Temu Faces a Supplier Revolt
Suppliers are upset Temu is swapping to a more Amazon-esque supplier model and trying to drive prices ever-downward.
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Temu, the Chinese e-commerce parvenu, has had a dramatic week. On Monday afternoon hundreds of the company’s suppliers — the people behind its wondrously/worryingly cheap garments — staged a protest outside a Temu office in Guangzhou. Their ire is apparently down to Temu swapping to a more Amazon-esque supplier model (funny, given Amazon is working on a Temu-esque offering) and trying to drive prices ever-downward.
Biting the Hand that Supplies
Sustainability has been a big, dark question mark over Temu’s business model pretty much since its inception. Temu and its fellow China-born e-commerce rival Shein rely on air shipping individual packages around the world, and in the US market (where they’ve both gobbled up a surprising amount of market share in a short time) they’ve relied on a tax loophole called de minimis that exempts them from paying tax on directly shipped items worth less than $800.
Now Temu is gearing up for the possibility that the de minimis window could be closing. Amazon suppliers in the US and EU told the Financial Times that Temu has approached them about storing its goods in their warehouses. Shein, incidentally, has made similar moves ahead of its planned London IPO.
But as Temu looks abroad, its shifting business model is ticking off its bread-and-butter Chinese suppliers:
- Some China-based suppliers told the FT that Temu is moving from a “managed” to “semi-managed” model, which puts more onus on suppliers to organize shipping and warehousing costs. Suppliers also told the FT that they’re unhappy with Temu’s tactics in trying to amass suppliers and play them off each other to drive down prices.
- Third-party sellers told Bloomberg there’s been a recent uptick in Temu withholding payments to suppliers, citing poor customer service. In a statement to Bloomberg, Temu said that it has been in a dispute with some sellers over “after sales issues,” claiming those merchants had “declined to resolve the disputes through the normal arbitration and legal channels stated in the seller agreements.”
Damian Maib, CEO at Asia e-commerce consultancy GENUINE, told The Daily Upside that Temu changing course on its business model was “inevitable,” and: “marks an important step towards becoming a serious contender in Europe and the US, rivaling major platforms like Amazon and Shopify.”
How Low Can You Go? Temu’s price-cutting model makes it an outlier in China’s overall e-commerce market, according to a new report from Nikkei Asia. One senior manager at e-commerce company Taobao told Nikkei that many e-commerce companies are prioritizing user satisfaction over low prices because Temu’s parent company Pinduoduo has everyone beat on price. “Striving for the absolute lowest prices is not a viable strategy when compared to Pinduoduo, which has spent years building a reputation among users for offering the best deals,” the manager said. At least we know the race to the bottom has a finish line.