How Temu's EU Digital Services Act Breach Affects E-Commerce

In recent years Temu has taken the world - and its supply chains - by storm. 

Its market reach and influence has grown exponentially, particularly in the EU and US markets. The e-commerce giant boasts more than 292 million active users across the globe as its Gross Merchandise Volume grew from US$14bn in 2023 to US$70.8bn in 2024. 

Temu has acted as a disrupter in the e-commerce space during this time, harnessing a direct to consumer (D2C) approach by cutting out retailers. It is therefore able to offer ultra-low prices across almost all product categories,  including the likes of furniture. 

This demand-driven planning model gives it a competitive advantage compared to traditional supply chains, but its white label products also attract unwanted regulatory attention. 

After an investigation, the European Commission has now found Temu to be in breach of the Digital Services Act, citing a "high risk for consumers in the EU to encounter illegal products on the platform."

The investigation was opened in October 2024, focusing on the effectiveness of its consumer risk mitigation measures, use of addictive design featured, transparency of systems and data access. 

This latest development marks a significant point in regulatory history - setting a standard for other ultra-low cost e-commerce platforms. 

Temu’s risk assessment from October 2024 was deemed inaccurate, relying on generic industry information rather than specific data about its own marketplace. This oversight likely led to inadequate measures to prevent the sale and dissemination of illegal products, such as baby toys with toxic chemicals or small electronics that do not meet EU safety standards.

The breach highlights serious consumer safety concerns, as there is a high risk that EU consumers might encounter non-compliant, unsafe or counterfeit goods on Temu.

Temu does have the opportunity to defend itself against these findings, as it examines the Commission's investigation and replies to the findings. 

However, this preliminary finding could expose Temu to potential fines of up to 6% of its global annual turnover and could trigger enhanced regulatory supervision to enforce compliance.

Pressure from competition

Temu’s low-cost appeal is clear, but scrutiny over safety, labour and logistics poses mounting risks.

Temu shares almost all its customers with the likes of Amazon, Walmart and Target. More than 96% of its users also shop with the first two, while 84% also use the latter. This overlap means reputational risk could have a larger impact on the company; if customers begin to worry about Temu’s reliability or ethics, they may decide to stick with the alternatives.

Still, Temu undercuts these bigger retailers on price and that advantage is hard to match. Amazon and Walmart can’t always match that because of their more complex, regulated operations.

That said, Temu's customer base is also generally more focused on price than on sustainability or ethics, meaning the impact of bad press may be limited.

Temu’s mobile-first, heavily gamified shopping app has helped it gain popularity fast—especially among younger users. Between 2023 and 2024, it overtook Shein in sales growth despite entering the market later, signalling strong momentum. However, the trade-off for low prices is longer delivery times and lower-quality goods when compared to Amazon.

Regulatory risks grow

Regulatory issues now present a bigger problem.

Consumer trust hinges on the expectation that products sold in the EU meet regulatory standards and are safe to use. The EU’s Digital Services Act demands that platforms protect users from illegal or unsafe products but, whilst it is reported that Temu said that it “will continue to cooperate fully with the Commission," its failure to guarantee product compliance has eroded trust.

With new rules targeting online sellers, regulators are demanding stronger risk assessments and mitigation strategies.

Temu relies on vast volumes of cheap, small parcels from Chinese suppliers. In the US, more than one million of these arrive daily, overwhelming delivery systems. This high-volume, low-cost model exploits customs loopholes like the US$800 “de minimis” exemption in the US or the EU’s €150 threshold, which allow parcels to enter duty free. New 2025 laws aim to close these gaps.

Its supply chains are also hard to trace. Many suppliers are small or unverified, raising concerns over forced labour, poor working conditions and environmental damage. Without transparency, Temu struggles to meet due diligence and compliance standards.

Whilst the full investigation is ongoing, the world is watching closely.