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Amazon‘s biggest Chinese rival in the US Temu is abandoning the model which it almost built around its business in the country. Temu is changing its business model centered around cheap Chinese imports, aiming to sell only goods from local merchants to American consumers for the foreseeable future. This basically means that Temu is for now abandoning the very business model that helped it become a huge success in the US.
PDD Holdings Inc’s online retail website that became a household name in the US after its entry just a few years ago with cut-price items from dresses to kitchen towels. China’s Temu now intends to shift to what it calls a “local fulfillment” model. In an emailed statement to Bloomberg, the company said that it is actively recruiting US merchants and will sell only their locally based merchandise. The change in business model is expected to allow the Chinese-owned company to sidestep tariffs.
‘Good news’ for Temu customers
The Big and Good News for American buyers in this is that the company has said that it plans to keep prices for customers in America unchanged. “The move is designed to help local merchants reach more customers and grow their businesses,” Temu said. It’s also “part of Temu’s ongoing adjustments to improve service levels.”
‘Very Good News’ for Donald Trump
Temu announced the shift just on the day the Trump administration’s ‘de minimis’ tariff exemption for small parcels came into force in the US. The Trump administration ended US duty-free access for low-value shipments from China and Hong Kong on Friday, May 2, removing the “de minimis” exemptions availed by two of China’s biggest online retailers — Temu and Shein. Under CBP’s latest guidance, shipments from China and Hong Kong regardless of size will now be subject to Trump’s new tariffs of 145% plus any prior duties, except for products such as smartphones which were excluded last month.
This is a sharp change in Temu’s policy, which till last week had introduced a clearly labeled surcharge at checkout, effectively transferring nearly all of the tariff burden to US consumers. Shein, a fast-fashion giant, has also hiked prices, with some items seeing increases of over 300%.
Many other Chinese suppliers so far appear unwilling to absorb the tariffs, leaving retailers caught between rising costs and uncertainty over the duration of the levies. But after Temu’s policy change, it remains to be seen if other retailers will also follow suit.
Amazon’s U-turn and why it is important
Earlier this week, America’s biggest online retailer took a massive U-turn within hours. Amazon.com announced that it wouldn’t display the cost of US tariffs on products, after the White House slammed the reported move. President Trump reportedly complained to Amazon founder Jeff Bezos. The move underscores the difficult position US consumer retailers are in.
Like Amazon, companies like Walmart and Target could also come under political pressure to absorb some — if not all — of the cost increases, which could help cushion the direct impact on shoppers.
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