Temu, the fast-growing Chinese e-commerce platform selling $4 home decor and $10 shirts, is successfully taking on U.S. dollar stores including industry leader Dollar General (DG.N), according to the latest market share data.
As of last month, Temu accounted for nearly 17% of market share in the United States within the discount stores categories, according to data analytics firm Earnest Analytics. That compares to 8% for the dollar chain Five Below (FIVE.O), 43% for Dollar General (DG.N) and 28% for Dollar Tree.
Temu launched in the United States in September 2022 and quickly became popular through its use of social-media influencers to tout its merchandise as better and more affordable than traditional stores.
"Its (Temu) low prices on household goods and consumer staples makes it more of a threat to brick-and-mortar discounters like the dollar stores than other online marketplaces," said Michael Maloof, head of marketing at Earnest Analytics.
Temu sells apparel including $12 dresses and $20 sneakers, while also offering similar holiday decor, storage containers and toys as dollar stores. Analysts expect it to generate more than $16 billion in revenue this year as it expands internationally.
"Temu has the advantage of novelty and excitement that is hard to re-create for staid low-end discount retail brands," said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
Temu, Dollar General, Dollar Tree and Five Below did not respond to requests for comments on the research. The U.S. dollar stores have said previously they do not see an effect from Temu on their sales because of relatively smaller online presences and differing customers.
While dollar stores have maintained strength among customers buying necessities like food, beverages and items like detergent, they are dealing with a shift in consumer demand and also struggling with operational missteps.
Dollar General has cut its annual profit forecast three times this year as budget-conscious shoppers have cut spending on higher-margin discretionary goods and shifted to buying more lower-margin consumable goods.
Margins have also fallen at dollar stores because they are marking down merchandise to clear excess inventory and like many retailers are also being hurt by retail theft.
Tennessee-based Dollar General has seen the steepest decline in market share compared to competitors, according to Earnest Analytics. It held a 43% market share in November, down from about 57% in January. Dollar Tree's share slid nearly four percentage points from 32% in January to 28% in November.
Temu is benefiting from shopper fatigue with high prices and inflation, said Peter Earle, an economist at the American Institute for Economic Research, a libertarian, free-market think tank. Temu's parent company PDD Group (PDD.O) said revenue rose by 94% to 68.84 billion yuan ($9.62 billion) in the quarter ended Sept. 30 from a year ago.
Temu uses a network of China-based manufacturers of cheap personal electronics, clothes and home goods. Factories and merchants on Temu send merchandise directly to Temu shoppers, using a trade exemption that allows shipments under $800 to enter the U.S. duty-free.
"Temu with their 'shop like a billionaire' slogan has mastered gamification and rewards to make online shopping fun, easy, and cheaper than the dollar stores," Running Point's Schulman said.
