Planet Money - What is Temu?

Episode Date: March 22, 2024

It is rare that a new e-commerce company has such a meteoric rise as Temu. The company, which launched in the fall of 2022, has been flooding the American advertising market, buying much of the inventory of Facebook, Snapchat, and beyond. According to the market intelligence firm Sensor Tower, Temu is one of the most downloaded iPhone apps in the country, with around 50 million monthly active users.On today's show, we go deep on Temu: How does it work, how did it manage such a quick rise in the U.S., and what hints might it offer us about the future of retail? Plus, we'll talk to the bicycle-loving U.S. Representative who is working to shut down a loophole that has proved very helpful to Temu's swift ascent. This episode was hosted by Nick Fountain and Alexi Horowitz-Ghazi with reporting from Emily Feng. It was produced by Sam Yellowhorse Kesler and Emma Peaslee. It was edited by Keith Romer, fact-checked by Sierra Juarez, and engineered by Cena Loffredo. Alex Goldmark is Planet Money's executive producer. Help support Planet Money and get bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

For the seventh year on the Code Switch podcast, conversations about race and identity go way beyond the day's headlines. Because we know what's part of every person is part of every story. We're bringing that perspective with new episodes every week. Listen on the Code Switch podcast from NPR. Before we start, today's show references Amazon and Walmart. Amazon is a financial supporter of NPR and pays to distribute some of our content, and we also receive support from the Walton Family Foundation. This is Planet Money from NPR. If you were one of the 124 million people who watched the Super Bowl in the U.S., you likely saw this ad.

And even if you missed it, there's a very good chance you've seen other ads for this same company, Timu. In the last year, the Chinese e-commerce company has spent billions of dollars on ads for Google searches, on YouTube, Instagram, and Facebook. We were curious. What does it mean to shop like a billionaire? What is this thing? So we tried it out. Basically, anything you want to buy, they have it. But the more you look into the app, the weirder it gets. Shopping on Timu feels like this bizarre cross between Amazon and, like, Super Mario Bros. Yeah, they're always trying to get you to play games, like Fishland.

Imagine this. You begin by choosing items you'd love to win. Feed a little digital pet fish. The more your fish grows, the closer you get to your desired reward. Kind of love Fishland. Yes, and there's so much weird random stuff for sale on there. Like they sell this thing called the Vomit Egg Yolk Egg Liquid Pinch Happy

Decompressing Toy. I think it's like a stress ball, but like the goo comes out of the mouth of this little disembodied egg head. That'll only run you $1.43. It's not just the P-happy decompressing toy. All of the prices seem impossibly low. Everything has free shipping. And if you do a good enough job feeding your digital pet fish or whatever, some stuff will cost you almost nothing. And honestly, Nick, it seemed like you got kind of sucked into the whole Teemu experience. I'm just going to play a little bit of the tape of when you first called me bragging about all these deals you just landed. I signed up a couple of nights ago, and here is what I got the first night.

And I haven't slept in days. All right. A measuring tape metric. Three, like, Taylor's measuring tapes, because my kid likes to play with those. Uh-huh. A bunch of carabiners. You can always use carabiners. Of course.

Some drill bits with countersinks. A nice Peapops. I'm just going to fade Nick down here for a second. And you're going to have to believe me when I say he bought a lot of stuff, including multiple bike bells. You know how much that was supposed to all be? Oh, my God. I don't know.

That sounds like $2,000 worth of gear, maybe more. They said the list price was $400, but they gave it to me for $77.88, free shipping, baby, woo! You were in kind of a shopaholic fugue state there, Nick, it was a little scary. Yeah, but, but, once all the frenzy had worn off and we started digging more into what Timu actually is, how it works, we started to wonder, what is the right way to think about Timu? And the future, it might point to. Hello and welcome to Planet Money. I'm Nick Fountain. And I'm Alexey Horowitz-Gazi. It is rare that a new e-commerce company comes out of nowhere so fast and so furious. But everywhere you look right now, it's Timu. According to some estimates, this company, which launched in the

fall of 2022, is shipping as many as a million packages a day into the U.S. It's one of the most downloaded iPhone apps in the country, with around 50 million monthly active users here. Today on the show, what is this thing? Where did Timu come from? How is it able to sell stuff for so cheap? And why are some people trying to stop it? On Bullseye, Jenny Slate reveals her favorite noises. I love, like, noises of tension.

I love noises of embarrassment. I love noises of, like, pressure, pressure, pressure. You know, I just, like, I love like noises of tension. I love noises of embarrassment. I love noises of like pressure, pressure, pressure. You know, I just like I love that. All that and more on the Bullseye podcast from MaximumFun.org and NPR. On the next All Songs Considered from NPR Music, we play and guide you through songs to slow the blood and calm your nerves. My stress level on a scale of 1 to 10 has been at an 11. Look for All Songs Considered every Tuesday, wherever you get podcasts. This message comes from Think Fast, Talk Smart. Each week, host Matt Abrams teaches listeners how to excel at small talk,

write winning emails, and keep the nerves in check when speaking in front of crowds. Listen every Tuesday where you get your podcasts. There are a lot of big questions about Timu, what it means for the future of retail and consumerism and global trade. But before we get to those, we're going to drill down on how this business actually works, starting with its origin story. For that, we called NPR correspondent Emily Fang, who covers China and Taiwan. You've come to the right person because I'm a big online shopper. So then you know a lot about Timu. I know a lot about their parent company,

and that's this gigantic e-commerce company called Pinduoduo or PDD. It's based in China. Emily told us PDD first came onto her radar a few years ago when she was living in Beijing. I had just taken up boxing. So I went to the gym and I saw this girl wearing really, really hot tights. And I was like, where did you get these tights? And she was like, I got them on Pinduoduo, PDD. And I was like, where did you get these tights? And she was like, I got them on Pinduoduo at PDD. And I was like, what's that? So we added each other on social media. She sent me the link.

And I was shocked. These tights were like five bucks. And they got cheaper if you bought more than three pairs. So I ended up getting five pairs. Emily says these days PDD sells pretty much everything. But they started off by focusing on one thing, groceries. They sold fresh fruit and vegetables, and then later everything from like seafood to roast chickens. Which turned out to be a really good business during COVID

when in China there were very strict lockdowns and people needed food delivered. That is when PDD got huge and started to rival the other big Chinese e-commerce company, Alibaba. And Emily says to understand how PDD is different, it's helpful to take a look at the background of its founder, Colin Huang. We don't know too much about him. Like, we don't know if he's married, if he has children, what he does with his spare time, he does not make public appearances. What we do know is his work history. He worked at Google.

He founded some e-commerce companies and also a gaming company. It's his background in gaming that informs PDD's model of like making this a gamified social shopping experience. A social shopping experience with all sorts of perks and incentives for looping your friends in. Right. This is why the woman who introduced Emily to PDD was so quick to share a link to those tights she liked. That's what PDD is all about. The goods are really, really cheap. And the goods get cheaper if you refer a friend and they buy the same product. the goods get cheaper if you refer a friend and they buy the same product.

多多 means more, more. And 拼 means to merge. So the whole idea is that you're merging orders, you're bulk buying together with friends. They call it team purchase, basically bulk pricing. If you can convince enough of your friends to buy a thing with you, it gets cheaper. Which brings us to Timemu, which I've heard maybe once stood for team up, price down. Oh. Have you heard that one? Never. To this day, I didn't know how to pronounce it. It's amazing. I sent a request to Teemu. I said,

hey, can I have an interview? They said, can you do written questions? I said, no, I'd really like an interview. And they said, no, we'll have to pass that I said okay well just first just help me solve this one problem is it Taimou or Timu and they were like it has many pronunciations but most people go with Timu I was like you're the company you should tell me how to pronounce it yeah they don't like sharing a lot so far Timu is not using this bulk pricing model here in the U.S., though they do offer discounts when you invite your friends. And Emily says they look a lot like PDD. The factories are the same. The producers are the same.

They're just repackaging the same app, turning it into English and calling it Timu. Secretive or not, PDD is publicly listed in the U.S., so there are some details out there. They're required to file them. PDD as a whole, it is profitable. In the final quarter of last year, so the quarter that included holiday shopping, the company had $12.5 billion in revenue and an operating profit of over $3 billion. Okay. Up until now, we've largely been focused on how different PDD and Timu are for consumers,

for the Emilys and Nicks of the world buying their tights and bike bells. But the really innovative thing PDD and Timu seem to be doing is rethinking the way an e-commerce platform interacts with its suppliers, the companies that actually make all that stuff. For more on that, we reached out to Ray Ma, a tech executive in San Francisco and the founder of this great newsletter called Tech Buzz China. Also, she's an early Timu adopter. Yeah, these headphones are one of the first deals on Timu. The day they launched, they were selling them for $2. You might have been one of the first 10,000 customers of Timu in the U.S., you think?

Oh, for sure. I wouldn't be surprised if I was under 100, to be honest. Ray says to understand how PDD and Timu got so big so fast, you've got to look at how they try to solve a couple of the biggest problems for factories in China that want to sell online. First, they say to these factories, all you need to do is worry about making your products. We will handle the marketing and we'll be in charge of getting your stuff into people's mailboxes in the U.S. Instead of dealing with a bunch of middlemen between your factory and the consumer, it'll just be us. That means you'll get to keep more of the profit. The second thing that Timu does is help solve this perpetual puzzle manufacturers face. How much of any given product should they actually make?

If you're a supplier and you're selling it through the traditional methods, you have to forecast what you're going to make well in advance of when people buy it. And you basically take on all this inventory risk. That's basically the problem of retail is you have to know what people want before they want it. And that's really hard. It's really hard. And it's a lot of risk on you. And you may utterly fail at predicting demand. If you make too little, you are leaving money on the table.

And if you end up making too much, you can be stuck with inventory sitting in warehouses, either in the U.S. or in China. And that is expensive. Amazon and Walmart, they will actually charge you to store your products. But PDD's founder, Colin Wong, has come up with a really interesting approach for how to solve this puzzle. Ray pointed us to this blog post Wong had written that is essentially a manifesto laying out his entire business philosophy. In it, he dreams of a world where the whole inventory problem is completely eradicated. And the key to that, he says, is convincing your customers, who've gotten used to getting everything in two days, to be just a little more patient. days to be just a little more patient. So instead of me necessarily having the goods on hand,

what if you just wait a week, two weeks, whatever it is to receive your item? Because then I can take this aggregate and accurate demand, go to the suppliers and say, now you know exactly what to make, make it. So basically he's saying, if I can get people to wait one or two weeks for the stuff that they are ordering from my website, then I don't even have to have any inventory on hand. I can just sell the stuff before it's even made and be the most just in time, the most lean operation ever. That is the dream, yeah. It is a wild dream. Just-in-time is this idea from car manufacturing, where a carmaker doesn't want to store 10,000 carburetors and 5,000 timing belts until they are needed on the assembly line.

Instead, they want their suppliers to send them that stuff right before they put it in the cars. Just in time. And in Colin Wong's vision of the world, it is just in time all the way down. All the way down to you on your couch in Peoria or whatever. In this world, manufacturers wouldn't have to ship their products to warehouses in the U.S. before people have placed their orders. They could just wait until enough people have clicked buy to even start making the things in quantity. And think about what that would let you do if you are a factory owner. If you had 10 ideas for 10 new products, you wouldn't have to choose which one you're going to make hundreds of to send off to a bunch of Amazon warehouses.

You would get to make all 10 products. Just throw them up on Timu and see which ones people are willing to pay for. Now, this dream is nowhere near fully realized yet, but it is starting to happen in small ways. And when you multiply them by the 100,000 suppliers across China that Timu is working with, you start to get an answer for why the Timu shopping experience is so extra. Every product is kind of a market survey. You want this? No? Well, how about this? Timu lets manufacturers keep poking at consumer demand to see what exactly it is that people want. On the one hand, it's a little bit awe-inspiring, this plan to reshape e-commerce so that every day hundreds of new products are offered up to consumers just in case one of them happens to be the specific thing that was missing from their

life. Right? That is how the vomit egg yolk liquid pinch happy decompressing toy gets made in the first place. But also that is how something as arguably useless and wasteful as the vomit egg yolk egg liquid pinch happy decompressing toy gets made in the first place. And maybe we are not better off expanding the endless variety of plastic crap that people can buy. Speaking of which, I got my package, 19 different items, that people can buy. Speaking of which, I got my package, 19 different items, including three bike bells. Wait, three, really?

In my defense, they were cheap and I couldn't tell how good they were from the website. But now I have a pretty good idea. Here, look, this one is electric. It's pretty annoying. Not sure I want to be that guy. But this one right here. We got a winner. It is perfect. It is going on my bike this week. And then there is this one, which is basically just a useless piece of plastic and

metal that was flown from across the world just so I could throw it away. Hold on a sec. How many bike bells did you even need in the first place? I'm going to say somewhere between one and zero, maybe. I just wanted to see if there were better bike bells out there, honestly. Okay. So Timu played you like a cheap, cheap bike bell. You could say it that way. After the break, some questions about Timu's way of doing business from someone trying to make that way of doing business much harder.

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On It's Been a Minute, I give you fresh ways of thinking about what's going on. Listen every week to It's Been a Minute from NPR. Hey, it's Erika Barris. In 1959, more than half a million steel workers in the U.S. went on strike. Already the strike is being felt in patches of the economy. Observers foresee no quick solution. An economic ordeal for the nation. The strike ended over a hundred days later,

but had an unintended consequence for U.S. steel production. That's just one of three historical moments we talk about in our latest bonus episode on the influence steel had on our economy and popular culture. Available now for Planet Money Plus listeners. If that's you, thanks for your support. If it's not, could be. You get bonus content, sponsor-free listening, and support the work of Planet Money. Just go to plus.npr.org. Now, so far, we've mostly been talking about Timu's, maybe you'd call them business innovations,

but a lot of people have been raising concerns about some other parts of the business model. In particular, Tmoo's kind of lacks seeming compliance with certain laws and regulations we have here in the U.S. Like how they're pretty bad at weeding out counterfeits. That one I can attest to. They keep pushing a certain skateboard brand sweatshirts on me for way too cheap than could be legit.

Another issue is safety. There are concerns that they're flouting consumer safety standards. And then there are concerns that they are not doing a good enough job of making sure that the products they sell weren't produced using forced labor. For a couple years now, the U.S. has had a law on the books that's meant to keep out goods made in the Xinjiang region. Xinjiang is where China has been accused of ethnically cleansing its Muslim minority Uyghur population and also forcing Uyghurs to work in factories. But according to a recent congressional report, Timu, quote, conducts no audits and reports no compliance system to affirmatively examine and ensure compliance with that law.

We asked Timo about all this, and a spokesperson said they have processes in place to spot counterfeits and unsafe products. And on the forced labor issue, they told us, quote, Timo is dedicated to upholding ethical labor practices. Our third-party code of conduct forbids any form of forced child or penal labor. Now, one person ringing alarm bells about all of these concerns is U.S. Representative Earl Blumenauer, a Democrat from Oregon. Like Nick, he's really into bikes. He wears these cool bike lapel pins. I started this in Portland, and I was the commissioner of public works and started wearing the bike pin then. And we've handed out probably 50,000 of them since then.

And because it's Portland, I'm sure it was manufactured in Portland, the lapel pin. We're working on it. Oh, it's made in China. We have supply chain issues. We did offer to help him find an alternative supplier, but he wasn't into it. Well, I'll tell you, I have a tab of Timu up right now. I'm sure you're familiar with Timu. There's a lot of bike lapel pins available on Timu.

Let me tell you, 98 cents, a nice bedazzled one, a pink one for 79 cents, free shipping. There's a lot you can do with slave labor. Damn, Earl Blumenauer. Yeah, the congressman does not mince words. And to be clear, he is not saying that Timu is definitively sourcing goods produced by forced labor. He's more saying the way the system is set up now, there is just not a practical way for the U.S. government to monitor for things like that. It's been sort of an obsession of mine for the last year. An obsession of yours? Yes, I want to get this fixed. Blumenauer says it's become pretty much impossible to enforce our laws on this huge amount of imports. And the reason? It comes down

to this one trade loophole that Timu, along with many other Chinese companies, has been able to exploit. Yes, the de minimis loophole. The de minimis loophole permits people to ship direct to American consumers goods that are under $800 in value. This explains how you can get a package from China. There's no customs declaration on the front, and it explains part of why it's so cheap, right? Yes, it is direct, untaxed, unregulated. We have no idea what's in these packages. The de minimis loophole comes from back in the 1930s. And the idea back then was, say you went on a vacation to, I don't know, Paris. The government said you shouldn't have to file customs paperwork

if you decided to ship home some little Eiffel Tower statues for all your Francophile friends at home. The notion here is that de minimis means minimal, and it wasn't worth the while for the federal government at that point to go through it, and it seemed like it was an unnecessary burden for people bringing goods back to the United States. De minimis was de minimis. It was just a few dollars. There was no controversy about it. And then as things got more expensive,

Congress kept raising that de minimis threshold, the declared value under which you didn't have to declare or pay taxes. In 2015, Blumenauer was on the Ways and Means Committee, which deals with taxes and trade, and he voted to raise the de minimis threshold from $200 to $800. And then online retail kind of exploded. In the next several years, all these e-commerce operations, Shein, AliExpress, Wish, and of course, Timu, started shipping all these packages from China to the U.S. Nobody, I mean, I was on the committee at that time, nobody had a clue that there would be a flood of commerce from Asian countries primarily that would overwhelm the system.

This completely blindsided Congress, blindsided me. We did not anticipate it at all. Maybe we should have, but we didn't. Blumenauer says this year the U.S. is on track to receive a billion, yes, a billion packages that come in through the de minimis loophole. No taxes, no custom slips saying what they are. 60% of those are from China, and many of them are from Timu. All because of this exemption written long before e-commerce ever existed. And the people who are supposed to watch our borders and make sure bad things don't

come in, customs and border protection, they are completely overwhelmed by the sheer scale of all this. I mean, think about it. It is way easier to inspect a shipping container that says it's filled with 5,000 travel mugs than it is to inspect 5,000 individual packages that don't have to say what's in them at all. What this means is that many items are slipping through the cracks, including, according to Blumenauer, unsafe items and knockoffs, and also stuff made by forced labor and even chemicals used to make fentanyl. Right. Blumenauer says most of that stuff is coming in through China. And so he has introduced a bill that he says would slow down this flood of

packages by closing the de minimis loophole for packages coming in from China specifically. If it becomes law, sellers like Timu would have to declare what's in every package and, importantly, pay any applicable tariffs. Blumenauer says this would lower the volume of packages coming in, which would make it easier for customs to keep tabs on things. So your bill would ban de minimis loophole shipments from China. What's stopping Timu from, say, putting a bunch of warehouses just across the border in Toronto and Tijuana and taking

advantage of the loophole there? I'm not saying people can't cheat. I'm saying this will make it much harder. Do you think they're going to exist afterwards? I'm sure they can exist, probably. They have the potential of still producing cheap goods very quickly. I think there will be a market for it, but it will be a different market, and there will be an opportunity for American companies to compete for this business. I don't know.

I don't see very many cheap widget factories in the U.S. anymore, and it does really seem like consumers want a lot of cheap plastic stuff, generally. Like, how do you square that hole? Where will people... I'm not going to square the hole. I don't care about that. What I care about is making sure that American manufacturers and retailers are not undercut by people who are not playing fair. To be clear, Timu is not skirting any laws by using this loophole. But to give you a sense of how much money companies like Timu might be saving using the de minimis loophole, in 2022, the clothing retailer Gap paid around $700 million

in import taxes. H&M, about $200 million. Timu, as far as we can tell, paid zero. At this point, Blumenauer's bill does seem to have broad bipartisan support. Republican Senator Marco Rubio has co-sponsored a similar bill in the Senate. And if one of them goes through and the president signs it into law, there will be no more de minimis for Timu. And if that does happen, and who knows, it is Congress, then we might finally get to learn whether or not Timu's model, the way it is reinvented, what it means to be a manufacturer and a consumer, if it's really this kind of genuine leveling up for the way we buy and sell things, or whether it only ever worked because of Timu's ability to exploit that one loophole in the U.S. tariff system. In the meantime, I've got this pretty awesome bike belt to install. And a couple to throw out.

This episode was produced by Sam Yellowhurst-Kessler and Emma Peasley. It was edited by Keith Romer and fact-checked by Sierra Juarez. It was engineered by Sina Lofredo. Alex Goldmark is our executive producer. I'm Nick Fountain. I'm Alexi Horowitz-Ghazi. This is NPR. Thanks for listening. On the Code Switch podcast, conversations about race don't start and stop with the news cycle. We know that race is always relevant and we have new topics, new voices and new stories for you every single week. Listen to the Code Switch podcast from NPR. Do you want in on a secret? Like why your favorite pop star is so popular? Or why a makeup fad is suddenly sweeping your feed? It's that none of these things happen by accident.

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