Temu Faces Backlash Amidst Business Model Restructuring in China
In recent weeks, Temu, a prominent shopping platform under Pinduoduo Inc. (NASDAQ: PDD), has encountered significant backlash from its Chinese suppliers following attempts to restructure its business model. This upheaval, reported by the Financial Times, highlights the platform’s strategy to recruit Amazon merchants with goods stored in warehouses within the U.S. and EU. The shift aims to bolster Temu’s operations should governments close a tax loophole that has significantly fueled its growth.
Background Context
Temu, much like its competitor Shein, has specialized in providing fast fashion products at relatively low prices. These items are often shipped from warehouses in China directly to consumers in Western markets. However, a pivot towards recruiting suppliers with overseas warehouses indicates a substantial shift in their operational model—from a ‘fully managed’ to a ‘semi-managed’ setup. This would mean that merchants on Temu’s marketplace would now shoulder the responsibilities of shipping, warehousing, and last-mile delivery—a shift from previous practices where the platform handled these logistics.
Supplier Concerns
The reform has not been well received among Chinese suppliers, particularly in the manufacturing hub of Guangzhou. Suppliers are apprehensive about the increased risks associated with bearing the logistical costs. A core complaint among these merchants is the significant reduction in order volumes, stemming from Temu’s strategy to onboard more suppliers. Initially, suppliers could receive as many as 30,000 to 50,000 orders per day, but this has since dwindled to approximately 3,000, a decline they attribute to heightened competition pushing prices downward.
Suppliers have also raised concerns over Temu’s imposition of fines for a variety of issues, including defective packaging and discrepancies between online descriptions and delivered products. Several merchants have taken to protesting at Temu’s offices in Guangzhou, decrying these punitive measures, which they argue are unjust and detrimental to their businesses.
Temu’s Response
Temu has countersigned this narrative by stating that the reported dissent does not accurately reflect the overall seller experience on its platform. The company acknowledged the discrepancies but indicated that they are actively collaborating with merchants to address after-sales issues related to quality and product compliance.
In an effort to smooth relations and incentivize suppliers, Temu has offered to promote merchants who embrace the semi-managed model by prioritizing their products on its platform. This measure aims to mitigate the impact of the newly imposed responsibilities and to encourage greater supplier participation.
Broader Implications
This restructuring comes at a time when e-commerce giants are increasingly scrutinizing their logistics and operational efficiency to stay competitive. Temu’s move also reflects broader market trends where companies are seeking to localize warehousing to expedite delivery times and minimize potential disruptions from regulatory changes.
Given the context of rising protectionism and tightening regulations in global trade, Temu’s pivot could be seen as a proactive move to ensure resilience and sustainability in its supply chain operations. However, the backlash underscores the complexities and sensitivities involved in overhauling established business models—especially those that heavily rely on supplier partnerships.
For more details about Temu, visit their official website.
Note: Specific details and figures are drawn from the Financial Times’ reporting.
