because they are literally trying to take money out of my wallet every time I open the app, and usually they succeed.

But, and here's where— and this is for me another point of innovation— is what you just experienced is you open the app and then you have a virtual product that has come from an Instagram ad or a TikTok ad, or insert whatever social media you're getting. And then you think about, wait, what? How do they do that? And then What is the next thing that happened? They do the gamification thing where you have a spinning wheel or you have an envelope that suddenly, you know, got a sunshine alongside it. This is stuff that we've never ever seen in the West, but if you've been to China, this is the norm in Chinese commerce where understanding the, the consumer is really important. Yet we in the West think of e-commerce as transactional, i.e., I want to go in, go out, and it's, it's being done. I can tell you, if my phone needs to have data that's shared to some third party and tell how many, how many times and how much time I spend browsing Temu, Vinny, I, I'm scared of that number. Why? Because this, this is a different version of commerce. This isn't marketplace commerce like what we've been brought up on, in the sense that you go there, you create a search, the search generates a result, you put the item in your cart, and you check out. No no no no no no no sorry! You can do that but Temu is at its most spectacular for me when you are browsing social media uh feed. I do Instagram. Yes, I'm sad. And then you go from that post and you're— you go to the Temu app and suddenly you see 5 to 10 products where, one, these are things that have already been on my cart, and suddenly there's these games and these discounts and there's all kinds of things available. So to come back to your point to about You know, the, the, the, the, the breaking of utopia. Um, this is totally new behavior, and this has gotten completely lost because most people in our sector sees Temu as the big bad wolf. It's not. To your point about merchandising, cross-selling, advertising, in my private— in my business, I tell my clients is that what do you do when Temu sells something adjacent to your product on the platform? What do you do?

My opinion is, you know, you went to the supermarket, you had no idea they had a new product, you had no idea they were selling it, and you go to the platform back in a couple of months, you Monday, Monday, happy days. Tuesday, Wednesday, happy days. Thursday, Friday, happy days. Saturday, Sunday, happy days.

Digital marketing.

And just to couple with that, if you look through the, the kind of footprint that they've built, they have in-market fulfillment in USA, Canada, United Kingdom, Australia, Japan, South Africa, mainland Europe. They're not, they're not here to mess around. And this, this is the thing, they're creating demand on one side, they're able to fulfill against it on the other. They're creating user experiences that we have never seen before, but we aspire to, but we just haven't experienced them at the level that they're at. How many times have we seen the old Shopify spinning wheel used so poorly and in a singular context that it becomes so meaningless across so many different Shopify stores? It's amazing how much we disregard it. Then when I open the app and I have placed my order, but I've been most surprised by was the level of integration that they get to in local carriers. They have options available, they have payment options available in my local jurisdiction. I know they do for you, I know they do for friends in the US and in the UK. I can track my order from the second the order leaves the warehouse, from where it is at any point along the journey, and see where it's coming from. So they have integrated deep into the Irish postal system, so I can see almost down to the minute for my parcel is going to be. I would say 80% or 75% of the Irish retail businesses have not done that level of integration at this point in time. And this story is being said kind of consistently across all the jurisdictions that they move into. I'm looking at our clock here, Hendrik, and I know we've covered quite a lot in here, and this is a topic that gets bigger and bigger and bigger, and Tingwu was something that maybe we should break down a little bit more. And I'm wondering, should we come back to it on another discussion where we look at some of the specifics? There's some case studies that are out there that I'd love us to kind of pour over and see what's different versus other marketplaces. What is it that we're learning? And if I am in that seller space, what are the things that I should be considering now if I'm weighing up an option to say, should Temu be on my roadmap for 2026? What are the things I should consider? And I know we're getting into the weeds a little bit, but I think it's one of those conversations that is worth having, and for us to give a little bit more time rather than try to fit it in here, because you have given us a huge amount of depth and knowledge, uh, on Teemote today.

I, I just want to add one thing.

Sure.

If you advise clients like I do with getting onto marketplaces, what is— if you're a good con— uh, if you're a good person And many people claim that they're a good consultant. You will tell your clients that you need to be everywhere. Uh, no, that's not the answer. Western marketplaces have become a race to the bottom, i.e., margins and profitability have been eaten by these platforms. Nobody wants to talk about this because it's not cool, and it— yet when you speak with brands, these businesses are giving away margin and profits due to fulfillment and advertising. Yet we have a new entrant coming into most markets who— I was doing some research this afternoon, you cannot find any evidence of Temu having an advertising platform for the sellers. None. Do you know how they do this? You will laugh at this. Affiliates. They want people to spread the, spread the message. Now you laugh because we've been around for a while, folks. Let me tell you this, affiliate commerce is basically like E-Commerce 101. This is like basics, fundamentals. But if you do a search on Temu, there's no ads, there's no competitor ads, there's no nothing. It's here are all the options, make a decision and put in your cart. No, don't, don't be like me where you get a message saying that these things are going to time out. Yes, I'm guilty. But the point is, is that this is a different— it's a different version of a marketplace. And if you're a small to medium-sized business in Europe, you should be speaking with Temu. You should be doing due diligence on this platform. Why? Because this company has literally gone from zero to ginormous by getting people to download their apps and advertise on search engines. We've never seen something like this. So what have they been doing, Vinny? In simple, in simple English, I'll tell you what they've done. They have brought eyeballs from outside the ecosystem into the ecosystem. And what do the medium-sized businesses we work with want? Let me hear it from you. What do they want?

Eyeballs.

There we go. You want eyeballs and want conversions. Oh, by the way, while we're talking of Temu's conversion rates, newsflash: between 2.5% and 3%.

I like those onions.

Yeah, but tell me, talk to me about Shopify conversions. Talk to me about those. You won't get brands want to talk to you about this. I know, because They just tell you that they don't want to tell you because it's not great.

The point is, Shopify's a payments company, so it doesn't matter.

Um, my point is, Vinny, in closing, this business has gone from not existing outside China to being a competitor like there's no other. I'll go a step further, and as I said, I misjudged this company. I believe Temu is the first global competitor for Amazon in the sense that they have gone about this in a totally different manner. But there's one big difference: they have funding behind them, but they also have consumers that are willing to buy from them. The irony for me is, is that with all of this Dominima store going on around the world, TMU on earnings calls, uh, PDD's earning calls, you won't hear about it. It's business as usual. Let's keep moving forward.

So on that note, I think we've established that TMU is the ostrich with the golden egg, not just another flightless bird. Hendrik, that was masterful. Thank you so much. Thank you, Derwin, for listening to us as well. You have been enjoying, we hope, the Ostrich Report. Until our next visit, Hendrik, you stay safe, and, uh, hope those tree fellers get the job done for you.

They did. You, you just— and I will— might need to call you and just tell you that I— you might, you might need to ask me how— what my browser time is for Teemoo, because I might likely be going back to the app right after this because I just realized something that I needed on the call. So that's it, here we go.

That is called being top of mind. That is Brand 101. Folks, thanks for watching The Ostrich Report, listening to us, joining us along the way, and we're going to be covering more on Team Mood in the coming weeks and months ahead, including— I'm going to invite Mike Ryan along, who's one of the Team Mood protagonists. Mike, we're coming to get you. Have a great weekend and enjoy The Ostrich Report.