Temu struggles to win back customers due to unexpected rival | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Earlier this year, popular Chinese online marketplace Temu suffered a major blow to its business. Shortly after President Donald Trump took office in January, he announced tariffs (taxes companies pay to import goods from overseas) on multiple countries, with China seeing the highest rates.

Trump also removed a trade rule called “de minimis” that allowed goods less than $800 from China to enter the U.S. duty-free with minimal inspections.

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Shortly after Trump announced reciprocal tariffs in April, Temu, which became famous for selling a wide variety of products priced between $1 and $50, warned customers on its website that it will be raising prices due to “global trade rules and tariffs” increasing its operating expenses.

In addition, Temu added “import charges” of about 145% to multiple products on its website, which sometimes doubled the price of an order. This sparked backlash from shoppers who grew frustrated with price increases.

Temu later saw a sharp decline in app downloads as it quietly decided to dramatically pull back its advertising on Google and Meta, which owns Instagram and Facebook.

The retailer later took damage control measures and stopped shipping products from China to sell directly to consumers in the U.S. It also notified customers on its website that items shipped from local warehouses would not incur extra charges.

Temu is facing a major challenge.

Image source&colon; Mainka for Shutterstock

Temu is suffering from a growing problem

Now that U.S. tariffs on exports from China have decreased to about 51% due to negotiations between the two countries, Temu is further focusing on rebuilding its business, but there’s one major problem.

Temu is struggling to make its prices cheaper than its rival Amazon (AMZN) , which has grown to dominate the e-commerce market, according to a recent report from The Financial Times.

U.S. companies and sellers have been informing Temu that they are unable to offer lower prices on branded products than those sold on Amazon.

“We’ve told them they can’t undercut Amazon with the same stuff, it’s going to have to be materially different [products],” said one executive at a third-party seller in an interview with The Financial Times.

Another third-party seller executive told the news outlet that Temu has been offering sellers incentives such as lower fees to encourage them to list products on its website. However, Amazon can easily match the reduced price.

Amazon can absorb losses to maintain low prices on its website, giving it a leg up on smaller competitors such as Temu, which cannot do so without financial ruin.

Brands and third-party sellers also don’t want to offer cheaper prices on other websites because they risk losing Amazon’s “buy box” feature, which can impact their revenues. This feature allows customers to add items to their shopping cart and purchase them immediately, increasing brands’ visibility and sales.

Temu also sets the selling price for items sold on its website, leaving third-party sellers with less power to prevent price cuts that would later appear on Amazon.

Analysts believe Temu would have to explore other options, such as offering bulk discounts, selling returns, or non-branded items to compete with Amazon.

Competing with Amazon might be tough for Temu

Temu’s recent struggles come after data from Sensor Tower found that its monthly active users on its U.S. app declined by 54% between March and mid-July.

It is no surprise that Temu is facing challenges with attracting customers to its platform, as it is currently facing a growing new threat.

More Retail:

Last year, Amazon launched its Temu rival Amazon Haul, a section on the company’s website that sells items such as fashion, home, lifestyle, electronics, etc., that are priced at $20 or less. The majority of these items sell for $10 and under, with some selling for as low as $1.

In April, Amazon even introduced a new section on Amazon Haul labeled “Brand Faves,” which sells name-brand items such as Champion, Adidas, Steve Madden, etc., that are shipped from Amazon’s inventory held in U.S. warehouses. Some of these items are also sold for a little over $20.

Amid the growth of Amazon Haul, Temu is also battling a significant shift in consumer behavior.

According to a February survey from Omnisend, 42% of Americans oppose new tariffs on Chinese goods, while 56% are concerned that tariffs will increase prices.

Also, 29% of Americans said that if prices increase, they would immediately stop or make fewer purchases from sellers in China. More than 20% of Americans even said they would still shop at Chinese marketplaces unless the price hikes were more than 20%.