When Temu launched (for the second time) in September 2022 at the Superbowl in the USA, two ad slots with the simple message ‘Shop like a billionaire’ cost them roughly $14 million. They recorded a revenue of $18.93 billion for the same year and reached over 19 million downloads of the app.

What is their business model?

Affordable – like really cheap prices – items, free shipping, and fast delivery (fast-fashion).

Introducing Hollar, a US startup that launched in 2015 as an online dollar store selling anything from kitchen accessories to beauty products and toys, all for less than $5. Think about China Town on steroids and online. And just as a side note, they had VC backing of $75 million.

So by some quick logic if you compare Hollar to Temu – also selling cheap items, offering free shipping and 7-10 days waiting time which is very similar to that of Temy or SHEIN. And arguably had the money to also do two Superbowl ads if they wanted to.

So why the comparison?

Well, why did Hollar fail? It seems like a great idea if you look at the popularity of these fast-fashion online retailers nowadays.

Two crucial factors seem to have been the cause for Hollar’s failed business.

#1 Assuming what worked in a brick-and-mortar store would work online

Don’t get me wrong, I’m not saying you shouldn’t make assumptions about taking your business to different contexts. In fact, you should always look for ways to expand your business into new environments or contexts.

But the key here is to take the things that work in one context and test them in the next before going all out. There were a couple of assumptions that Hollar made about e-commerce that didn’t work out exactly as planned – and it cost them:

• Rarely does a store place a limit on the amount you can buy of something (except toilet paper during the Covid-19 pandemic). Hollar had limited editions of most of their items to manage stock, so they limited purchases of items. This must have been infuriating for customers. Not to mention the frustration of coming back for more and the product is out of stock.

• People buy multiple items in a dollar store as impulse buys. They don’t necessarily come for that item but spot it and put it in the basket. The assumption was that people would do the same online. To be fair – I thought this was a reasonable assumption but perhaps the urgency was lacking. On Temu you often get discounts but there is a time limit if you spend X amount so they create an urgency to influence the customer to spend more money and buy extra items. On Hollar, people still only bought one item most of the time, perhaps because there was not enough encouragement to ‘browse’ more?
• They made up the cost of free shipping (over $25) because of the previous assumption – people would buy multiple items. But the joy of buying from a cheap store is to go home and unpack your basket full of goodies, right? With Hollar people wanted a specific item and it was great not to pay for shipping but they had to wait 7 – 10 days. That affected the experience. Customers wanted faster fast-fashion or they wanted 1 or 2 items but were not willing to pay for shipping. I mean, isn’t the Temu free shipping one of the biggest attractions right now!?
• Poor customer service. The company closed in 2020 so perhaps these reviews from 2019 were their last breath but multiple complaints centered around poor customer service, no communication, and broken or damaged packages arriving at their doorstep. This is a death sentence for an e-retailer if it is a reoccurring problem.

#2 It comes back to timing

It’s like one of those obvious things that you know, but you don’t really know until you stare it in the face and you REALLY know.

Okay now you’re wondering – What the heck is that all about now?

What I mean is simply that we know timing is important for a startup to succeed. I’ve seen it in the startups I was involved in. I tell people about it. It makes sense.

But the time I spent researching failed startups in the last year to flesh out their mistakes highlighted just HOW IMPORTANT timing really is. Hollar could’ve been a big success today but something was missing a the time they launched.

My takeaway

I honestly don’t think the Hollar store did much wrong if I look at the success of Temu and SHEIN that are also playing in the same field – cheap and fast-fashion. Besides the customer service component I think had they tried their hand at the dollar store a few years later they might have done better.

But they underestimated two things.

Trust in online purchasing

Customers’ trust in online buying. In 2015 people bought online but with a lot of scams and security concerns consumers took much longer to purchase from a new online store than today. If you haven’t shopped at Temu or SHEIN just bear with me, but I would not have even considered buying from them in 2015 or even 2019. Then Covid-19 struck and everything went online and suddenly it got easier.

And earlier this year when I was looking for a tiny little washer for my pressure cooker and no local company could help me out, Temu kept popping up with the exact washer I needed. I already bought from SHEIN so I had some trust. And then I was offered some discount, , free shipping and a bunch of random toys and kitchen stuff and 10 days later it arrived on my doorstep. From China. The last time my husband bought something from China it arrived a year later and broken. This was mind-blowing. I could use my pressure cooker again so I was ecstatic!

The wrong target audience

Hollar’s target audience was women (85% of their customers), and specifically millennial moms at the time. Maybe this was the target audience for dollar stores but if I take Temu as an example, their initial audience and probably biggest audience was teenagers. And this is smart marketing with the idea to ‘shop like a billionaire’. To target moms is limiting yourself big time. Teenagers are a gullible group but also the wealthiest teenage generation we’ve ever had and this is a powerful combination. They don’t buy for NEED, they buy for WANT and they HAVE money. And then there are those of us who need the odds and ends and still fall for the ‘10 minutes left to buy’ marketing trick.

And Temu does that well – it encourages you to buy more because everything is on special, timing (URGENCY) is forcing you to make a quick decision as well as constant little competitions like spin the wheel.

The Blue Ocean Strategy

I am convinced someone at Temu and SHEIN sat down and looked at the current online retail landscape with one question in mind – “How do I connect thousands of stores in China to the rest of the world?”

And here’s how I would describe their approach according to the Blue Ocean Strategy:

• Eliminate – Eliminate shipping fees. This might be temporary but it is a big attraction for consumers because it means they can spend more money without worrying about shipping costs.
• Reduce – It is almost mind-blowing how they managed to reduce the waiting time for packages to arrive from 6m – 12m to basically 6 – 12 days, as well as pricing. It is cheaper to buy internationally nowadays than locally.
• Raise – They made it their mission to raise trust in consumers to purchase items from China and return to buy more, through sound logistics. They use trusted couriers, payment portals, and processes to build trust in their consumers. SHEIN was the first mover and Temu totally took advantage of the trust that SHEIN created in consumers.
• Create – They created a tailored approach to consumers and made it personal. There is death by options but it uses data to show you what you might like based on previous purchases or if you click on one item, it shows you related items. So it doesn’t feel like you are walking through all the isles in China Town when you are just looking for some toys. It’s like an usher taking you through the store to where you want to go. In the comfort of your own home and in your pj’s

Look I am not endorcing Temu and SHEIN here, but they are clearly successful and that is the focus of this case study – why they became so successful when Hollar couldn’t get it right. Whether they will maintain their success in the years to come is yet to be seen but they most definitely unlocked some big doors between China and the rest of the world which will inevitably see more and more people push through to try their luck.

I am curious to see where this new journey takes us.