The news sounds like the Temu problem has been solved, at least for now. The Federal Association of Consumer Organizations has decided not to take legal action against the Chinese online platform. Because Temu has committed itself to eliminating all alleged violations, said Ramona Pop, Germany’s top consumer advocate, on Tuesday. Temu, for its part, said it attaches “great importance to compliance with regulations and the experiences of consumers in Germany”. So everything is good?
If you take a closer look at the allegations, you can see that this is a problem of a completely different dimension. The consumer advocates complained that Temu was unsettling and taking advantage of customers with seemingly arbitrary discounts, questionable reviews and manipulative designs. Anyone who opens the Temu app and thinks about ordering something will see messages flashing like “Hurry up! Over 126 people have this item in their shopping cart.” Arbitrarily deleted prices also appear. All of this should no longer exist in the future. When it comes to discounts, it will now be clear what a price refers to, for example by stating the manufacturer’s recommended retail price, the consumer advice center said. She also wants to monitor whether Temu is sticking to the agreements. If necessary, there is a risk of a contractual penalty.
Sounds like a clear victory for consumer advocates. But for German and European retailers the problem seems anything but solved. At least that’s how e-commerce entrepreneur and retail expert Alexander Graf sees it. He sees the Temu app as “a completely different business model” compared to what is currently known in German online retail. More precisely: a surge in innovation, which this time comes not from the USA, but from China.
“The purchase is not that important, every interaction is important”
The innovation lies less in the fact that the goods offered on Temu are usually extremely inexpensive. Rather, the innovations are behind the applications that consumer advocates have complained about at Temu. Because everything you encounter on the app essentially has to do with keeping users in the app for as long as possible and ensuring that they come back tomorrow, says Graf. The keyword for this: gamification. This is a fundamental difference to classic retailers such as Amazon, Otto or Zalando. It’s important to them that you buy something x times a year. At Temu and at Tiktok Shop, which is already live in the USA, it’s about something different: “The purchase is not that important, every interaction is important: a share, a like, a view, a comment,” says Graf.
Behind this lies a different, more lucrative business model than online retail: retail media, i.e. advertising within retailers’ websites and apps. The following applies: The better platforms can prove that their users spend a comparatively long time in the app, the easier it is to attract advertising customers. Temu succeeded. According to Bloomberg Consumers in the US spend almost twice as much time on the Temu app as well as on comparable major platforms. At Retail Media, Temu and Tiktok did not compete with Amazon and Zalando, says Graf, but with Google and Meta, the Facebook parent. The gross margin for retail media is 60 to 70 percent, but for online retail it is a maximum of eight percent. “Temu attacks Google and Meta, not Zalando. The really stupid one is Google,” says Graf. Because Google has a lot more data than Tiktok and Temu, the Americans have not yet been able to adapt their business model in this way.
German retailers are unlikely to be able to keep people in their app for longer. “The step from Peek and Cloppenburg to Zalando is probably smaller than that from Zalando to Temu,” estimates Graf. Other Chinese platforms, on the other hand, have long since done this. The video service Tiktok has long been successful in online trading in the USA. At the end of 2023, Tiktok reported more than 500,000 retailers wanting to sell goods via the US app – more than twice as many as three months earlier. Globally, Tiktok’s e-commerce platform had more than 15 million sellers at the end of 2023. They all pay fees to sell there. “The shopping street is now the Tiktok app,” says Graf, at least in the USA. Tiktok Shop is not yet available in Germany, but it is coming. If that is true, the prospects for German city centers would not be good.
According to HDE, customs are overwhelmed
Meanwhile, the public discourse in Germany revolves around arbitrary discounts, questionable reviews, toxins in individual goods and the flood of parcels in Liège, Belgium. This is where most of the estimated more than two billion parcels from China arrive in Europe every year. According to customs, around 60 percent of this is said to be “under-declared”: the declared value of the goods is therefore below the duty-free limit of 150 euros. Shipments would also be broken down. Stephan Tromp, deputy managing director of the German Trade Association (HDE), sees customs “overwhelmed” due to the lack of digitalization and the lack of a customs union in the EU. At the EU level, an abolition of the exemption limit should now be considered. Violations of EU product safety law, on the other hand, can hardly be punished. Warnings didn’t work because you can’t serve a title in China. And the authorities cannot intervene because there are no corresponding agreements.
It looks like the individual players in Europe are not only losing out when it comes to innovation.