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An Emerging Threat to U.S. Retail Giants


An online marketplace that’s flying under the radar for many investors could pose a significant challenge to some prominent American retailers.

According to analysts at Morgan Stanley, Temu, a relatively new player in the market, operated by China’s PDD Holdings, is gaining traction with its focus on selling affordable products. The analysts, led by Edward Stanley, delved deep into the company’s potential and uncovered some intriguing details.

The Rapid Rise of Temu

Stanley’s team emphasizes the exponential growth of Temu’s popularity through web search interest. Comparing it to previous records, they highlight that Temu’s inflection point to half of its current peak has been four times faster than any other company. To put it in perspective, it has been 10 times faster than H&M and a staggering 15 times faster than Zara.

Impressive Expansion and User Base

Since its launch in the United States in September 2022, Temu has already expanded its operations to 47 countries. Its app has been downloaded a remarkable 223 million times, with 120 million monthly active users. What’s more, 43% of these users hail from the United States, indicating its appeal to American consumers. The company has managed to build a loyal following among young female shoppers.

Potential Industry Disruption

Stanley and his team suggest that while many investors are focused on other areas, companies that face substantial challenges from the rising threat of Temu could soon become the center of attention. Although they don’t explicitly mention which companies are at risk, the analysts imply that legacy incumbents need to be vigilant.

Assessing the Parent Company

The analysts acknowledge that PDD, Temu’s parent company, has emerged as the winner in this disruptive retail landscape. However, given the speed at which retail innovation is occurring, they remain cautious about setting overly high valuation expectations.

Share Performance and Challenges Ahead

Year-to-date, shares of PDD have seen a 24% increase. However, the company has also been impacted by China’s volatile economic progress. A short-selling report from Grizzly Research in September led to a 5% drop in PDD’s shares. The report labeled PDD a “dying fraudulent company” and highlighted Temu’s alleged use of cleverly disguised spyware that poses a security threat to national interests.

Despite the challenges, Temu’s meteoric rise and potential disruption of the retail industry cannot be ignored. As investors navigate this evolving landscape, staying informed about emerging players like Temu will be crucial for making sound investment decisions.

The Rise of Pinduoduo and Threats to US Retail

Pinduoduo: A Potential Security Concern?

At present, PDD (Pinduoduo) has not faced any regulatory action. However, Morningstar analyst Chelsey Tam defends the company by stating that if regulators raise concerns, PDD will take steps to enhance security on its apps. Tam further emphasizes that PDD is well-positioned in the market due to its vast network of merchants.

Emerging Competitors Threaten US Retail Giants

In September, UBS conducted research on the threats posed by competitors such as Temu, Shein, and TikTok to US retail. Analyst Michael Lasser and his team found that although most consumers were aware of these retailers, a lesser percentage had actually made purchases from them. Specifically, 34% had bought something from Temu, while 41% had done so from Shein.

Should these budget-friendly retailers gain more traction, UBS believes that Walmart and Target are at the highest risk of losing customers to them. According to the surveyed consumers, Dollar Tree, Family Dollar, and Five Below are also potential alternatives.

Projected Impact on the US Retail Market

If emerging players like Temu continue to grow and capture a greater share of the US retail market, UBS estimates that they could generate $33 billion in revenues by 2026. This is a significant increase from the current estimate of $10 to $15 billion. In comparison,’s projected North America sales for the full year 2023 stand at around $350 billion, representing 6% of total US retail sales and 25% of e-commerce sales.

Nevertheless, UBS analysts believe that mall-based retailers face a larger risk from the rise of e-commerce, giving Walmart, Target, Dollar Tree, Family Dollar, and Five Below a slight advantage.

Challenges for Emerging Retail Players

While potential disruptions from emerging retail players are a concern, there are several factors that could limit their impact. These include long delivery times of up to two to three weeks, inconsistent product quality, challenging return experiences, the absence of physical stores, and the robust foot traffic seen at established US retail giants.

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