Temu is losing millions of dollars to send you cheap socks | WITH CABLE

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PDD’s foray into the US with Temu is costing it dearly and angering some of its vendors, but it was born out of necessity. As Chinese customers spend less, other giant e-commerce companies are entering Pinduoduo’s core markets, selling off-brand products and trying to target a less affluent demographic. That means the company has to look abroad. “Exploring the US market is the best and probably the only strategy Pinduoduo could use when faced with a saturated and overly competitive domestic market,” Si says.

But the US market is not only difficult; it is increasingly risky for Chinese companies.

Temu is currently taking advantage of a trading loophole that allows for duty-free shipments of up to $800 to the US. By shipping small packages from its warehouse in Guangzhou to individual US customers, the company is able to sell essentially duty-free in the US. But small business lobbyists advocate lowering this “de minimis” threshold to $10. If that happened, Temu’s costs would skyrocket.

And, as a Chinese-owned platform, Temu faces scrutiny from US authorities, who view data collection by Chinese companies as a threat to national security. In April 2023, the US-China Economic and Security Review Commission issued a brief which warned of data and supply chain risks arising from Chinese-owned e-commerce platforms, including She in and Temu.

Calls to completely ban apps linked to China have become common in the US. In May, Montana became the first US state to ban China-linked apps. to formally ban TikTok, the social media platform owned by Beijing-based Bytedance. The month before, a CNN investigation showed that the Pinduoduo app can bypass users’ cell phone security to monitor activities on other apps, check notifications, read private messages, and change settings. Although there is no evidence to show Temu has similar data security concerns, Montana Governor Greg Gianforte including app on a list of technologies it said are “tied to foreign adversaries.”

“Western governments are very afraid of TikTok because it could direct people’s thinking, but the address and payment information stored in the Temu app is also very sensitive to the US government,” Li says. The US government is concerned that the personal data of US citizens could be transmitted to China for the purpose of intelligence gathering. If Temu grows large enough, the US government could conclude that it has too much data on American users.

But behind these risks is the possibility that the supply chain simply cannot sustain the low prices that people expect.

In China, some sellers have already given up. A big change came in December 2022, when Temu began requiring manufacturers to bear half the shipping costs to ship products from factories to its warehouse in Guangzhou.

Sandy says she stopped selling pet products in Temu in March. “We sent them some products to test, these products sold well, and Temu asked us to send them bulk products,” she says. “But after we spent money to prepare the inventory and paid the shipping costs to send it to his warehouse, Temu asked us to lower the price.”

That sometimes means they’re asked to sell at a loss, he says, but if sellers can’t meet Temu’s suggested prices, their products are delisted. The cost of processing returns is also often higher than the value of the product being shipped, which means that while customers in the US are sellers

After selling his existing inventory at a loss, Sandy closed his store in Temu. Temu is still reaching out to her and has asked her to send some of her best-selling products to one of her stores, but she is no longer interested. “Whatever potential Temu promises, it cannot make up for the losses I incurred by selling on this platform.”