PDD Holdings – owner of China’s latest e-commerce giant and Alibaba’s main competitor, Pinduoduo – entered the Canadian market last month.
Following the company’s expansion to the United States last fall, its North American online shopping site Temu is now the No. 1 app in Canada, according to SimilarWeb, which ranks Apple App and Google Play store apps based on usage, new users and engagement.
PDD's successful push into Canada has put more pressure on B.C. businesses, which already face challenges competing with Amazon and other e-commerce platforms. Temu offers a wide variety of products directly from China at competitive pricing – a phone charger cord for $2.88, for example, and five pairs of socks priced at $1.99.
“Small businesses, local family-owned businesses and even small specialty chain stores will be impacted the most by Temu,” said James Wang, adjunct professor in marketing at the University of British Columbia’s Sauder School of Business.
“These stores do not have the pricing power nor the brand power to compete long-term with Temu.”
Pinduoduo, founded in 2015, is the fastest growing e-commerce platform in China, mainly due to its unique business model: Users are encouraged to share Pinduoduo’s product information on social networks and invite their contacts to form a “shopping team” to get a lower price for their purchases.
Temu doesn’t have the “shopping team” function but offers constant sales promotions and various incentives to encourage users to share product information or invite family and friends to sign in. The platform also offers free shipping, which takes one to three weeks, on all the products.
“It's an addictive user experience on the app. It uses what we call gamification, where you can get discounts, free gifts, etc. if you do specific things like referring a friend, writing a review,” said Wang. “That’s why we see Temu blowing up and exploding.”
“[The incentives] might change in the future but now they just want to expand the market and grab market share from other North American competitors. Temu is owned by [PDD] which has over $90 billion market capitalization, so they have the capital to do it.”
David Soberman, professor at the University of Toronto Rotman School of Management, said Temu is going to be “disruptive” to local retailers, who are now more pressured to sell unique products and services or products that people need quickly.
“There's always going to be a role for traditional retailers. But if it's something that is very standardized, you know that if you can order it online at probably half the price, and you don’t need it right away, you are going to end up ordering it online,” said Soberman.
Despite the pressure on local businesses, Soberman said it is to consumers’ benefit to have more competition in the Canadian e-commerce space because it will pressure existing North American competitors selling similar products to reduce their prices.
“We do not benefit when a company like Amazon controls 45 per cent of online retail – that's not to our benefit but a disadvantage, so I think this is a good thing,” he said.
PDD is the latest of several Chinese e-commerce giants to have entered Canada, including AliExpress, JD.com and Shein – which ranked as the second most-downloaded e-commerce app in Canada.
The platforms all offer competitive pricing supported by low-cost manufacturers in China and Canada’s $150 duty-free policy. Free shipping is also offered for all products or above a certain purchase amount.
“E-commerce in Canada is a growing market and there's predictions that the market will continue to grow at about 10 per cent, so there is huge potential for both Canadian and international sellers to enter into the market,” said Anastasia Ufimtseva, program manager in business Asia at the Asia Pacific Foundation of Canada.
The U.S. is currently the dominant player in the Canadian e-commerce market, accounting for almost 50 per cent of the market. China is a close second, making up 42 per cent of the Canadian e-commerce market, according to data from Statista.
Ufimstseva said the entry of Temu will further grow Canada and China merchandise trade value and potentially result in greater Canadian dependence on Chinese merchandise imports.
As for data security concerns – like those expressed in Canada and the U.S. about the social media app TikTok, owned by Chinese company ByteDance – Soberman said there is less to worry about with e-commerce platforms like Temu.
“I don't think that's as big an issue with a website where people are very transactional in nature,” said Soberman, explaining that e-commerce users are not revealing their political opinions or seeing ads and information that could influence the political landscape in Canada or North America, which is a big part of the concern over TikTok.
But certain purchase information, said Soberman, is more private than others, such as records of people purchasing certain health-related products that, for example, insurance companies might pay to have access.
“If that information was then not secure, that will be a concern. But I think overall, the concern would be much lower for an app like Temu than it would be for a platform like TikTok.”
PDD Holdings Inc. (PDD) is a U.S.-listed company formerly known as Pinduoduo Inc. – the company made the name change in February. Previously based in Shanghai, PDD is now headquartered in Dublin, according to the company’s regulatory filings.
Temu did not respond to BIV’s interview request.
This article has been updated to reflect the correct name of Temu's parent company, which was changed to PDD Holdings in February from Pinduoduo.