As the days wound down to Christmas, Wenkang Cai was upset about a festive decorative ribbon that Temu wouldn’t approve for sale because the website argued the price could be lower.
“I submitted a quote for 4 RMB ($0.56) and the platform squeezed the price down to 1.96 RMB ($0.28), though I managed to negotiate with the supplier and they gave me a price of 1.88 RMB ($0.26), it’s not profitable at all,” Cai said.
Cai is a seller on Temu, an online retail platform that rapidly increased in popularity over the last year. Cai shared his international e-commerce experience with the Daily Dot from his warehouse in Shenzhen, a city in the Chinese province Guangdong. In the background, phones rang and trucks blew their horns. Cai explained that the noise was due to couriers losing their tempers over the wait to pick up deliveries or because their vans were blocked in.
“Temu‘s specialty told me that it could be other merchants holding holiday sales, so the price [detected by the algorithm] was low, and they suggested I wait until the sale is over and resubmit my quote,” said Cai, referring to the company’s team of specialists tasked with approving merchandise for sale on the platform.
Cai agreed that waiting would mean he missed selling the ribbon during the holiday season.
“It would have performed better if I started to sell the ribbon two months in advance. Now that the holiday is around the corner and sales are going on everywhere, it’s a risky time to join the competition,” Cai said with a sigh.
Cai entered the e-commerce industry in 2019 when he began selling gardening tools and seasonal decorations. He initially sold on Amazon, Walmart, and AliExpress. Shenzhen, where Cai lives, sits at the southernmost pole of mainland China across the river from Hong Kong. Shenzhen became a global manufacturing hub in the 1980s for manufacturing; it was among the first Chinese cities to enter the world economy. As manufacturing shifted to southeast Asia over the following decades, the province expanded into e-commerce. According to a report issued by the Department of Commerce of Guangdong Province, by 2021, over 70% of China’s international e-commerce merchants were from Guangdong.
In the fall of 2022, Cai learned from others in the industry that Chinese online retail giant Pinduoduo had launched a platform focused on exporting Chinese goods to customers in the United States.
“Pinduoduo has a lot of money, if it wants to develop an overseas market, it would very likely succeed, so I joined the platform very quickly,” said Cai. He was among the first sellers to join Temu.
Pinduoduo debuted in 2015 with an aggressive strategy of keeping prices low by encouraging users to refer deals to friends. Within a year, it had over 100 million customers in China; in its fourth year, Pinduoduo’s market value surpassed that of JD.com, the second-largest online shopping site in the world after Alibaba.
Last year, Pinduoduo exceeded Alibaba to become China’s largest e-commerce platform. The company’s earnings report says it has more than 910 million active users each year—the equivalent of two-thirds of the country’s population making at least one purchase in a 12-month period.
Pinduoduo parent company PDD Holdings entered the international market with the launch of Temu in September 2022.
Temu has grown exponentially since then. According to Bloomberg, by last May, Temu had more than 100 million customers in the U.S.
As Temu has swept the global market, its own merchants say its dogged pursuit of undercutting the competition’s prices has hurt their bottom line. Before Temu, they profited from low production costs in China and a favorable exchange rate between the Chinese yuan and the U.S. dollar. They describe policies that benefit larger sellers and hurt smaller ones, policies that are at times inscrutable and have them scrambling to keep up or find creative ways to work around Temu’s strict rules.
“Something valued at $4 can be marked up to sell for $70 on Amazon. It was so easy to make money,” explained Wenhao Shao, another international e-commerce seller. “I used to stay up late to play video games, and I spent an hour or two to pack and send out couriers during the day. It was like money pouring into my pocket every day.”
Shao said he started e-commerce as a side hustle in 2021 because he was tired of sitting in the office for long hours and never getting paid overtime. After a month, Shao’s e-commerce income exceeded what he was earning at his day job, so he quit and fully committed to selling household goods on Amazon and Wish.
His business was going well until late 2022. As sales on both Amazon and Wish declined, he decided to begin selling on Temu last April.
Shao said he immediately felt pressured to compete with other Temu sellers. On other platforms, business was so lucrative he didn’t have to pay close attention to price fluctuations. But he said Temu’s pursuit of low prices made profits so thin he had to constantly work to stay afloat by negotiating with suppliers, researching Temu’s policies to find workarounds, and looking for ways to fool the platform’s pricing algorithm.
Shao said he dislikes Temu but he doesn’t want to quit.
“I know that the large sellers are able to profit on Temu because they have all the resources and even have their own factories,” said Shao. “But for us small sellers, it’s like a catfish stirring the river; it’s squeezing us out of the market.”
The secret behind Temu’s low prices
In a traditional e-commerce model, such as that used by Amazon, merchants operate their own stores and interact with consumers directly. But on Temu, like Shein, the platform takes over and requires products to be stocked in its warehouses. It inspects products’ quality, has the final say in the price, and ships items to consumers.
The strategy has enabled Temu to rapidly increase its global market share. In November, Reuters reported that it’s projected to rake in more than $16 billion in revenue in 2024.
Controlling inventory, shipping, and advertising gives Temu considerable bargaining power. Sellers told Daily Dot that they are constantly pressured to lower their prices.
Temu’s pricing benchmark is 1688.com, a Chinese wholesale platform owned by Alibaba where petty commodities are usually sold in a package of a hundred or a thousand. Vendors on 1688.com are mostly factories.
Temu will not accept a price higher than 1.2 times the price of 1688.com, said Shao. In order to turn a profit, sellers at times have to negotiate with factories for lower prices. This puts smaller merchants who have less bargaining power at a disadvantage.
Something as simple as selecting images to market products introduces yet another complication related to price, sellers say. Amazon sellers rarely photograph products; instead, they use images vendors provide on 1688.com. Using that same shortcut on Temu is tantamount to pointing the platform directly to the lower price. Even if they take their own photos or find a source other than 1688.com, sellers can still be forced to lower prices if a merchant who sells the same or similar products uploads an image from 1688.com. When Temu detects a lower price, it notifies others who sell similar items to match it.
“Temu is smart in organizing assortment, and its algorithm predicts consumer preferences pretty accurately,” said Sunny Zheng, an analyst at Coresight Research, an international consulting firm for retail and technology sectors. “They have a dynamic pricing system, and if you put the product in the shopping cart, you are likely to see the price change every day.”
Technically, sellers may reject the reduced price, but the stakes are high.
“First, you will lose the traffic, then the slow-selling products will be marked as ‘not competitive’, and the platform will ask for the price drop again based on the ‘fact’ of stagnant sales,” someone recently wrote on RED, a Chinese version of Instagram.
Choosing a product that fills a gap in the market can enable sellers to get ahead of the competition. But as the platform has grown, it’s become increasingly harder to find gaps to fill. Temu currently offers more than 2 million different items for sale in the U.S., Chinese tech outlet 36Kr reported, and its short-term goal is to reach 4 million.
Sellers can take their own photos to stand out from the competition and potentially avoid Temu detecting that the item is for sale at a lower price. Photographing products can be costly, particularly for those who sell multiple items. As a result, sellers found a way to “deceive” Temu by using Adobe Photoshop to edit photos. This tactic can backfire, however.
“Don’t expect top quality. The items are smaller than the pictures. Do not order their jewelry. It is horribly cheap,” a redditor wrote about Temu.
In the thread, hundreds of buyers shared experiences shopping on Temu and how to avoid being duped. Some cautioned people to temper their expectations and, in the alternative, to ask for a refund.
One user said that people should simply be “mindful” of what they order, adding, “You get what you pay for.”
“It is Wish 2.0. Temu is fleecing sellers like crazy, if you don’t like what you order, they will refund you and you can keep the order,” another opined.
Temu does not require customers to return goods to receive a refund, which enables it to avoid paying the costs of return shipping and simplifies the process of dealing with customer service. Although the policy is arguably easy to abuse, Temu sellers say that this hasn’t been a significant issue.
“For me, it’s about 4 out of 1,000 orders, probably because the goods are so cheap that a lot of people don’t care to apply for the refund, or it could be that the American consumers are generous and wealthy,” said Cai.
Nevertheless, some have questions about the refund system.
Cai said he’s never understood how the return and refund system works and described it as like a black box. Sellers say that Temu doesn’t tell them why customers return an item, in spite of the fact that the application requires them to choose a reason for requesting a refund and to upload photos as proof of purchase. Instead Temu only informs sellers of the number of orders that have applied for a refund. It also does not allow merchants and consumers to communicate directly, which can be frustrating for sellers trying to figure out what went wrong.
“I would love to know why they don’t like the product and how I can make improvements,” said Cai.
A buyer-first, seller-last model
Sellers describe Temu’s pursuit of low prices as their greatest source of pressure and frustration. They also say that the platform has become more aggressive about lowering prices, irrespective of how merchants are impacted.
On Chinese social media, retailers often complain about Temu’s unresponsiveness to requests and questions, continuous demands for merchants to participate in sales, frequent warnings that it will stop advertising products, and eliminating products with lower sales.
“Some sellers are doing clearance, so they are selling those goods at a loss. But Temu’s mechanism doesn’t understand the logic, it pushes other sellers to lower the price. This is so unfair,” a seller told the Daily Dot. The person declined to give his name or reveal the products he sells for fear of having his ideas stolen.
A recent college graduate who said he sees Temu as a side hustle created a chat group to share insights with other sellers. The group advises sellers to persuade factories to take on the tedious tasks of packing and shipping stock to Temu warehouses and urges them to only sell their most popular items. He currently has three products, which together generate at least 400 orders a day.
But he admits he doesn’t know why these products sell well. It could just be luck, he said.
Cai and Shao agreed that there’s no way to predict what items will go viral.
Sellers say they can do nothing to influence Temu’s ad strategy either.
“If you are willing to sell at an ultra-cheap price, such as $0.1, surely the platform will heavily advertise the product,” said Shao. “But that only generated popularity for Temu, by sellers who were doing a loss-making business.”
Sellers complain that Temu is increasingly passing costs to them. When it first launched, the platform covered shipping costs. Since the middle of last year, it’s required merchants to pay half to ship products to its warehouses.
It also has a long list of penalties for sellers who violate the rules. For instance, if a consumer chooses “quality problems” as their reason for seeking a refund, the merchant will be fined five times the price of the item. They can also be fined for things like copyright infringement or failing to affix adequate environmental and safety labels. A seller recently posted a bill on RED showing that fines can be up to 25 times the value of the goods.
“I have stocked up for the spring festival, but the fines made me sell at a loss. If I stopped selling, I would not be able to repay the factory,” another merchant complained on RED. The screenshot attached showed that her sales for two weeks were 134,000 RMB ($18,620), and fines accounted for a quarter of sales.
“The consumer got the refund, where does the remaining four times of the payment go? Just think about how Temu profits from sellers,” one person commented on the post.
Temu says that its policies encourage and reward top performers and suggests that sellers who complain are themselves to blame.
“Contrary to the notion that a low-price strategy equates to lower quality, our approach actually promotes the opposite. Our strategy incentivizes efficiency and responsiveness to customer needs, creating a beneficial cycle. High-quality producers excel in this environment,” Temu told the Daily Dot via email.
“On the other hand, merchants who compromise on quality due to inefficiency find little success on our platform. Such sellers, unable to compete effectively, are naturally avoided by customers and are further filtered out by our rigorous quality control systems, ensuring they do not continue selling on Temu.”
The company insists that most of its merchants benefit from using the platform.
“It’s important to note that the majority have positively benefited from the market insights offered by our platform,” it said.
Zheng, the analyst at Coresight Research, said that quality is a significant concern for any online retailer, but that it’s not enough of an issue to impact their business models.
“80% of products on Amazon are from China, you can see everything in Walmart coming from China, and yes, there are bad reviews,” Zheng said.
Zheng said Temu prioritizes low prices over quality. She believes that Temu will never increase prices until it beats Amazon. She estimates that Temu has gained a 2% to 2.5% share of the U.S. online retail market since launching in 2022. In seven to 10 years, perhaps less, she anticipates that Temu may grow to be one of the major online shopping platforms selling to the U.S. market.
The Coresight Research report also suggested that Temu may edge in on Amazon’s market share.
“Temu’s broader product selection and ultra-low-pricing strategy may chip away Amazon’s market dominance. While Amazon currently has the advantage of typically faster delivery times, customers who are more price-sensitive may be willing to wait longer for their purchases—as evidenced by the success of Shein,” it said.
In order for that to happen, Temu must win the trust of U.S. consumers, which may be impeded by various factors. Zheng said customers worry about the origin of goods, labor conditions in China and the environmental impact of international shipping. U.S. government agencies are separately concerned about the platform being owned by a Chinese company and its gathering user data, the same issue that comes up repeatedly in reference to TikTok.
Temu’s commitment to undercutting the competition may also stymy its potential for growth. Cai gave up carrying Christmas decorations on the platform. Shao said he plans to leave Temu.
“It’s a vicious circle,” said Shao. “In pursuit of low prices, factories lower the quality, and eventually, the whole world reinforces the impression that ‘Made in China’ is junk.”
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