During its rapid ascent to the top of the global fast-fashion food chain, Temu looked like the perfect hedge for its Chinese owner, PDD Holdings, against a weak domestic economy.

But trouble is following it abroad.

PDD Holdings’ stock lost more than one third of its value last week after it warned that growth will likely decelerate, both for its Pinduoduo marketplace in China and Temu in Europe and North America.

That China’s economy is struggling isn’t new. More surprising was the idea that Temu may be approaching a ceiling six months after storming into the mainstream with its “shop like a billionaire” Super Bowl ads. The marketplace, which offers Western consumers ultra-low prices on a range of products including fashion and home goods, occupies 0.73 percent of total US online market share as of August, according to insights firm Consumer Edge. That’s just barely above its market share as of November 2023, at 0.71 percent. For reference, Amazon accounts for 17.9 percent of US online sales in August and Shein accounts for 0.54 percent.

It’s not that consumers have suddenly raised their standards. If anything, they’re more eager for deals than ever; Walmart, T.J. Maxx and other low-price retailers are thriving. When Temu launched in September 2022, its main competition was Shein, the ultra-cheap fast fashion behemoth that also leverages a speedy supply chain in China. But bargain hunters today have more e-commerce options by the day.

Amazon announced in June it would be launching a new storefront offering low-cost goods made by Chinese manufacturers. That will be in addition to Amazon reducing its vendor fees for apparel products under $20, from 17 percent to 10 percent, a change made late last year.

Last fall, TikTok under parent company ByteDance Ltd launched its own e-commerce platform, which has been steadily growing its market share as Temu seesaws in its position in the market. TikTok Shop’s online share has consistently risen from 0.06 percent last August to 0.43 percent today — a seven-fold increase — according to Consumer Edge.

Temu is also increasingly beset by lawsuits — including a class action lawsuit alleging that it’s sending customers unsolicited text messages and various claims of trade theft and copyright infringement by Shein — and the threat of regulatory action in its biggest markets. Lawmakers in both the US and the European Union are considering eliminating the “de minimis loophole,” which allows companies to ship goods directly to American consumers without paying tariffs as long as their value is under $800. This has helped Temu, as well as Shein, to keep prices below Western competitors such as Amazon, which typically ship goods in bulk to their domestic warehouses, and therefore must pay import duties.

Meanwhile, Temu finds itself confronting internal turmoil as merchants that sell on its platform allege the company of unfair fines and withheld payments. Last month, hundreds of vendors rallied outside a Temu office located in Guangzhou demanding money.

Temu’s swelling list of problems is the retail industry’s “Spanish soap opera to watch right now,” said Jessica Ramirez, senior research analyst at Jane Hali and Associates. Ramirez added that Shein has encountered a similar set of headwinds, including slowing growth. The company is pressing ahead with plans for an initial public offering in London, however.

For Temu’s competitors, it’s too soon for schadenfreude. Even as it issued its bleak outlook, PDD Holdings posted a whopping 86 percent year-over-year surge in revenue. For Western retailers, “now is not the time to take their foot off the gas,” said Sonia Lapinsky, managing director in the retail practice at AlixPartners.

Temu’s Dilemma

In many ways, Temu’s arc resembles that of direct-to-consumer brands that stormed markets ranging from fashion basics to mattresses and luggage in the 2010s with memorable advertising and the promise of lower prices. Temu’s entry into the market was on another level: the $21 million Super Bowl ad package was just one facet in an extraordinary advertising blitz.

The Super Bowl ads, coupled with millions of dollars worth of coupons and giveaways, explains the company’s initial “hockey stick growth,” said Juan Pellerano-Rendón, chief marketing officer at e-commerce logistics platform Swap.

But, like those DTC brands, Temu was also dependent on its ubiquitous marketing to keep customers hooked. As soon as consumers stopped seeing the ads — or started ignoring them — growing sales got significantly harder.

“These are really unsustainable marketing and pricing tactics,” Pellerano-Rendón said. “They got the app downloads but ultimately it’s hard to change learned behaviour.”

Pellerano-Rendón pointed to Amazon and TikTok as examples of experiences that are already embedded in the lives of American consumers. Even though TikTok Shop is about as novel as Temu, it lives on the primary TikTok app, which is an immensely popular social media platform and a powerful driver of trends.

“The more competition there is, the more they have to pay to keep their customers,” said Lapinsky.

In addition to stalled market share gain, Temu is also seeing a plateau in new customers and lower retention rates for new customers, according to Consumer Edge insights.

“[In] response to the complex environment, we will focus on our core strength, and continuously improve our capabilities in supply chain, customer services and compliance to better meet the expectations of consumers around the world and also achieve high quality development in our global business,” PDD Chairman and co-CEO Chen Lei told investors in the earnings call Monday.

A Play for Value

Despite its issues, Temu offers a unique value proposition to consumers: a huge assortment of super low-price goods, from inflatable pools to dupes of Bottega Veneta earrings. For most retailers, trying to compete on price and range of product is a mistake, according to Lapinsky.

“When retailers try to offer this huge breadth of assortment online and give deals away that aren’t in stores in order to compete on price and assortment, customers say it’s confusing,” she said.

In other words, if shoppers want what Temu does best, they’re going to Temu (or Shein, or Amazon). To lure customers away from Temu, brands and retailers must compete on different terms, such as speed (Temu’s items often arrive two weeks after purchase), curation or service.

Ultimately, Temu is still a disruptor in the market, said Ramirez. “It hasn’t been in the market long enough for the majority of the consumers to have tried it … This is still growth territory.”