Temu Faces Backlash from Chinese Suppliers Over Business Model Shift
Temu, the fast-growing online marketplace owned by PDD Holdings Inc, is facing a backlash from Chinese suppliers over its aggressive push to reshape its business model. The platform, known for its ultra-low prices and fast shipping, has been actively recruiting Amazon merchants with goods in warehouses in the US and EU, marking a significant shift from its previous "fully managed" model. This move, aimed at protecting Temu’s business from potential regulatory changes and streamlining its supply chain, has raised concerns among Chinese suppliers, some of whom have expressed their dissatisfaction directly to Temu’s offices in Guangzhou.
Key Takeaways:
- Temu’s shift: The company is transitioning to a "semi-managed" model, where suppliers are responsible for shipping, warehousing, and last-mile delivery previously handled by Temu.
- Supplier concerns: This change has raised concerns about increased risks and potential losses for suppliers.
- Fines and protests: Several suppliers have reported being hit with fines by Temu, leading to protests outside its Guangzhou offices.
- Incentivized adoption: Temu is offering incentives, including top-placement promotion and order subsidies, to encourage suppliers to adopt the new model.
- Stock performance: While PDD Holdings’ stock has gained over 42% in the last 12 months, Alibaba’s stock has lost over 23%.
A Transition to a Semi-Managed Model
Temu’s recent push to recruit Amazon merchants with overseas warehouses signals a strategic shift from a model where it managed the entire supply chain to a "semi-managed" approach. This involves pushing responsibility for shipping, warehousing, and local delivery to suppliers.
This shift has several potential benefits for Temu:
- Reduced reliance on tax loophole: The move is a strategic response to the possibility of governments closing a tax loophole that has been instrumental in Temu’s quick growth.
- Faster delivery times: Having goods stored closer to shoppers allows for faster delivery of bulkier products with higher profit margins, such as furniture and home appliances.
- Expanding product selection: The new model opens up opportunities for Temu to offer a wider range of products, including those with higher values.
Supplier Concerns and Protests
The transition to a semi-managed model has ignited a wave of protest from Chinese suppliers who feel burdened by the increased responsibility and risks. While Temu argues that the shift is beneficial for both parties, suppliers feel differently.
Here’s why:
- Increased financial burden: Suppliers now face added expenses for shipping, warehousing, and last-mile delivery, which they argue erodes their profits.
- Potential for fines: Some suppliers claim they have been subjected to fines by Temu for deviations from the new model, which they perceive as unfair and arbitrary.
- Uncertainty about future: The shift to a semi-managed model creates uncertainty about their roles within Temu’s ecosystem and the long-term sustainability of their business.
Fines and Protests
The discontent among suppliers has translated into open protests outside Temu’s Guangzhou offices. One supplier even displayed evidence of 279 fines totaling 114 million Chinese yuan ($16 million), highlighting the financial strain imposed on them.
Temu’s Response: Incentives and Promotion
Temu has attempted to appease disgruntled suppliers by offering incentives and promotion for those who adopt the new model.
- Top-position promotion: Suppliers are promised top slots on Temu’s platform if they choose the semi-managed option.
- Subsidies on specific items: Temu is offering a $3 per order subsidy for certain clothing items, aiming to offset some of the increased shipping and warehousing costs.
Market Impact and Stock Performance
The ongoing struggle between Temu and its suppliers highlights the challenges associated with rapid growth and evolving business models. While Temu’s move to a semi-managed model reflects its ambition to become a global e-commerce giant, it also underscores the potential for conflicts with its suppliers.
The stock performance of PDD Holdings, which owns Temu, has been positive, with a gain of over 42% in the last 12 months. However, Alibaba, which faces similar challenges in its e-commerce business, has experienced a decline of over 23% in the same period. The market is closely watching how Temu navigates these challenges and whether its business model shift will ultimately prove successful.
Conclusion
Temu’s aggressive push to reshape its business model is forcing a showdown with Chinese suppliers. The company’s move towards a semi-managed model, while driven by strategic goals, has encountered resistance from suppliers who fear increased financial burdens and uncertainty. The outcome of this conflict will have significant implications for Temu’s future and the broader e-commerce landscape.
