Temu had a memorable debut with a Super Bowl ad that promised shoppers they could “shop like a billionaire” because its prices were so reasonable — a compelling offer for both frugal and stretched American shoppers. Temu provides all the elements of a viral shopping app: a constant stream of products across more than 200 categories, the prices of a fast fashion retailer and a game-like user experience that could be mistaken for something from Minecraft. It’s able to offer cut-rate prices by allowing Chinese manufacturers to sell and ship directly to US shoppers. 

In this sense, the comparison to Amazon is obvious. But there are a few critical distinctions between Amazon and Temu that suggest they’re courting very different customers. While few can pass up a bargain, almost half of all Amazon shoppers are considered high income, according to estimates from Numerator. They can — and want to — pay more for fast shipping with Prime, the company’s paid subscription service. Relative to Amazon, the speed of Temu’s free shipping is rather slow, ranging from nine to 20 days. Temu also has a tight returns policy compared with Amazon Prime, which might turn off shoppers willing to pay a bit more for more lax returns. Amazon seems indifferent to the new competition from Temu. It excluded the site from its price-matching policy in June because Temu doesn’t meet its quality standards, suggesting that even Amazon believes the two are in quite different retail lanes.

Yet for dollar stores, Temu poses a challenge. Retailers such as Five Below and Dollar Tree offer shoppers an affordable way to buy general, everyday goods such as toilet paper, toothpaste and no frills dinnerware. But in the last year, they’ve seen a dip in purchases on higher margin, nice-to-have items such as toys or party supplies as their core customers buckle under elevated inflation. Even Dollar General, which sells groceries, has reported softer sales, with customers coming into the store more often but buying fewer items, Chief Executive Officer Jeffery Owen said on an earnings call earlier this year. This is where Temu has an edge. Its prices are so low that it makes shopping online affordable for people who are just making ends meet — as long as they’re willing to wait.

Low-income households are increasingly shopping online. Before the pandemic, high-income shoppers made up the bulk of e-commerce sales. But that dynamic is beginning to change. Over the course of the pandemic, low-income households increased their online shopping for basic essentials at a slightly higher rate than those with household incomes over $100,000, according to Ken Cassar, vice president of omni thought leadership with NielsenIQ. Households with incomes below $25,000 increased their online spending on essentials from 10% to 14% between 2021 and 2023 while those with incomes over $100,000 increased their spending from 16% to 19%, he said. Temu may have finally figured out how to sell to low-income shoppers online where retailers including Amazon and Walmart Inc. have struggled. 

To be sure, low-income consumers still prefer to shop in-person, largely because it allows them to better control their spending. And dollar stores make it easy for these shoppers to buy what they need right when they have the funds available. Temu can’t replace that kind of convenience. Besides, its suspiciously low prices may not be sustainable for the long term. PDD hasn’t reported Temu’s financial results, telling investors that it is still in an experimental phase. At some point, though, investors will want to see whether it’s a money pit — that’s if US legislators don’t get some answers first. 

So while Amazon may be able to live comfortably side-by-side with the newcomer on the block, dollar stores may be in for some misery.