Chinese e-commerce giant Temu loses over half its US customers as tariff changes force price increases, prompting a major strategy shift toward international markets.
At a Glance
- Temu’s daily US users plummeted 58% in May following the end of the “de minimis” tariff exemption
- The company is transitioning to a local fulfillment model requiring merchants to handle tariffs and customs
- Unlike competitor Shein, Temu has been unable to maintain customer spending amid price increases
- The company has reduced US advertising and is focusing growth efforts on less affluent international markets
- 90% of Temu’s global monthly active users now come from outside the United States
Trade Policy Changes Devastate Temu’s US Business
Chinese e-commerce platform Temu has experienced a dramatic 58% decrease in daily US users during May, according to market intelligence firm Sensor Tower. This substantial drop follows the elimination of the “de minimis” exemption that previously allowed tariff-free shipping of low-value packages from China to the United States. Both Temu and its competitor Shein had built their business models around this provision, which enabled them to offer extremely low prices by drop-shipping items directly from Chinese manufacturers to American consumers without incurring import duties.
The ongoing US-China trade tensions have created significant challenges for Temu’s parent company, PDD Holdings, whose first-quarter earnings fell short of growth estimates. The elimination of the tariff exemption has forced price increases across Temu’s platform, directly affecting its core value proposition of ultra-low pricing. Customer engagement has nosedived as a result, with fewer users making purchases and spending less time browsing the platform, demonstrating the price sensitivity of Temu’s customer base.
Uneven Impact Between Chinese E-commerce Rivals
While both Temu and Shein relied on the same tariff exemption, the impact of its removal has been starkly different for the two companies. Shein has managed to weather the storm more effectively, successfully increasing spending per customer despite the challenging environment. Industry analysts point to Shein’s more established brand presence and loyal customer base as key factors in its resilience. Temu, as a newer entrant to the US market, has struggled to maintain customer loyalty when its primary competitive advantage—rock-bottom prices—was compromised.
“While the tariff environment is uncertain, if the status quo remains for an extended period, we believe Temu’s competitive threat will continue to weaken,” said Simeon Gutman.
In response to these challenges, Temu has significantly reduced its US advertising spending, which had previously been substantial. The company’s aggressive marketing campaigns, including multiple Super Bowl commercials and extensive social media advertising, had fueled its rapid US growth. The scaling back of these efforts signals a strategic pivot as the company reassesses its approach to the American market under the new tariff regime.
Strategic Adaptation and Global Expansion
Temu is implementing substantial changes to its business model to address the new tariff reality. The company is transitioning to a local fulfillment strategy within the United States, requiring merchants to handle tariffs and customs clearance when shipping to US warehouses. This approach aims to streamline logistics and potentially mitigate some cost increases, though it represents a significant departure from the direct-to-consumer model that powered Temu’s initial success.
The company has also pivoted toward international markets, with a particular focus on regions with emerging economies where price sensitivity aligns with Temu’s low-cost strategy. This shift has already yielded results, with non-US markets now accounting for 90% of Temu’s global monthly active users in the second quarter. The platform’s fastest growth is occurring in less affluent markets, where its value proposition remains compelling despite ongoing adjustments to its supply chain and fulfillment operations.
For PDD Holdings, this global diversification strategy appears to be a necessary response to the challenging US regulatory environment. By reducing dependence on the American market while maintaining a presence through adapted business practices, Temu aims to preserve growth momentum even as its US operations face continued headwinds from trade policies designed to reduce Chinese import advantages.
