Temu burns cash to challenge Shein and Amazon on Black Friday

A $5.93 cell phone holder seemed like a gamble worth taking for Michelle Zhang. Over the past year, she has become a regular customer of discount e-commerce app Temu, mainly buying home and kitchen appliances. “Items on Temu are usually less than half their prices on Amazon, and you don’t have to buy in bulk,” she says, “although some mugs I bought broke easily, I was reimbursed quite easily.”

Since its launch in the United States in September 2022, Temu, owned by Chinese internet giant PDD Holdings, which also operates the massive e-commerce platform Pinduoduo, has risen to the top of app stores, largely partly thanks to consumers like Zhang, who lives in the United States. Texas. The cell phone holder she purchased was heavily discounted as part of the Black Friday “up to 90% off” deals on the app, which is investing heavily in Black Friday and Christmas promotions. Christmas to try to compete with rivals Shein and Amazon and break American domination. walk.

Temu is now present in 47 countries. The app was launched in the Japanese market in July and entered the Middle East, via Israel, and Southeast Asia, via the Philippines, in August. As of November, it had been downloaded 250 million times, according to data from consultancy Business of Apps. The company’s strategy of offering deep discounts via coupons and subsidies, and spending heavily on advertising, appears to be paying off, at least in the short term. At the start of 2023, Temu set a target of $10 billion in total sales globally. Analysis from investment management firm CLatest predicts that with a successful holiday season, sales will exceed $18 billion this year.

But this rapid growth comes at a cost. Sellers say Temu is struggling with its warehouse capacity as it tries to fulfill orders and process returns. And the company is still losing a lot of money. According to Chinese newspaper 36kr, Temu records a loss of around 30 to 35 percent on each US order, and an average of 40 percent on global orders. The company had budgeted a net loss of 20 billion renminbi ($2.76 billion) for 2023. It has now increased it to 23 billion renminbi ($3.17 billion), according to 36 kr.

When presented with reported estimates of 36 crowns and other similar projections for comment, Temu representatives responded that the figures are “significantly inconsistent with the facts”, but refused requests to be more specific. But a source with knowledge of PDD’s financial situation, who spoke on condition of anonymity because they are not authorized to speak to the media, confirmed the figures. Temu’s runaway spending has sparked concerns among analysts – echoed by the company’s source – that the company may struggle to profit from its huge user base.

Jeff Li, a technology analyst and former head of consultancy Accenture China, believes this is a signal of high risk: “If Temu expands to 47 countries in a year, but no country If there is a clear profitability schedule, this would be quite dangerous. »

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