As Temu remains at the number one spot for top free apps in the Google Play and App Store, the app faces more scrutiny from consumers and lawmakers alike. Younger buyers take to TikTok to post Temu hauls and find cheaper duplicates of popular items they may not be able to afford.
For consumers on a tight budget, Temu's ridiculously low prices can be a tempting, affordable option. But how and why is everything Temu sells so cheap? There are a few answers to that question.
1. The de minimis exception
According to a report from the U.S. House Select Committee on the Chinese Communist Party, Temu relies on the de minimis exception to ship goods directly to U.S. customers for a low price. A shipment below the de minimis value of $800 isn't inspected or taxed by U.S. Customs.
Temu and another Chinese-owned e-commerce platform, Shein, are responsible for around 600,000 (about 30%) of all packages shipped below the de minimis value to the U.S. every day. Consequently, each shipment evades taxes and inspections from U.S. Customs and Border Patrol.
The Select Committee's report says that these companies rely on the de minimis provision to sustain their business models. However, by relying on the de minimis provision, Temu can evade compliance with the Uyghur Forced Labor Prevention Act (UFLPA) and other laws against forced labor.
According to the Select Committee, the Chinese Communist Party, which is the ruling political party in China, has subjected the Uyghurs, a minority ethnic group in China, to forced labor practices. As a result, the U.S. is trying to minimize the importation of Chinese products made from forced Uyghur labor. Thus, the UFLPA prohibits shipping products into the country that the U.S. government believes were made by Uyghurs.
Yet, products shipped under the de minimis provision allow Temu to provide insufficient data to U.S. Customs and avoid UFLPA compliance.
According to the report, U.S. Customs and Border Patrol approved more than 685 million de minimis packages in 2022, leaving the government unable to confidently determine whether Temu and Shein complied with the UFLPA.
2. Low manufacturing costs
According to Wired, Temu loses about $30 per order because the company is trying to dominate the U.S. market by offering lower-than-low prices. Temu loses between $588 and $954 million a year because of its cost-cutting practices, according to finance company China Merchants Securities.
Additionally, Temu pressures its manufacturers to lower their prices even further to appease discount-seeking customers, leaving those manufacturers with little to no profit in return. Wired reported that Temu bears most of the company's international shipping costs, but relies on American consumers to frequently order from Temu to make up for money lost.
Temu's manufacturers can design and source materials to provide Temu with trendy items quickly, which helps Temu sell products that are in high demand. Although some manufacturers want to list their products at higher prices to make a profit, Temu makes the final decision and regularly cuts prices.
3. Knockoff products
Almost every product on Temu is a knockoff or "dupe" of a real, brand-name product. Most items sold on Temu are unbranded and manufactured en masse by manufacturers in China.
You can find "dupes" of many popular products on Temu, from Stanley insulated tumblers to AirPods Max headphones -- both for less than $15.
Temu says it has direct access to suppliers, eliminating the need for a middleman between buyers and sellers. This economic model is the only reason Temu acknowledges how it keeps its prices low, but a mix of cheaply made products shipped and manufactured at little to no cost could be a more reasonable explanation.