Temu Faces Significant Hurdles in Global Expansion Efforts

Temu's Growth Strategy Under Pressure

Temu has changed the landscape of online shopping. Its rapid growth means it rivals Amazon in many markets. However, this week, shares of its owner PDD Holdings have faced significant declines. Following warnings of an anticipated trend in revenue growth due to mounting competition and an economic slowdown, concerns have emerged.

Regulatory Changes Affecting Temu

The biggest threat to Temu comes from changing regulations in the US and Europe. Chinese-owned ecommerce platform PDD’s US depositary receipts dropped by nearly 30 per cent in New York on Monday.

• Competition intensified by rivals such as ByteDance’s TikTok and Alibaba.
• PDD’s recent sales figures fell short of expectations.

Such aggressive competition is affecting profitability. PDD's ultra-low pricing strategy has attracted many customers, yet as local peers adopt similar tactics, increased spending on marketing has been necessary. This is evident in a nearly 50 per cent rise in operating expenses during the latest quarter.

Implications of Closing Regulatory Loopholes

Another critical factor in Temu’s success has been the tariff exemption for shipments under certain values. The potential closing of these loopholes in both the US and EU raises concerns about higher costs for consumers, which could impact Temu's attractiveness.

Despite these challenges, Temu’s growing market share has prompted regulatory scrutiny, with proposals aimed at closing import tax exemptions in progress. Lawmakers in the US are also echoing this concern.

Market Outlook for Temu

While PDD's shares have gained 24 per cent over the past year, demonstrating resilience against competitors like Alibaba and JD.com, difficulties in sustaining growth are evident. PDD's current valuation reflects a cautious outlook as Temu's strategy faces turbulent conditions.