Will Temu’s losses exceed 15 billion this year? Nearly half of the sellers are still waiting and seeing!

Will Temu lose over 15 billion this year? 50% of sellers are still undecided

BusinessDialogue learned that on May 26th, Pinduoduo released its Q1 2023 financial report.

The report shows that Pinduoduo’s Q1 revenue was 37.637 billion yuan, a year-on-year increase of 58.2%; net profit reached 8.101 billion yuan, a year-on-year increase of 212%, both of which exceeded market expectations, but net profit decreased compared to the fourth quarter of last year.

▲ Image source: Pinduoduo financial report

According to the financial report, Pinduoduo pointed out that the main reason for the company’s revenue growth in Q1 2023 was the increase in revenue from online marketing services and transaction services, while its cross-border e-commerce project – Temu is still in the early investment stage and accounts for a small proportion of revenue.

However, industry insiders pointed out that nowadays, Temu is not only a small proportion of total revenue, but even in a stage of losing money and failing to make ends meet.

Is Temu losing $30 per order?

BusinessDialogue learned that recently, according to foreign media @WIRED, a Pinduoduo Temu insider confirmed that Temu has invested a lot of money to enter the US market, and the average loss per order is $30 (about 213 yuan).

It is understood that the composition of this cost mainly includes international transportation costs, discounts and cash coupons provided to customers, as well as service and management costs.

Among them, according to multiple data analyses focused on transportation costs, even a small package from Temu’s Guangzhou warehouse to the United States costs about $14, although Temu’s logistics partner J&T Express bears some of the costs, Temu needs to pay $9 or $10 per batch of goods.

Relevant data shows that as of February 2023, the daily sales volume of Temu is about 200,000 orders. According to this data, Temu’s annual loss will reach about 2.19 billion US dollars (365 days a year), which is equivalent to about 15.58 billion yuan.

Meanwhile, the report also stated that Temu’s clients in the United States are mainly Asians or low-income buyers with an annual income of less than $30,000. However, insiders at Temu believe that the best way to expand this audience is through extensive advertising to gain brand awareness.

Therefore, Temu plans to invest $1.4 billion in marketing activities in the United States this year and another $4.3 billion next year.

BusinessDialogue understands that since its launch in September last year, Temu has responded to the demand for overseas consumption downgrading under high inflation pressure and has achieved explosive growth in a short period of time. According to data from MarketplacePulse, as of February 2023, Temu has topped the shopping APP download rankings in countries such as the United States, France, Italy, Spain, Germany, and the United Kingdom.

However, at the same time, it can be seen from the above sales data that Temu’s rapid rise is achieved by increasing exposure, constantly lowering prices, sacrificing sellers, and suppliers’ profits, and replacing them with speed to attack overseas sinking markets.

Therefore, while Temu’s traffic continues to soar, its profit model has also frequently been questioned by industry insiders.

Pros and cons of Temu

A survey conducted by BusinessDialogue in May this year showed that out of 489 sellers surveyed, 18% of sellers are currently on Temu, while 82% of sellers have not yet joined Temu.

Among them, 34% of sellers have no intention of joining Temu at all, and 15% of those who have joined Temu believe that Temu can only operate in the short term and quickly harvest a wave of dividends. 8% of sellers believe that they can operate Temu for a long time, and nearly half of the sellers are still in a wait-and-see state towards Temu.

Sellers who hold an optimistic attitude towards Temu believe that its platform has a large flow of orders, making it easier to sell compared to Amazon. Additionally, Temu’s operations are simpler, the overall cycle is shorter, and the threshold is lower. For some supply-oriented sellers, it is an excellent choice for going overseas.

On the other hand, sellers who do not have a positive view of Temu believe that Temu’s ultra-low prices are obtained by squeezing the sellers, and it will only become more and more burdensome. The risks of stocking and fines are higher than other platforms, and the platform rules that often change make sellers feel unprepared.

Regarding platform rules, multiple Temu sellers recently provided feedback that, after compulsory fines and bidding rules, Temu has added a new policy called “Temu has the final right to interpret the return of stored goods.”

According to this rule, once the seller’s goods are stored, if the seller and Temu cannot reach an agreement on the handling of the goods, Temu will return the goods and require SF Express to pay the fee, which further strengthens Temu’s requirements for product quality inspections. This is not good news for the seller.

Currently, Temu is still relying on low-priced products and viral marketing to attract traffic. However, these tactics require significant capital to maintain, and it is still questionable how long Temu can maintain such a high level of traffic and whether it can develop overseas consumer shopping habits based on this.

What do sellers think about Temu? Feel free to discuss in the comments section~

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