• An e-commerce app focusing on selling cheap goods to overseas consumers, Temu made its foray into Asia through Japan and South Korea in July.
• In Japan and South Korea, Temu has overtaken Shein by staying at the top of shopping app rankings in those locations for a longer period of time, according to data.ai analysis shared with CNBC.
• Temu is backed by Nasdaq-listed Chinese tech giant PDD Holdings, which also owns China-based e-commerce app Pinduoduo.

Chinese low-cost retailer Temu is dominating app stores in Japan and South Korea in its category, dethroning rival Shein after its successful expansion in Western markets.

"Temu has rapidly expanded its footprint beyond the U.S. and into a number of international geographies and we believe is now available in 40+ countries ... where we continue to see opportunities for growth in the quarters ahead," said Goldman Sachs in an Oct. 4 report.

The investment firm estimated that Temu, which is owned by PDD Holdings, "now generates more than $1 billion of [monthly transaction value]" and expects "continued growth into second half 2023."

Its rival Shein was estimated to be on track to hit $30 billion in transaction value in 2022, according to media reports.

Temu has overtaken Shein in Japan and South Korea by staying at the top of shopping app rankings in those locations for a longer period of time, according to data.ai analysis shared with CNBC.

Since its July launch in Japan to Nov. 2, "Temu has ranked #1 by daily iOS & Google Play shopping app downloads in Japan for 101 days out of 124 days," said the app analytics and data company.

By comparison, Shein spent just 17 days topping the two app stores in the same period in Japan.

Temu was the fastest to reach four million downloads in Japan, taking around 121 days, compared to Shein which took 155 days, according to data.ai. Japanese marketplace Mercari took 427 days and Amazon 660 days, the data showed.

Similarly, in South Korea, Temu ranked No. 1 by daily iOS & Google Play shopping app downloads for 65 days out of 93 days from Aug. 1 to Nov. 2, overtaking Alibaba's AliExpress (25 days) while Shein ranks among the top 5.

Among the top shopping apps in South Korea, Temu was the fastest to reach 2 million downloads at around 88 days. Shein took 382 days while AliExpress took 366 days to hit the same milestone.

Temu and Shein's rivalry extend outside the e-commerce space to the courtroom. Shein sued Temu in December over intellectual-property infringement while Temu accused Shein in July of threatening and forcing manufacturers into exclusivity agreements. But recent documents showed that both parties have applied to end their lawsuits against each other.

Temu's rise

Temu is backed by Nasdaq-listed Chinese tech giant PDD Holdings, which also owns China-based e-commerce app Pinduoduo.

Launched in the U.S. in September 2022, Temu was PDD's first major push overseas and quickly found success among budget-conscious consumers.

In just a few weeks, the Chinese ecommerce app rose to the top of app stores and subsequently expanded rapidly across countries such as Australia, New Zealand, France, Italy, Germany, the Netherlands, Spain, and the U.K.

Headquartered in Boston, Massachusetts, the Chinese online retailer focuses on selling made-in-China goods, from fashion to household products, at low prices to overseas consumers. Similarly, Shein relies on contracted manufacturers, mostly in China, to design, produce and ship its low-priced products.

Temu made its foray into Asia through Japan and South Korea in July. It then entered the Philippines on Aug. 26 before launching in Malaysia on Sept. 8.

"We believe the main reason for [PDD's] 131% year-on-year growth in transaction service revenues and 135% year-on-year growth in cost of goods sold in second quarter 2023 was related to fast ramp of Temu performance," Citi analysts said in a Aug. 29 report.

The platform has been expanding rapidly since its launch by leveraging its parent company's strength in supply chain and marketing.

"Much of PDD's incremental investment dollars have been deployed to make Temu happen," said Bernstein analysts in a Sept. 15 report, adding that Temu's multi-million Super Bowl advertisement "solidified Temu's mind share for a number of its target customers."

"We believe that Temu's rapid rise in popularity was supported by the company's elevated marketing investments, its low prices and focus on promotions, and to the success of its referral campaigns," said Berstein's analysts.

The analysts said they expect to see "an increase in the number of active users and order volume" in Temu contributing to non-U.S. transaction value and "increasingly contributing to growth from here."

In June, the U.S. House Select Committee alleged that Shein and Temu violated import tariff law by importing goods into the U.S. without paying import duties or making shipments subject to human rights reviews.