How Temu’s semi-managed model could change everything …

🌈 Abstract

The article provides an in-depth analysis of Temu, the cross-border e-commerce platform owned by Pinduoduo, and its recent performance, growth strategies, and challenges. It covers Temu's user base, market share, expansion plans, logistics, profitability, and competitive landscape.

🙋 Q&A

[01] Temu's Recent Performance

1. What are Temu's current user and sales metrics?

• Temu has 480-490 million global users and aims to reach 600 million users in 2024
• Temu has 150-160 million users in the U.S. and 40-50 million monthly active users in Europe
• The average usage time on Temu is 19 minutes, higher than Amazon (11 minutes) and Walmart (14 minutes)
• Temu's users are predominantly women aged 18-28, with a lower income profile compared to Amazon

2. How has Temu's growth and market share evolved?

• Temu and SHEIN account for 1% of the U.S. e-commerce market, while Amazon has 38%
• Temu's growth in the U.S. has slowed down as a deliberate strategy to reduce reliance on that market
• Temu aims to decrease the U.S. market's share of total sales to around one-third, while expanding in other regions like Europe and Southeast Asia

3. What are Temu's financial performance and profitability targets?

• Temu's GMV reached $15-$16 billion in 2023, with losses ranging from $8-$9 billion
• Temu aims to reach $100 billion in GMV and become profitable by 2027, with some estimates suggesting even higher targets of $60 billion for 2024 and $140 billion for 2027

[02] Temu's Logistics and Fulfillment

1. How does Temu manage its logistics and fulfillment operations?

• Temu has warehouses in Guangdong, Yiwu, and Hong Kong, and ships from major hubs like Guangzhou, Shenzhen, Hong Kong, and Shanghai
• Temu relies heavily on air freight, with a daily cargo volume of 4,000 tons, compared to 1,000 tons for AliExpress and 800 tons for TikTok
• Temu has tried sea freight but found it too slow, and has also experimented with bringing 30-40% of its best-selling products to the U.S. to improve delivery times

2. How does Temu leverage the de minimis rule for cross-border e-commerce?

• Temu sends small parcels to avoid 10-20% import tariffs in the U.S. by staying under the $800 de minimis threshold
• The de minimis rule was introduced in 2015 to stimulate e-commerce, but has since been criticized for enabling platforms like Temu to avoid tariffs

[03] Temu's Merchant and Pricing Model

1. How does Temu's merchant model and pricing work?

• In Temu's fully managed model, the merchant's gross profit is typically around 10%, with Temu's gross margin around 60%
• Temu's backend system prompts merchants to reduce prices, sometimes by as much as 30%, to maintain competitiveness
• Temu offers higher gross margins (20-25%) for certain product categories in short supply to incentivize merchants

2. How has Temu's pricing strategy evolved?

• While supplier prices have decreased, consumer prices on Temu have been increasing, with the selling price in the U.S. now 1.5 times higher than in Q1 2023 and expected to be 3 times higher by the end of 2024

[04] Temu's Marketing and Customer Retention

1. How does Temu acquire and retain customers?

• Temu relies heavily on discounts, coupons, and "red envelopes" for customer acquisition, with 65% of its traffic being organic and 35% paid
• Temu plans to spend $4.3 billion on marketing in 2024, with $3 billion allocated to purchasing traffic and $1.3 billion for subsidies and discounts
• Temu's customer retention rates are relatively high, with 28% of early adopters still shopping on the platform 16 months after their first purchase

2. What are the challenges Temu faces in customer retention?

• Increased competition from Amazon and SHEIN, as well as Temu's own pricing changes (removing ultra-low-priced items and reducing subsidies), have led to declining repurchase rates in the U.S. and Europe