The Chinese shopping app is topping app stores in the US. But it’s burning money and squeezing its suppliers to a breaking point in a bid to take on Amazon. Eight makeup brushes for less than a dollar, with free international shipping, is surely too good to be true. But in the lightning deals section of Temu, the prices are all unbelievable—50 hair bands for $1.17, 10 pairs of socks for $3.87, six lip balms for $0.97.
Temu, owned by the Chinese tech giant PDD, has exploded onto the top of US app stores since it launched last September, targeting cash-strapped Americans with cheap unbranded products shipped directly from Guangzhou, China. In just seven months, Temu’s app has been downloaded 50 million times.
But the reason that prices on Temu seem impossibly low is that they are. An analysis of the company’s supply chain costs by WIRED—confirmed by a company insider—shows that Temu is losing an average of $30 per order as it throws money at trying to break into the American market.
The financial company China Merchants Securities has calculated that Temu, which is also operating in Canada, Australia, and New Zealand, is losing between RMB 4.15 billion and RMB 6.73 billion ($588 million to $954 million) per year. At the same time, the company is squeezing small manufacturers in China, pressuring them to cut prices to levels that make it almost impossible to turn a profit.
“We are working for Temu for free so that Temu can attract more American customers,” says Sandy, who started selling pet products on the platform soon after it launched, speaking on condition of anonymity to avoid reprisals. Temu did not respond to a request for comment.
Spending big on deep discounts in order to build market share has already worked well for PDD in China. Pinduoduo, PDD’s Chinese flagship company, burst into the local ecommerce market in 2015, differentiating itself from Taobao and JD.com, which dominated the market at the time, by selling cut-price white-labeled or unbranded goods, and targeting people on lower-incomes in rural areas.
To bring people onto the platform, it subsidized prices on everything from unbranded homewares to high-end smartphones. “That is how Pinduoduo gained market share in China, they know how to use these strategies really well,” says Veronica Si, a researcher specializing in ecommerce platforms. In the US, most of Temu’s subsidies come in the form of free international shipping.
WIRED looked at multiple analyses of shipping costs, including data from financial research company Haitong International Securities Group, which suggests that the cost of shipping even a small package from Guangzhou, where Temu has its warehouses, to the US is around $14. Haitong’s analysis—confirmed by the Temu insider—shows that J&T Express, the company’s logistics partner, bears some of the costs, but that Temu is on the hook for $9 or $10 per shipment…..
Source: Temu Is Losing Millions of Dollars to Send You Cheap Socks | WIRED
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