Temu's historic ad buying spree may be over. What's next?

Temu’s US launch was like nothing we’ve seen before. Soon we’ll find out if it worked.

I am fascinated by this company. Why the obsession with a “digital dollar store”?

Temu may have made the most unique and aggressive bet on paid marketing of any company ever.

  • $3B on advertising in their first full year (est.)
  • Top global advertiser on Meta with $1.5B-$2B spent (2023 est.)
  • 5 Super Bowl spots in 2024. 2 in 2023.
  • Etsy CEO: they are “almost single-handedly” impacting the cost of advertising

Compared to America’s largest discount companies (Dollar General and Dollar Tree, combined $70B net sales), I estimate that Temu likely spent around 60x more on advertising for every dollar of merchandise sold. That’s BEFORE accounting for the seller’s take (Temu is a marketplace).

R-E-P-E-A-T, find out what it means to me

Temu has massively jumpstarted the e-commerce market for low-cost items in an effort to change consumer’s buying habits. They’re also expanding assortment, e.g. by opening up their marketplace to US sellers. The goal is to make Temu’s orange packages a frequent appearance in US consumers’ lives.

That’s because the outcome of Temu’s bet, like the return on most paid customer acquisition in retail, will be determined by repeat purchases.

Some early data has been promising. Earnest Analytics reports Temu’s retention rate is way better than Etsy, Wish (an earlier version of the direct-from-China model), and even compares favorably to Walmart and Target. The brand is taking share from dollar stores in customer wallets and seeing success with high-earners.

Reading the “T” leaves

Google Trends data show that while Temu search interest is at an all-time-high globally, in the US – by far its biggest market – searches for “temu” are down 40% from their peak about a year ago (see chart).

Brand searches are correlated with advertising spend. In fact, for smaller brands you can sometimes see stark changes around calendar dates when marketing budgets reset.

From this data we might conclude Temu has taken their foot off the gas, spend-wise. Under that interpretation they’re still spending big, but less than they were and likely not growing. Perhaps waiting to see how this turns out.

Parent company PDD Holdings doesn’t break out Temu financials specifically but overall the group reported $3.24B in selling and marketing expenses in Q1, up 37% year-over-year.

If Temu is continuing to spend at their 2023 levels, or even increasing spend (in line with PDD overall), that means their marketing has likely become much less efficient, and this risky strategy will have put them in an even deeper hole to climb out from.

Can't wait to find out. 

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