Temu came out of nowhere. From Superbowl ads to the top of the app store in it’s very first year. Hundreds of millions of customers, and the cheapest prices you could find. What’s even stranger, is that now, the platform is crashing. Prices are going up, and downloads are going down, along with profits. In fact, Google trends suggests a 65% decrease in interest over the past 2 years. Temu’s empire is crumbling, and behind all of it, a legal loophole. This is how it messed with the US Government, and paid the price. Download my investing app today, Silo Markets, and earn a 1% bonus on your stocks and ETFs every year. Link in description below. The whole appeal of Temu, at least on the surface, is that it has everything, and all of it was really, really cheap. Stupid cheap. 50 hair bands for $1.17, 10 pairs of socks for $3.87, six lip balms for $0.97. It was all manufactured in mass from China, not everything was amazing quality, but prices were so low it didn’t matter. You might get something great, or something that’s a steal. And even if the item’s bad, it was probably less than $10. But to really understand Temu, we need to mention their biggest competitor: Wish. You might remember it from all those weird Social Media ads, but Wish was almost the exact same as Temu. Rock bottom prices, anything and everything. But, it was now dying, while Temu exploded. Why? Wish’s shipping took forever, but Temu’s was only 2 weeks, extremely slow compared to Amazon, but much faster than Wish. They had a wider range, especially in apparel and fashion. And many products seemed to be pretty good? Customers were simultaneously leaving Wish after so many of their similarly priced products were scams. Temu however, actually delivered. Their products weren’t great quality, but for the price, it was insane. If you just needed some new, cheap fast fashion or some new makeup brushes, you would pay almost nothing. Not long-lasting products, but Temu wasn’t trying to be that. But Temu had something Wish didn’t… Lots and lots of money. Just 5 months after launching, Temu ran two ads during the 2023 Superbowl with this slogan. This made Temu the youngest brand to ever run a Superbowl ad, and their ad spend only ramped up from there. So how? Well, Temu was a new brand, but was backed by a very, very big company: PDD Holdings, or “Pinduoduo”. A company at the time worth about $100 billion. In the first 7 months, the Temu app had 50 million downloads, and it only climbed from there. They very quickly became the most popular marketplace. Temu’s digital ad budget in 2023 was $2 billion… just on Meta. In fact, that year Meta reported that revenue from China doubled, a huge chunk of which came from Temu. Meta employees even joked that “Temu should be thanked with a gift card.” Other platforms like Etsy have complained that Temu’s gargantuan ad budgets have made advertising more expensive for everyone else. Keep in mind, their total ad budget, with two Super Bowl ads, along with more advertising elsewhere, was likely much higher than $2 billion. It’s no surprise Temu exploded, yet the app was doing something else, to keep users on Temu once they signed up. For many, Temu was quite addicting. Retail analyst Neil Saunders explained that: “Temu is as addictive as sugar. The experience and cheap prices give consumers a little dopamine hit and keeps them coming back for more. The chaotic interface of the website creates the illusion for consumers that they can "dive in" and rummage around to discover a great deal – especially finding them if they move quickly.” A digital bargain bin, if you will. But that addictive feeling is very much by design… And it’s not just through rock bottom prices. Temu also had “gamified shopping”, which was designed to be very, very addictive. You had a daily spin which would provide discounts. There would be timers on “free shipping” to push urgency in your shopping. Many products would be “limited edition” or have a “special price”, and include details like “only 3 left” and “in 52 carts”. Temu was using what’s called the “illusion of scarcity”, to inflate demand and make you feel you need to buy, right now. But possibly the most addicting part was the loyalty program: Temu Circle. A $4 monthly membership, that pushes you to spend even more. The more you spent, the more rewards or 'credit' you got back, which meant the program paid for itself. They weren’t small either. All orders gave you 2% credit back, but if you spent $100 or more, you’d get 18% back, So on a $100 order, that’s $18 credit back. The membership seemed to pay for itself. It all created the perfect loop. Temu made the app fun and made spending money fun. The more you spent, the more you got back. The more you browsed and dug, the better deals you find. In a sinister way, this made shopping on Temu quite toxic. But it worked. The average Temu user spends 24 minutes on the app a day, which is more than double Amazon who sits at 11 minutes. But there was something else. Some stuff they were just giving away… for free? What the heck is Temu’s business model… really? Temus’s business model may not be strong, but one thing that should be strong is your online security. Your passwords, email addresses, and personal info are scattered across hundreds of websites. That’s why I’m excited about today’s sponsor: Proton Pass. Proton Pass is a secure, end-to-end encrypted password manager built by the same team behind Proton Mail and Proton VPN—people who take privacy seriously. It stores your passwords, credit cards, 2FA codes, and notes across all your devices. 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Thank you to Proton for supporting our videos. In the insane year of growth in 2023, Temu still lost millions of dollars. In fact, the app lost an average of $30 per order to the US. For context, the average order is around $25 meaning temu lost more than $1 for every dollar of revenue. Temu is estimated to have lost $1 billion in 2023. Even stranger, is that Temu pressured Chinese manufacturers to cut prices even lower, making profit literally impossible. Well, for Temu’s parent company PDD, this isn’t their first time losing money at scale. They also own Taobao and JD.com, which both exploded in China, especially in low-income rural areas with the same strategy. Temu was doing the same thing in America, to break into the market. That’s why Temu pushed so many low price deals or free shipping, which costs Temu an average of $14 per order. All Temu cared about was growth. They needed to make a big impact and get customers using their app every day, if they wanted to compete with Amazon. Soon enough, once they had cemented themselves, revenue and profits began to soar in 2024. But Temu also had another, lesser known strategy To sell prices so cheap in the US, Temu were exploiting a Legal Loophole, which would come back to bite them later. But for now, they were dealing with internal problems. Temu, like Wish, began to develop a bit of a reputation. Customers began complaining about “undelivered packages, mysterious charges, incorrect orders, and unresponsive customer service”. But that’s just where the issues start. As you probably might have guessed, Temu products aren’t good. But some go beyond being low quality. Some are “cheap” in other ways. Dangerous ways. In late 2023, The European Consumer Organization, which is funded by the European Union, began to perform health tests on Temu’s cheap toys, and what they found was unsettling. They first noticed some products had incomplete ingredient lists, or didn’t have them at all… Meaning the chances of illegal substances was high. Toys labelled for infants contained small parts which could lead to suffocation, with no safety labelling. This is a law that most countries take deathly seriously, and why all toys have an age and safety warning on them. Electric heaters were found to be so dangerous they couldn’t be sold in the UK due to the risk of shocks and even explosion hazards. Yet, almost 9000 of these had been sold. The list goes on and on. Cosmetics and sunscreens with conflicting ingredient information, and worst of all were the chemicals in children's toys. Plastic toys with “hormone disrupting chemicals up to 240 times above the legal limit”, or slime toys which release “illegal amounts of borates that can harm the health of children by damaging their reproductive system” Some might think “well, of course, Temu products are going to be low quality”, but… they still have to be legal. There are also of course concerns like their forced labour problems (show footage over this line). Yet that’s not even the end of the problems. Temu was collecting a lot of data to learn as much about you as possible. The problem is that it didn’t tell anyone it was doing this. But, for Pinduoduo, this isn’t new. In fact, in 2023, the Pinduoduo shopping app was suspended from Google, because they found malware. That’s right. Not just spyware or breaches in privacy. Malware. Temu was built by the same team of developers. While there was no Malware found on Temu, with it being the sister app to Pinduoduo and the privacy problems, people became concerned. Temu was facing big problems, yet, as if things weren’t bad enough, it was about to get much, much worse. Since 2017, we’ve published over 1,050 videos and racked up 160 million views. Yet somehow, we still haven't reached 1 million subscribers! That conversion rate is even worse than Temu’s -100% margins. If you've been watching without subscribing, I would really appreciate it if you hit the subscribe button so that we can finally make 1 million a reality. After Trump became president in 2025, his trade war with China began. In February, he placed a 10% tariff on all imports from China, and the next month, he raised that to 20%. China responded with retaliatory tariffs of 84%, but Trump then responded with a 145% tariff. These were some of the highest ever seen, and in the middle of it all was Temu. Mass producing in China, yet their biggest market was the US. This brings us back to the legal loophole I mentioned earlier: “De Minimis”. The US Government had been investigating this for a while, as far back as 2023. A brief by the USCC stated that “[Temu] also exploit[s] trade de minimis import exemptions, through which firms make shipments to the United States that are below an $800 value and are therefore not subject to import duties.” If you’re confused by that I don’t blame you. Simply put, the "de minimis" rule is a customs exemption. Goods valued below a certain amount can be imported without having to pay duties, taxes, or annoying paperwork. A lot of countries have this, but the US had one of the highest. Not only that, most others had some form of GST or VAT. The US had none. The brief continued: “Taken together, similar firms serve as a case study of Chinese e-commerce platforms outmanoeuvring regulators to grow a dominant U.S. market presence.” Outmanoeuvring’ is exactly the right word, it was Temu’s entire strategy That’s why Temu was so cheap. Zero tax, and in particular, zero tariffs. Temu had found the loophole for their entire business. But all that changed. On April 2nd, President Trump signed an executive order to eliminate this rule… for China specifically. One month later, it came into effect. This was very very bad for Temu. They were no longer immune to tariffs, which were now as much as 145%! Not only did prices on Temu jump by as much as 25% seemingly overnight, but now the app had another problem. All orders had to go through the much longer shipping process. These would take forever. In response, Temu stopped all shipments from China to the US, and began to fulfil orders from massive warehouses in the US. To be clear: Temu is still cheap. Cheaper than most retail stores. Just not stupid cheap. The de minimis change had eroded their biggest competitive advantage. Now, the Temu empire began to crumble. The very week Temu increased it’s prices, sales dropped by 17%. And for Q1 2025, Temu’s parent company PDD reported a revenue increase of 10%. Doesn’t sound too bad, but this was much below their expected growth. And things only get worse from here. For that same period, net profit dropped by 47%. Almost half of profit, gone. Prices had gone up a bit, but their costs had skyrocketed. After the announcement, PDD’s shares plummeted by 14% that day. Temu also slashed their US ad spend by 31%. They halted Google Shopping ads, and the app’s presence almost disappeared overnight. Before, they were consistently in the top 5 on the Play Store, but tumbled to 58th. In the last week of April, total downloads fell by 78%, and weekly active users fell by 43%. Their meteoric growth has officially ended. Do I think Temu will die? Probably not. Plenty of people still use Temu and they still have strong backing, but they’re clearly not as strong as before. It’s no longer the “Amazon killer” people thought it would be But they probably won’t see the same success again, even if the tariffs die down. People realized even with their cheap prices or free products, many of them aren’t good, or even dangerous. Now, the prices are going up, giving people even less reason to use Temu, They built most of their business around a loophole and negative margins. It worked for a while, but came back to bite them big time. If you’d like to earn a 1% bonus every year, consider transferring over your stocks and ETFs to Silo Markets, but until then, I'm Hari and I'll see you guys on the next one.