Why is Temu Facing Regulatory Scrutiny?

In recent years, Temu's rapid rise in the market has sent ripples through global supply chains.

The company's exponential growth is notably prominent in key marketplaces such as the EU and US, where its Gross Merchandise Volume escalated from US$14bn in 2023 to US$70.8bn in 2024.

With over 292 million active users worldwide, Temu has redefined price competitiveness.

By embracing a direct-to-consumer model, which eliminates traditional retail intermediaries, Temu offers products across diversified categories like furniture at exceptionally low prices.

However, the company's cost-driven approach, particularly involving white label products, has not escaped regulatory scrutiny.

Following a comprehensive investigation, the European Commission identified infractions of the Digital Services Act, cautioning against the "high risk for consumers in the EU to encounter illegal products on the platform."

The October 2024 probe scrutinised Temu’s consumer risk mitigation measures, examining features like addictive design elements, system transparency and data accessibility.

These regulatory findings draw a line in compliance sands, serving as a benchmark for other low-cost e-commerce entities.

Temu's risk appraisal has been critiqued as reliant on generic industry standards rather than tailored insights, potentially compromising its preventive strategies against the sale of non-compliant goods.

This lapse has led to the availability of unsafe products like toxic baby toys and uncertified electronic devices.

Competitive pressure intensifies

While Temu’s pricing strategy is a primary draw, increasing safety, labour and logistical challenges are escalating operational threats.

Temu shares its consumer base with well-established retailers such as Amazon, Walmart and Target, with cross-shopping percentages as high as 96% for the initial two and 84% for the latter.

This customer overlap could magnify reputational damage should concerns regarding Temu’s reliability and ethical standing escalate.

Nevertheless, Temu's ability to outprice these competitors remains a formidable edge, as its competitors cannot mirror such prices due to their intricate and regulated frameworks.

Even though Temu's clientele seems more price-sensitive, its market perception could be resistant to immediate fallout from adverse press.

Encouraged by a mobile-focused, gamified shopping experience, Temu has captured younger demographics swiftly.

From 2023 to 2024, it even surpassed Shein in sales growth, despite launching later.

However, its low-price offerings come with trade-offs, such as longer delivery times and comparatively subpar product quality against Amazon.

Mounting regulatory challenges

For Temu, compliance and safety concerns now loom larger than ever.

EU consumer expectations mandate that all products meet regulatory safety standards.

The Digital Services Act compels platforms to safeguard users from illegal or dangerous products.

As enforcement tightens with new provisions targeting virtual commerce, regulators stress robust risk assessments and intervention strategies.

Temu's reliance on vast imports of economical parcels from China strains logistics systems, with US arrivals exceeding a million parcels daily.

This operational model exploits loosely controlled customs thresholds like the US$800 "de minimis" or the EU’s €150 limit, which the 2025 trade regulations aim to cinch.

The obscure nature of Temu's supply chains, compounded by numerous small, unverified suppliers, raises concerns about labour exploitation, inadequate work conditions and ecological harm.

This lack of transparency challenges Temu’s compliance and due diligence capability.

As the regulatory investigation progresses, the scrutiny Temu faces is under global watch.