Temu encountered huge loss: 30 US dollar loss per order

Temu encountered huge loss: 30 US dollar loss per order.

Temu’s crazy expansion is at the cost of huge losses.

A few days ago, “WIRED” magazine once again picked up Temu’s “loss bill”:

There is another calculation about Temu’s loss: based on Temu’s daily average order of 200,000 (over 500,000 at the peak), its loss exceeds RMB 15 billion (about 2.1 bilion US dollar).

1. In the package sent to the United States, the loss of each order is about 30 US dollars;

2. In order to roll the big flywheels of sites in the United States, Australia, Canada, and Singapore at the same time, Temu will lose at least 4.15 billion to 6.73 billion yuan ( about 583-946 million) to a year;

3. In the US market, US$1.4 billion will be spent on advertising this year, and US$4.3 billion will be invested next year;

4. Temu’s goal: Americans buy 30 times a year from Temu, each order is $50, which means that each user spends an average of $1,500 a year.

Why did Temu lose so much money?

HaitongSecurities data, the US market as an example, shipping is the main form of Temu post money. It also costs about $14 to ship a small package from the Temu warehouse in Guangdong to the US .

On Temu’s app, however, you can see a plethora of items selling for significantly less than shipping: 50 hair ties for $1.17, 10 pairs of socks for $3.87, and a six-pack of lip balm for just $0.97.

Part of these shipping costs is borne (subsidized) by Temu’s logistics partner J&T Express (Jitu Express), and Temu itself needs to pay a shipping fee of US$9-10 for each shipment.

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, for which it paid $14 million in advertising fees.

This advertisement has had a great effect, Temu’s app downloads have risen rapidly, and the activity has also reached the height of space. Temu, who has tasted the sweetness, will continue to burn advertisements.

As mentioned above, Temu plans to spend $1.4 billion on U.S. ad campaigns this year and $4.3 billion next year.

Today, Temu’s impression of “a one-stop comprehensive app for cheap Chinese goods” has penetrated into the minds of American consumers, especially Asian-Americans and consumers “beyond the Fifth Ring Road” whose household income is less than $30,000 per year. Major high sticky customers.

Temu has an insight into human nature, and will base itself on the existing user base, and use them as leverage to continue advertising bombing, in order to achieve a wider range of fission communication and network effects.

On the road of burning money, Temu will be very firm, and its parent company, Pinduoduo, has also walked on this tightrope.

Therefore, Pinduoduo will be a staunch supporter of Temu’s “loss-for-market”. According to 36 Krypton and other news, Pinduoduo will also give 20 billion to Temu to let it continue to soar on the road of burning money.

In addition to crazy subsidies, Temu is also doing everything possible to reduce costs, such as taking advantage of the small package customs clearance policy in the United States – goods with a value of less than 800 US dollars can be shipped into the United States tax-free.

$800 is not a low threshold, and the value of a single package sent by Temu to the United States is basically lower than this figure.

This is also an important support for Temu to keep the price low. However, in recent years, the American business community has been worried about this tax-free standard, and has launched wave after wave of lobbying actions, hoping to persuade Congress to reduce this amount to $10. Once reduced to this standard, it will greatly increase the cost of Temu.

In addition, J&T Express (jitu express) will be listed soon. Analysts say the company is also currently building its market share by subsidizing its own customers, including Temu, but may need to reduce subsidies to boost its own profitability once it goes public.

Then, the subsidy Temu gets from J&T Express will also decrease, so its cost will also increase.

The other side of the coin

In order to keep the price low, Temu keeps subsidizing the freight on the one hand, and keeps lowering the prices of sellers (suppliers) on the other hand.

Recently, more sellers have received the notification of “listing by bidding”.

Temu requirements:

1. Once a week, the one with the lowest price wins: Bid for the same product once a week, and the one with the lowest middle price of the same product wins (9:00 am on Monday to 23:59 pm on Thursday);

2. Bidding losers Will be restricted: Products that fail to bid will be restricted from stocking and updating by the platform.

After the scope of application of “bid listing” has been expanded, the price competition among sellers has become more intense.

The sellers reported that some of the products being sold were suddenly taken off the shelves, and the reason for being prompted was “there is the same model”, but in fact it was “the same model with a lower price”.

Faced with ever-compressing profit margins, a group of sellers have stopped supplying Temu.

Sandy, a pet supply seller, stopped selling pet products on Temu.

At the beginning, Sandy sent some products for testing, and as a result, these products sold well, Temu asked Sandy to supply a large amount, but needed to advance money to prepare the inventory, and pay the shipping fee to the warehouse, then Temu asked Sandy to lower the price , which means selling at a loss.

If sellers can’t meet Temu’s suggested price, their products get pulled, and the cost of processing returns is often more than the value of the shipped product.

Eventually Sandy closed its Temu store after selling all its stock at a loss.

In addition to “listing by bidding”, Temu imposes heavy fines on sellers.

A seller in Shenzhen revealed to Blue Ocean Egainnews that Temu has been fined frequently recently, and he has been fined nearly 150,000 yuan (about US$21K) , which accounted for 56% of the total sales revenue.

At present, the seller still has a large amount of money that has not been paid back, and now he dare not add products.

Temu not only wants low price, but also “quality”.

A seller reported that there are slight differences between the text written on the product and the photos previously provided to Temu, which may also lead to the rejection of the entire shipment.

“It happens a lot, we send them 100s of products and sometimes they send back one or two, sometimes they send them all back ,” he said. Temu recently approached him to put more products on the shelves, but he was unwilling to invest in developing new products because the profit was too low to be worth the risk.

Another closed seller also revealed that Temu was still contacting her to send some of her best-selling products to its warehouse, but she was no longer interested. “No matter what future development space Temu promises, it will not make up for my loss of sales on this platform,” she said.

Of course, there are also some sellers who have received a large number of orders on Temu. Although the profit is relatively thin, it is still worth persisting. Regarding whether Temu is worth doing, sellers can “cross the river with a pony”, and they may as well try it after assessing the risks.

Reference:

https://www.cnbeta.com.tw/articles/tech/1364053.htm

Temu encountered huge loss: 30 US dollar loss per order.

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Temu encountered huge loss: 30 US dollar loss per order