Temu was exposed to have a loss bill a loss of 30 dollars per order, resulting in a loss of billions of dollars in a year
Temu lost billions of dollars in a year due to a loss of $30 per order
Temu’s crazy expansion comes at the cost of huge losses.
Recently, Wired magazine again exposed Temu’s “loss bill”:
1. Each order in packages sent to the United States loses about $30;
2. In order to simultaneously roll out the big wheel of sites in the United States, Australia, Canada, and Singapore, Temu needs to lose at least 4.15 billion to 6.73 billion yuan each year;
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3. In the U.S. market, Temu will invest $1.4 billion in advertising this year, and is expected to invest $4.3 billion next year;
4. Temu’s goal is: Americans buy from Temu 30 times a year, with each order amounting to $50, which means each user spends an average of $1,500 a year.
There is another way to calculate Temu’s losses: based on an average of 200,000 orders per day (peaking at over 500,000), its losses exceed 15 billion yuan.
Why does Temu lose so much money?
According to Haitong Securities data, in the U.S. market, freight is the main way Temu subsidizes. Shipping a small package from a Guangdong Temu warehouse to the United States costs about $14.
However, on Temu’s app, a large number of items are sold at prices significantly lower than the shipping costs: 50 hair bands sell for $1.17, 10 pairs of socks for $3.87, and a six-pack of lipstick for only $0.97. Some of these shipping costs are subsidized by Temu’s logistics partner, J&T Express, while Temu itself needs to pay $9-10 in shipping costs per batch of goods.
In addition to logistics costs, advertising costs are also a major expense for Temu.
In February 2023, Temu aired two 30-second commercials during the Super Bowl, paying $14 million in advertising fees for it.
The commercials had a significant impact, as Temu’s app downloads rapidly increased and its user engagement reached new heights. Having tasted success, Temu plans to continue burning through advertising.
As mentioned earlier, Temu plans to spend $1.4 billion on advertising campaigns in the US this year, and $4.3 billion next year.
Today, Temu’s image as a “one-stop-shop for affordable Chinese goods” has penetrated the minds of American consumers, especially among Asian Americans and low-income consumers with an annual income below $30,000 who live outside the five main urban centers.
Temu understands human nature and plans to leverage its existing user base to continue its advertising bombardment, achieving greater viral spread and network effects.
On the road to burning cash, Temu will remain resolute, just like its parent company, Pinduoduo, which has followed this path before.
Therefore, Pinduoduo will be a staunch supporter of Temu’s “losses for market share” strategy. According to 36Kr and other sources, Pinduoduo will inject 20 billion yuan into Temu to keep it burning through cash.
In addition to offering crazy subsidies, Temu is also using every means possible to reduce costs, such as taking advantage of the US small package clearance policy-goods valued below $800 shipped to the US can be imported tax-free. $800 is a high threshold, and Temu’s individual packages sent to the US are generally valued below this amount.
This is also an important support for Temu to maintain low prices. However, in recent years, the US business community has been worried about this tax-exempt standard and has launched wave after wave of lobbying campaigns, hoping to persuade Congress to lower the threshold to $10. If it is lowered to this standard, Temu’s costs will increase significantly.
Furthermore, J&T Express is about to go public. Analysts say that the company is currently building its market share by subsidizing its customers (including Temu), but once it goes public, it may need to reduce subsidies to improve profitability.
As a result, Temu’s subsidies from J&T Express may also decrease, thus increasing its costs.
The other side of the coin
To maintain low prices, Temu is constantly subsidizing shipping costs while also pressing down on the prices of sellers (suppliers).
Recently, more sellers have received notices for “bidding for shelf placement.” Temu requires: 1. Once a week, the lowest bidder wins: A weekly bid for the same product, with the lowest bidder winning (Monday 9:00 a.m. to Thursday 11:59 p.m.); 2. Unsuccessful bidders will be restricted: Products that fail to win the bid will be restricted from being stocked and put up for sale on the platform. With the expansion of the scope of “bidding for shelf placement,” the price war between sellers has become even more intense. Sellers have provided feedback that some of the products that they were selling were suddenly delisted, with the reason given being “there are identical products,” when in reality, it was because “there are identical products at lower prices.”
Facing shrinking profit margins, a group of sellers have stopped supplying goods to Temu.
Sandy, a pet supplies seller, has stopped selling pet products on Temu.
At first, Sandy sent some products for testing, which sold well. Temu then asked Sandy to supply a large quantity of goods, but required her to pay for the stock and transportation costs to the warehouse in advance. Afterwards, Temu asked Sandy to lower her prices, which meant selling at a loss.
If the seller cannot meet Temu’s suggested price, their products will be taken down, and the cost of processing returns is often higher than the value of the shipped products.
In the end, Sandy closed her Temu store after selling all inventory at a loss.
Aside from “bidding for placement,” Temu imposes heavy fines on sellers. A Shenzhen seller told Blue Ocean Yiguan Egainnews that Temu has been imposing fines frequently lately, and they have been fined almost 150,000 yuan, which accounts for 56% of their total sales revenue. Currently, the seller still has a large sum of money that has not been received, and they are hesitant to increase their products. Temu not only demands low prices, but also “quality.”
A seller reported that there are slight differences between the product description and the photos provided to Temu, which can also result in the entire batch of goods being rejected.
“This situation happens frequently. We send 100 products to them, sometimes they will return one or two, and sometimes they will return all of them,” they said. Temu has recently contacted them to list more products, but they are not willing to invest in developing new products because the profit margin is too low and not worth the risk.
Another seller who closed their store also revealed that Temu is still contacting them, requesting that they send some of their best-selling products to their warehouse, but they are no longer interested. “No matter what future development space Temu promises, it cannot make up for the losses I have suffered from selling on this platform,” they said. Of course, some sellers have reported that they have received a large number of orders on Temu, and although the profit margin is thin, it is still worth persisting. As for whether or not Temu is worth doing, sellers can “cross the river by feeling the stones” and try it out while evaluating the risks.
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