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Temu first courted domestic merchants who were looking to shift excess inventory, promising them a burgeoning new market of comparatively wealthy consumers.
Since then, however, it has increasingly relied on factory manufacturers, and pitted them against one other. Each Monday the company holds a “reverse auction”, asking manufacturers to compete to offer it the lowest possible price for staple goods.
Suppliers are punished for too many faulty goods, or items that arrive late – or threaten to crowd warehouses by arriving too early. Temu sets prices, often applying a markup of several times what it pays manufacturers. Merchants are not paid if items stored in Temu warehouses are not sold out within seven days, even if the company later sells them.
One Chinese report described the company’s strategy as like boiling a frog: suppliers would never accept Temu’s terms at the outset, but they have slowly been cooked.
Temu’s own workplace is reportedly equally Darwinian: a “horse racing” strategy pits teams against each other to build new features and services. Teams who fail are disbanded, with managers demoted and employees occasionally cut.
Temu’s other weapon has been a non-stop marketing blitz. Temu has not only followed TikTok’s lead by spending huge sums on Facebook and App Store adverts, it has enlisted its own users to sign up new ones by offering them credit and free items.
Those who do register are subjected to a bombardment of emails and app notifications (a slew of text messages drove one disgruntled consumer to sue the company in May, claiming it amounted to being harassed).
If this sounds like a recipe for losing money, you would be correct. The combination of shipping costs, discounting and giveaways means Temu is losing an average of $30 per order, according to Wired, a huge loss considering the average order is just $25.
“You can’t sell goods for $2, when it costs $20 or $30 to produce and ship them. That’s just not a sustainable strategy,” says Sky Canaves, an analyst at Insider Intelligence, who says she expects prices to rise in future.
Temu can afford to lose billions for now, however. Profits at its US-listed parent company PDD tripled to $1.2bn in the first quarter of the year, driven by the success of Pinduoduo, its Chinese operation. Temu reportedly expects to break even in 2025.
That assumes nobody stands in its way, which is hardly guaranteed. Temu’s rise has come with increasing scrutiny of its Chinese ownership, which conspicuously avoided much of the Communist Party’s tech crackdown of 2021. Temu’s website says the app was founded in Boston, and its holding company moved headquarters from Shanghai to Dublin earlier this year.
That has not stopped pressure from US politicians, however. Last month, a Congressional committee said there was a “high risk” that the site contains products made using forced labour in Xinjiang.
Montana, which is due to ban TikTok from next year, has said the app should not be used on government devices. In March, Pinduoduo was removed from Google’s app download store over security concerns.
For now, though, Amazon seems rattled. The retail giant has refused to include Temu in its famous price matching scheme, saying that the company did not meet standards such as those guarding against counterfeits. Some Chinese sellers have claimed that the company has started discounting goods in an effort to compete.
“Amazon has spent the last two decades training consumers that they should expect very fast delivery and infinite selection,” says Juozas Kaziukėnas, of research firm Marketplace Pulse. “But obviously they can never be as cheap as what Temu is.”
Temu did not respond to requests for comment.
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