How long can Temu's delicate relationship with Chinese factories last?

Temu was pushed to the podium by Pinduoduo's third quarterly report, but behind the glory, Chinese factories have silently shed tears.

In the latest financial report data, Pinduoduo's total revenue doubled. On the night of the release of the financial report, the market value of Pinduoduo directly approached Alibaba, creating a historic moment for e-commerce.

Behind the rapid growth, all parties have to owe it to Temu, which is hidden.

Guohai Securities analyzed in the research report, "We estimate that the revenue contribution of Temu in 2023Q3 will be about 16.2 billion yuan, which will drive the transaction commission income to exceed expectations, mainly due to the strong growth of GMV, the enhancement of the scale effect of platform procurement and the increase in take rate driven by the decline in subsidy rate."

According to 36Kr, Temu's sales in the third quarter of this year have exceeded $5 billion, and on the first anniversary of its launch in September, the single-day GMV even reached $80 million. According to this trend, after "Black Friday" and Christmas, Temu will be able to achieve its total annual sales target of 15 billion. CICC is even more optimistic that Temu's annual GMV will reach $18 billion.

However, how brilliant Temu is on the surface, how broken the defense of the Chinese factory is behind it.

On social media, Temu is known as the "price butcher", using the full custody model to infinitely lower the shipping price, and the profit margins of merchants are infinitely squeezed. However, at the same time, the fully managed overseas model is accompanied by high warehousing and management costs, and the huge gap overwhelms merchants.

"400,000 orders profit of 7,000 yuan", "Temu 0 yuan purchase has become the hardest hit area! Sellers are going crazy by only refunds", since October, many Temu merchants have begun to withdraw from the store collectively, and even give up the store deposit of 1,000 yuan.

"It's not that foreign trade has not been done, but low profits, high odds, and there is no return, I really haven't seen it before, and everyone says so about Temu. Zhang Fan (pseudonym), the owner of the hat factory, preached to us.

To this end, "Self Quadrant" chatted with a number of Chinese factory owners, trying to recreate their real experience of opening a store in Temu.

1. Lose 200W in half a year, and the factory was "cut a knife"

At the end of 2022, Chen Ran (pseudonym), who has not started work, is facing loan maturity and huge compensation.

Chen Ran is the owner of a perfume and aromatherapy factory in Yiwu, and the main product is a one-to-one parity replica of big-name perfumes, which used to be sold to perfume processing factories in tons, and then packaged and labeled by Xiao B, and found channels to sell.

"After the epidemic, the factory did not start, the net loss was 4,000 yuan a day, the factory loan was about to expire, and the workers were also facing severance, but the domestic sales were really unable to move, there was no way, through a friend's introduction, opened a store on Temu. Chen Ran said.

If the factory doesn't turn on, it's a loss, so it's better to try Temu.

With this idea, Chen Ran invested money to open a packaging processing factory, labeled and produced C-end products, and two months later, Chen Ran opened 4 stores on Temu.

"Temu is now a fully managed model, which requires us to send the goods to his warehouse, and we need to pay a series of expenses such as freight, storage fees (rent), management fees, and operating fees in the early stage, the highest of which is the cross-border freight, but I think that as long as we can ship, the factory can be transferred. ”

▲ Screenshot of the background of Pinduoduo cross-border seller service

"The shipment passed, and the nightmare began. ”

According to Chen Ran, he does not know the specific price of the product on Temu and other sales conditions, and the full custody is a relatively closed operation.

About two months after the store opened, Chen Ran suddenly received a call from the customer service of the Temu platform. The other party told Chen Ran that the current sales of his products at the price set on Temu are not ideal, and then proposed two solutions: one is to reduce the price, and the other is to send it back to the factory from the warehouse, but the freight needs to be borne by Chen Ran.

After calculating the freight and profit margins, there is still some money to be made from the price reduction, and Chen Ran, who opened a store for the first time in Temu, agreed to a plan to reduce the profit by 50%. But the downward adjustment didn't bring a change in sales, and it didn't take long for Temu's customer service to call Chen Ran again for the same reason.

"The cost of 40 yuan, the selling price from 50 yuan to 45 yuan, from 45 yuan to 38 yuan for the final sale, from profit to flat in and out, after several communications, it has reached the level of losing money and clearing the sale. ”

Chen Ran sighed, "After calculating it back and forth, in less than half a year, I lost 2 million." ”

Whether it is on social media platforms or in the community, it is not uncommon for cross-border e-commerce people who have paid tuition fees to Temu to suffer huge losses or take small profits.

▲ Source: Social media platform Xiaohongshu

Due to the lack of profits, sellers who were willing to invest part of their funds in product research and development and product innovation could only rely on "volume price" to gain competitive advantages, so that in the end, whoever had the lowest price could sell it, and finally formed a vicious circle.

A typical case is that a seller on Temu who has a considerable number of orders sells 50,000 orders per month, but the gross profit is only a few hundred yuan, the profit of 400,000 orders is only 7,000 yuan, and the average profit of each order is less than 2 cents.

▲ Screenshot of the WeChat community from the source

"Temu's model only has a price reduction but no price increase, and the sellers who originally relied on price reductions to support the volume found that they couldn't go up, which is the biggest problem with Temu's mechanism. Zhang Fan said.

After a hurricane in the first half of this year, Temu has upgraded its platform regulations several times. Many sellers feedback: "Now the storage overdue fee is as high as 500 yuan a day, once the overtime is 7 days or more, the overdue products will automatically belong to Temu, and the overdue fees incurred during the period still need to be borne by the seller and cannot be deducted from the payment." ”

This is also the reason why many merchants leave the store but give up the store deposit.

"I wanted to liquidate the goods and cancel and get back the principal, but I was told that there was no relevant cancellation and refund process policy. In the face of these problems, the seller has no one to reply to the buyer, Xiao Er, or customer service, and the money lost by the inexplicable price reduction cannot be recovered.

At the same time, some new ways to play on the platform have also made things worse for merchants. In July this year, Temu launched the "0 yuan purchase" discount, an all-metal microphone, which is suitable for new customers who download and register for the first time on the Temu App, and the price is 0 yuan. However, many consumers have reported on social media software that part of the 0 yuan purchase is for new customers, but there is also a large part of the payment for the goods after confirming the receipt.

Consumers who have been "fooled" are dissatisfied, and they need to be refunded for damage to the goods, and they must apply for a refund if they are not satisfied, and according to the return and exchange rules of the Temu platform, once the consumer chooses "refund for quality problems", they can "refund only".

Overseas customers have never eaten this kind of "fine bran", so the wool party quickly attacked 0 yuan to buy, in line with the mentality of "no refund or loss", malicious "refund only" swarmed, forcing the merchant to the brink of collapse.

A merchant said: "After selling 200 orders, 190 orders were only refunded, and there may be a fine of 50,000 yuan from the platform because of quality problems." ”

As the snowflakes fall one by one, Chinese factories are on the verge of being crushed.

2. How long can Temu run wild?

When going to sea became a gamble of "one mistake and one loss", factories began to boycott Temu one after another.

"Now Yiwu has formed an alliance to boycott Temu, and many factories do foreign trade, on TT (Tik Tok) and AliExpress, but will not be on Temu. Chen Ran said.

But there are also factories that choose to stay.

Although the full custody model is like a black box, it does save the factory a lot of trouble of "only producing, not selling", after all, Amazon and AliExpress need to open stores at the front end, and many factories will only package and ship, and will not invest in streams and operate at all, not to mention self-built independent stations.

"The water of cross-border e-commerce is too deep, and various training institutions, payments, and customs, in order to save worry, it is better to go to Temu. "Li Ling (pseudonym) tried Temu for half a year, and even if the profit was meager, it was better than nothing.

Just as Pinduoduo was regarded as an exclusive channel for clearing inventory by factories when it first emerged, the huge base of Chinese factories and a steady stream of excess capacity have become the nourishment for Pinduoduo to grow up.

The same is true for Temu, which has found merchants in the entire industry chain who have demand such as clearance through low-price competition of goods, and can give prices below cost or even kill others.

However, unlike the domestic business, under the fully managed model, the low-price competition is only one-size-fits-all for warehousing and outing.

The platform is the referee and the controller, and the merchant can only adjust the price according to the requirements of the platform after entering the warehouse, but the price adjustment process is affected by the turnover cost of commodities and the loss of circulation links, and the calculation of the cost is lagging behind, and the payment period is also very long, which leads to many merchants, after a few months, they only know how much they have lost when they settle the accounts.

▲ Screenshot of the background of Pinduoduo cross-border seller service

There is another difference between Temu and Pinduoduo, although Pinduoduo is also low-priced, but it is actually the traffic ranking of search recommendations, which is the natural involution of the industry, not the platform to reach out to operate, merchants still have the right to decide on pricing, on and off the shelves, plus the goods remain in China, merchants are more flexible in the turnover of inventory on different platforms.

But Temu is different, as an overseas e-commerce, Temu has high transnational warehousing costs, for merchants, once the goods are unsalable, there is only one option, continue to reduce the price, otherwise what awaits them is the high storage cost, until this cost exceeds the value of the goods themselves.

So this is also the reason why merchants on Temu don't make much money when they make money, but they must lose empty when they lose.

In fact, Temu has also invested a lot in cross-border e-commerce, and they also hope to minimize the platform loss caused by the cost of merchant exploration, and change from an Internet celebrity to a long-term popularity.

For example, the buyer team with the most power is not only responsible for the investment promotion task of the merchant, but also connects with the merchant, involving telling the seller what products to offer, how to price, how to reduce the price... This is also the advantage of the fully managed model, through the collection of front-end data, the consumer trends are gathered, the platform analyzes the corresponding strategies and measures, and then deploys the merchants to strategize.

In this process, Temu also bears various costs such as operation, logistics, and warehousing.

In addition, Temu has high marketing expenses overseas.

In February this year, Temu spent $14 million to screen two commercials at the Super Bowl of the "American Spring Festival Gala", which not only set the highest price in the history of the event's advertising, but also became the youngest brand ever to advertise in the "Super Bowl". Recently, it was revealed that Temu has committed to buying multiple ad units during the Super Bowl on February 11 next year.

Merchants can't make money, and platforms are also burning money, although the imagination of revenue growth is huge, but where is the balance point of profit? How long can the Temu model last? These questions may have to be answered after Temu exploded.

Of course, if we look at Pinduoduo's cash flow, we can remain optimistic about the long-term battle, but from the perspective of the attitude polarization on the merchant side, the Temu model is not yet fully established.

After all, when merchants start to boycott collectively, even if the overseas market is large, how long can Temu's advantage last?

In this period of wrestling between Temu and merchants, a more important point is that while neither Temu nor merchants have made money, consumers as a third-party force have also begun to be dissatisfied.

Muzi, who just went to the United States to study, told the "Self Quadrant": "In China, not only the sinking groups use Pinduoduo, but abroad, the middle class will feel that consumption is a kind of vote, and they should support enterprises that abide by environmental protection, worker-friendly, and animal-friendly, and hope to trace the source of the whole process." Temu's low price will cause a lot of ethical (ethical) questions, and it will not be easy to accept. ”

And when foreigners gradually recovered from the atmosphere created by Temu's high ranking on the app store list, high investment in attracting new users, low prices and freshness, more and more problems began to be exposed. For example, more and more consumers are beginning to question Temu's model, and post reviews on social media about product quality problems, package damage problems, lost items, and so on.

So, while Pinduoduo has seized new opportunities for global consumption by relying on the leading edge of China's supply chain, Temu's overseas expansion is still challenging because it relies on a business model of extreme efficiency.

In 2023, going overseas has almost become a must-have option for e-commerce, consumer goods, and manufacturing. But under the sand of the big wave, how long Temu's delicate relationship with the Chinese factory can be maintained is really sweaty.