Behind the expansion of Pinduoduo's overseas platforms, overwhelmed merchants are accelerating their flight
"China Science and Technology Investment" Long Min He Ziyan
On July 29, due to issues such as platform fines, seizure of reserves and payments, many small and medium-sized businesses gathered at the Guangzhou headquarters of Temu, a cross-border e-commerce platform owned by Pinduoduo (PDD.US), to defend their rights. A number of merchants reported to the reporter of "China Science and Technology Investment" that since May this year, many businesses have gone to the headquarters to protect their rights many times, and relevant departments have also organized meetings and coordination many times, but the platform has not yet given relevant solutions. At present, many businesses have tight cash flow due to large fines, reserve seizures and other issues, and some businesses have even broken the capital chain and are unable to pay wages to workers.
Mr. Zuo, a platform merchant, told reporters that the first batch of merchants represented by him have repeatedly petitioned the petition agency where Temu's headquarters is located, and submitted relevant appeals with the signature and fingerprint of the merchant. The local government agencies of Temu have also organized several coordination meetings, but because Temu is located overseas, the staff of the government regulator told the merchant that the incident is difficult to supervise. Under the repeated letters and visits of the merchants, the secretary of the local political and legal committee promised the merchants that they would conduct a thorough investigation of relevant matters. According to the rights protection registration information obtained by the reporter at the scene, as of July 22, the total amount of after-sales deductions and after-sales reserves counted by merchants was about 114 million yuan (the following amounts are RMB unless otherwise specified), involving 279 merchants. The reporter also sent a letter to Pinduoduo on related matters, but as of press time, no reply has been received.
Large payouts go hand in hand with high hold-up of reserves
Since the beginning of this year, in order to improve the quality of goods on the platform, Temu has revised the terms of the agreement several times and strengthened the fines for product quality problems. Intensive and large fines have also overwhelmed small and medium-sized businesses. In the second half of 2023, Temu revised the "After-sales Service Rules" of the merchant cooperation agreement, proposing that the platform has the right to require the seller to pay after-sales compensation at 5 times the total price of the goods judged by the platform to be quality problems. In January of this year, Temu adjusted the above-mentioned fine rule to "divide the amount of the fine according to the product quality score". The quality score is divided into four grades, and the goods returned by consumers are subject to 1.5-5 times of the compensation in addition to "not settling the payment for the order". However, the platform did not clearly explain the scoring criteria for "quality score", and merchants have no clue about the rating of products.
At the beginning of May, the first batch of merchants gathered at Temu's Guangzhou headquarters to defend their rights because they believed that the fine was unreasonable.
*Rights protection registration form and appeal form, pictures provided by the interviewed merchants
Ms. Xu, a merchant, told reporters that at the beginning of this year, the platform began to impose frequent fines, but because other cross-border e-commerce platforms also have a fine mechanism, combined with the size of their factories, it is acceptable to impose a fine of 10% on the Temu platform. And as the amount of the fine increased, she sensed that something was wrong. According to the platform's "After-sales Service Rules", the customer order quotation of its factory goods is about 25 yuan, but after the order is disputed, the after-sales compensation is 125 yuan, that is, five times the total price of the goods. As of March this year, its stores have supplied 50,000 products to the platform, and the total fine has exceeded 600,000 yuan.
Mr. Zuo mentioned that the platform's penalty mechanism is not transparent, and in the early days, after-sales fines could still give reasons such as "too big, too small, too short" and "not meeting expectations", but since May, the platform has stopped displaying the reason for the fine. He believes that at present, the platform does not display the reason for the fine, nor does it give evidence that there is a problem with the product, and it is unknown whether the platform arbitrarily punishes for the purpose of generating revenue. Under the opaque penalty mechanism, the goods are only listed through the quality inspection of the platform, but it is unreasonable for the merchant to bear the after-sales fine. One of the demands of the merchants includes the requirement that the platform fine mechanism be transparent, and the reasons and evidence for the deduction of fines need to be clearly and truthfully informed to the merchants.
Mr. Liu, a merchant, also had the same doubts, telling reporters that their products were pattern-made in accordance with European specifications, and the platform also recognized the specifications before the merchants put them on the shelves and supplied them. Taking clothes as an example, consumers have different body shapes, but the specifications are fixed, and consumers find that the goods are not suitable for after-sales after taking pictures, and the platform does not carefully investigate whether it is reasonable to dispose of them with fines.
In addition, after the merchant spontaneously went to the Temu headquarters to defend his rights, he also found that there was a reserve fund mechanism on the platform. In the early days of opening a store, the merchant did not find a reservation clause in the authorization-related agreement. In this regard, the buyer explained to the merchant that the reserve is not a sum of money, but just a data. When the merchant asks the buyer to explain the data, the buyer is unable to explain it.
When the reporter asked what is the difference between the reserve and the store deposit, Ms. Xu said that the reserve is the merchant funds frozen in order to protect the after-sales of consumers when the order is disputed, and the platform will freeze the reserve every month, and the deposit is another 1,000 yuan when entering the platform. Ms. Xu said that what made the merchant angry was that not only did she find out that there was a reserve fund mechanism after confronting the platform, but the merchant conservatively estimated that the seized reserve was at least 1.5 times the fine, and what made her even more puzzled was that the number of days for consumers to protect their rights after sale on the Temu platform was 90 days, but their reserve money last year had passed the after-sales period and was still frozen in the account.
There are also many rights protection businesses that owe a lot of money to the platform due to fines. At the beginning of this year, due to copyright issues, Ms. Xu had a related litigation dispute in the United States, so the platform froze her account with a balance of 200,000 yuan, and then Ms. Xu had a private relationship with the litigation party. Two days before the account was unfrozen, Ms. Xu received a total of 210,000 yuan in fines from May to June, and the platform immediately deducted the 200,000 yuan after the account was unfrozen, and the account still owes a fine of 10,000 yuan. Mr. Liu also said that in April this year, his store was closed, but he still received fines from the platform from May to July. As of the end of May, the amount of fines on the Temu platform exceeded 4 million yuan, and the amount of reserve funds seized exceeded 5.5 million yuan, and the total amount of the two has exceeded 10 million.
*Penalty for one of the days after closing, image courtesy of the surveyed merchant
In the face of merchants who continue to protect their rights, the Temu platform is also continuing to update the agreement. On July 3, the platform updated the agreement again. Among them, there are two agreements in the agreement that cause dissatisfaction among merchants, one is that the platform has the right to manage and dispose of the goods stored by the merchant in its warehouse without further notice, and the other is to agree to the agreement and confirm that the effective date of this agreement is August 1, 2022. The terms of the updated agreement do not close the page, and if the merchant does not sign the agreement, they will not be able to enter the Seller Admin. Mr. Zuo and Ms. Xu revealed that as the first batch of merchants to defend their rights, a number of government agencies have organized about 15 meetings and coordination under repeated petition negotiations, and the platform is still unable to provide a solution. With the further deepening of rights protection, the platform is also updating the confidentiality agreement, requiring merchants to keep confidential the information, documents, data and materials of the platform and its affiliates, including the conversations with buyers, and if it is leaked to a third party, they may be subject to a fine, and the amount of the fine has risen from 10 to 200,000 yuan at the beginning to a fine of 100 to 2 million US dollars.
*Image is an updated confidentiality agreement provided by the interviewed merchant
Some rights defenders revealed that at the coordination meeting organized by a number of government agencies (Nancun Town Comprehensive Management Office, the local Market Supervision Administration and the Ministry of Justice), the person in charge of the platform said that their company was Guangzhou Yucan Information Technology Co., Ltd. (hereinafter referred to as "Guangzhou Yucan"), not Temu, but only signed a logistics subcontracting agreement with the platform, and was only responsible for logistics and warehousing; If the merchant wants to recover the goods, he needs to pick up the goods in Hong Kong, China; Temu is an independent Ireland company, and merchants need to file a lawsuit in Hong Kong, China. At present, Pinduoduo officials have not come forward to explain the demands of merchants, and merchants are also in a situation where they have no way to complain and protect their rights. According to the enterprise investigation, Guangzhou Yucan is a wholly-owned subsidiary of Shanghai Yucan Information Technology Co., Ltd., and the legal person is Zhao Jiazhen, executive director and co-CEO of Shanghai Xunmeng Information Technology Co., Ltd. (Pinduoduo).
On the evening of July 30, Pinduoduo responded to the China Securities Journal that the platform would not earn the money from the fines imposed by the merchants, and the fines would also be paid to consumers.
Only refunds and low price auction checks scare off merchants
Relying on the successful domestic business model and mature supply chain, Pinduoduo's overseas e-commerce platform Temu applied the domestic business model to quickly open the overseas market in less than two years, and the "low price" and "refund-only" business model also accelerated the involution of the overseas e-commerce market. The original intention of the "refund-only" policy is to provide users with better rights and interests protection and service quality, and at the same time retain users, it can also force merchants to improve the quality of goods. However, many users exploit policy loopholes, which increases the phenomenon of "white prostitution party" and "wool party" on the platform. Temu's tutorials and topics of "0 yuan purchase" and "wool picking" also continue to appear on overseas social platforms. When there is a dispute over the order, the Temu platform often treats it as a "refund only", and merchants complain about it.
Under the low-price strategy, Temu has also introduced a bidding mechanism to ensure that the price of the same product is lower than that of mainstream cross-border e-commerce platforms. Merchants compete with each other, and the lowest price gets the traffic of the platform and is successfully put on the shelves, and the products that fail to bid will be restricted by the platform from stocking and new. After the bidding fails, the goods will be piled up in the warehouse, and for fully managed merchants, the platform can dispose of the goods at will; Semi-managed merchants, on the other hand, face increased warehousing costs. If you choose to participate in low-price bidding, it is easy to lead to losses, and merchants are faced with a dilemma. A merchant told reporters that he had no choice but to return goods at will in order to complete the assessment rate of the platform's bottomless bidding and quality inspection requirements. There is a lot of discussion on the social platform about the failure of Temu's bidding, and a merchant posted that he received a suggestion from the platform to reduce the supply price by 10%, otherwise it will be restricted from stocking in the future, and the merchant has three products that have lost money due to bidding failures.
In addition, there are also many discussions on social platforms that the core price of Temu is lower than the cost price of goods. Mr. Liu told reporters that the merchant's goods on the shelves will be reviewed by the business quotation, and after the review is passed, the product will be sold on the platform for a period of time. For example, Mr. Liu said that if a piece of clothing is sold for 23 yuan, but the price given by the platform is 2.3 yuan, which is far from the cost price.
Mr. Zuo also mentioned to reporters that Temu has the chaos of returning goods at will to complete the quality inspection task, and the actual inventory of the platform is not consistent with the inventory in the background of the merchant, and there is a loss rate of about 5%. Some quality inspectors have revealed to them that the tasks assigned to them by the platform include a 5% defective rate, and no matter whether the merchant's goods are good or bad, they need to find a reason to return them. Mr. Zuo believes that when there is a dispute over the goods, the platform initiates a refund only to the consumer, which has made the merchant have no goods and money, and faces a penalty of 5 times the compensation, and the 5% loss rate also increases the load of the merchant, and at present, the supply to the platform has been in a state of total loss of principal. The reporter asked Pinduoduo officials for confirmation on the 5% loss rate assessment task, but did not receive a relevant reply.
On July 29, at the site of rights protection, some merchants told reporters that Temu's low-price positioning determines that most of its suppliers are small and medium-sized factories, and the early small and medium-sized factories and the Temu platform can be said to be mutually successful, and the current practice of Temu has disappointed many small and medium-sized factories that have supported its growth and expansion.