Buyers want to “clear inventory at 0 yuan”? Temu loses $30 for each order

Backed by the strong financial strength of its parent company, Temu has become famous in multiple markets for its ultra-low prices. It opened 17 sites in just 9 months after its launch, but its business model has always been a focus of discussion in the industry, and the platform's reputation is severely polarized.

Loss of $30 per order , Temu generously supports buyers

8 makeup brushes for only $0.79; 5 pairs of socks for $1.77; 1 lipstick for $1.52... Prices like these can be found everywhere on Temu. Most importantly , all products on Temu are free shipping and have a 90-day return period.

Is there really a profit at such a price? The answer is questionable.

British media WIRED stated in a report that Temu insiders confirmed that Temu lost an average of $30 per order in its attempt to enter the US market .

Data from Haitong International Securities and multiple analyses of shipping costs by WIRED indicate that even a small package costs around $14 to ship from Guangzhou to the United States . Although some logistics practitioners say that the shipping fee is only a dozen yuan, Temu has a time limit commitment to buyers and will pay compensation if the package fails to arrive on time. In addition, some sellers say that free shipping is only available if the purchase is over $20 . The combined shipping cost is indeed like this .

Insiders also said that J &T Express ( Jitu International ) borne part of the cost, but Temu still had to pay US$9 to US$10 for each shipment .

At the same time, each order also includes costs such as discounts and cash coupons , services and management , so Temu loses an average of about US$30 per order in the United States .

This figure was also confirmed by the insider . He also said that Temu 's goal is to allow Americans to purchase 30 times on the platform each year , with an average order amount of US$50 , while the current average transaction amount is US$25.

Previously, a survey by China Merchants Securities showed that Temu loses RMB 4.15 billion to RMB 6.73 billion every year. But the actual loss may be much more than that.

Although Temu ’s actual daily order volume has not been disclosed , the latest data shows that the platform has an average of 200,000 orders per day , with a peak of 500,000. If we calculate based on “200,000 orders per day , and a loss of $30 per order ” , Temu loses $6 million per day, and the annual loss reaches $ 2.19 billion .

In China, Pinduoduo has gradually expanded its market share by relying on low-price subsidies. In order to differentiate itself from Taobao and JD.com, Pinduoduo targeted low-income people when it first went online. Now it has successfully harvested this group, with both revenue and net profit.

In terms of the first quarter financial report this year , the revenue growth of Pinduoduo's competitors has almost stagnated, and their net profits have largely relied on cost-cutting measures such as layoffs and cutting business lines. However, Pinduoduo's revenue exceeded 37.6 billion yuan, an increase of 58%; its net profit exceeded 8.1 billion yuan, an increase of 212%. This is the fourth consecutive quarter that its growth rate has been above 35% .

Perhaps it is because the domestic market growth rate has outperformed that of its competitors that Temu can spend money without any worries.

After going overseas, Temu followed the general route of Pinduoduo, targeting Asians and buyers with an annual household income of less than $30,000. Therefore, against the backdrop of a slightly pessimistic economic outlook, coupled with crazy viral marketing, its user pool has expanded rapidly and the market has expanded to 17. It is also reported that Temu plans to invest $1.4 billion in marketing in the United States this year and $4.3 billion next year .

The platform’s low prices make buyers “crazy”, but it is obvious that sellers cannot empathize with this happiness.

After lowering the price again, Temu buyers asked for "clearing inventory for 0 yuan"

" You're contributing both money and effort. If you join the market now, you're just providing free labor to help the platform occupy the market. How long can you play this charity game without profit? "

In order to provide consumers with lower-priced products, Temu buyers bargained frantically during price verification. "If the decimal point is moved forward, you will lose so much money that you will doubt your life," a seller complained to Ennet.

It is reported that this situation has become the norm, with the recommended price being 2.5 for a declared price of 25, and 1.99 for a declared price of 19.9. These devilish bargaining methods drive the sellers crazy. Some buyers even get things for free in the group, asking the sellers whether they want to clear out their inventory for free .

Temu sellers have no autonomy in pricing . "If you are unwilling to lower the price, the platform will delete the corresponding listing , and the large amount of goods you have prepared will become a hot potato, and you will suffer losses for no reason. If you cannot give the platform a satisfactory declared price, you will not be able to sell a single order. "

" When we first went online, they invited us very politely and sincerely, but after we actually entered the platform, it was harder than climbing to the sky to make a profit ," the sellers interviewed also told Ennet. "The profit was 15-20 points, which seemed considerable, but it was all deducted by the 5-fold fine after the sale."

If the price is not as good as the platform wants, at best the traffic will be reduced, at worst the product will not be put on the shelves . Temu, which holds the "power of life and death", will be firmly controlled by sellers who become "supply tools" .

Faced with all kinds of unfair treatment, many Temu sellers have become disillusioned with the platform, saying that although Temu is still inviting them to list more new products, this invitation is doomed to fail , " the profit is low and the platform is too harsh, it is not worth long-term investment . "

" Small sellers only play a transitional role in Temu's supply chain . We test products for the platform, and once the products become popular, we are eliminated. Then the top supply chains for the corresponding popular products enter the market ," a seller told Ennet.

The full-hosting model that Temu popularized is essentially "lower supply price + strict quality control", so some sellers believe that in the end there will only be one listing and one supplier for each product, and the one with the lowest price will win.

Temu has advantages such as high traffic, easy order placement, and low threshold , but its disadvantages are more obvious, such as price reduction, increasing volume of new products, soaring warehouse costs, increased inventory risks, increasingly "outrageous" fines, invisible data, and uncertainty in platform rules . As the platform becomes increasingly stringent, these advantages and disadvantages are no longer enough to offset each other.

In the future, Temu sellers may lose their profit margins completely.

Currently, goods entering the US market are tax-free as long as they do not exceed US$800, and the vast majority of products on Temu meet this tax-free condition. However, many local companies in the United States have suggested lowering this "minimum" threshold to US$10.

In addition, Temu's logistics partner J&T Express also offers lower prices, but as J&T Express 's listing progresses, its service fees may change . The close scrutiny of US regulators will also put some cost pressure on Temu.

Behind all the risks, if Temu sellers want to successfully replicate the Pinduoduo model overseas, maintain low prices and gain more profits from it, they will eventually bear greater cost pressure from the platform. In this way, the statement that "the ultimate goal of the platform is the supplier resources behind the sellers" is not groundless.

" Instead of paying too much attention to what our competitors are doing, we are more focused on how to grow in the competition ," said Pinduoduo's co- CEO Zhao Jiazhen at this year's Q1 earnings conference . But is the source of this growth momentum based on the exploitation of sellers?

Temu

Seller