By CHENG Lu

On March 14, sellers on e-commerce site Temu received a bizarre message. They would not be able to replenish their inventories or add new products until further notice. Warehouses, as they were told, need to “prioritize existing orders.”

Temu is a US-based online marketplace and a subsidiary of China’s PDD Holdings, which also owns Pinduoduo. Formerly a platform promoting and enabling traditional agriculture in China, Pinduoduo has transitioned to a third-party platform connecting merchants and consumers across almost every imaginable retail category.

When traditional wholesale markets closed during the pandemic, Pinduoduo worked with rural communities to sell unsold produce directly to consumers, helping to establish the uniquely speedy deliveries that have been key to the company’s astonishing growth.

Ship cheap goods fast

It is inconceivable that Temu, the overseas henchman of the ruthless Pinduoduo, would ask workers to stop working, sellers to stop selling, or suppliers to keep their cheap plastic goods to themselves.

At its core, Pinduoduo, and thereby Temu has a very simple business model – ship cheap goods fast.

Taking its first giant steps into the savagery of the US market, Temu values speed over everything else. It became the most downloaded app in the US after only 48 days. More than US$200 million (1.38 billion yuan) in monthly sales came in only the fourth month. That news further boosted downloads which were swelled by another half with a US$150-million, 30-second ad during the Super Bowl. With the floodgates to the US flung open, PDD plans to expand the model into Canada, Australia and Europe.

For two weeks after the puzzling announcement, not much changed. Out-of-stock notices mushroomed across the platform. Popular products ran out first.?Sales plummeted.

From photos taken by sellers in Guangdong, warehouses are overflowing with packages. On social media, account managers are begging for workers and making absurd offers.

“Please send me hiring agency info if you know any. Location Guangdong. I offer 10,000 yuan a day,” reads a typically plaintive ad. Monthly minimum wage in Guangdong province is 2,300 yuan.

Burning too brightly

“The business grew too fast. We got too many orders in too short a time,” a Temu employee told Jiemian News. Some in sales and marketing were told to simply stop working for a week to create some breathing room for the rest of the company.

Temu will inevitably be compared to SHEIN, the fast fashion retailer also known for obscenely-low prices and millions, if not billions, of items on sale. Even internally, Temu benchmarks its performance targets by using SHEIN’s own metrics. This has been made possible by the simple expedient of poaching large amounts of talent from SHEIN.

“Almost everyone got a LinkedIn message from Temu?HR. The offer was twice, three times as much as our previous salaries,” a former SHEIN manager told Jiemian News.

But unlike SHEIN, which relies on an extremely responsive network of selected factories and a strong supply chain, Temu follows Pinduoduo’s bread-and-butter modus operandi – blasting ads, non-stop promotions, and winning new customers at below-cost prices – or “dumping” as it might soon be widely known. PDD controls all overseas shipping for domestic operators and recruits sellers in what industry insiders describe as a “scorched-earth” policy.

“Similar sites would ask for experience doing business abroad. But Temu doesn’t care. If you have shipped anything, they sign you up,” said MA?Kaiyue, a cross-border e-commerce consultant.

Weak in the back office

In fact, in the first few months, Temu did look for sellers with overseas experience but this requirement was soon scratched.? Most sellers are in Guangdong but Temu is reaching out to sellers across the country including those inland provinces where costs are far lower to expand its product categories.

“They have bitten off more than they can chew, and they keep on biting. They are still signing up sellers like crazy, but there are not nearly enough backroom staff to support this kind of expansion,” a seller told Jiemian News.

For a company that is shouting very loudly about how new and efficient it is, Temu has already run into a lot of trouble. The latest round of warehouse logjams, triggered this time by the Super Bowl ad, is not a first for Temu. Last year, everything was put on hold for 13 days following another redundant promotion that exceeded all expectations.

On the same day sellers were told not to replenish their inventories, they received another message.

To reduce what is sweeping described as unnecessary competition, the Temu algorithm will now be monitoring sellers and forcing prices down to – quite literally – the lowest common denominator. Temu?will look for identical or similar products and compare prices automatically. The one with the lowest price – among tens, if not hundreds, of competitors – will “enjoy” all the web traffic. The rest will be hidden or delisted.

Temu imposes excruciating terms on prices and volumes. An army of category managers checks and obsessively bullies and cajoles sellers into cutting prices below wholesale levels. If a product sells fewer than 30 items (or less than US$90 in value) in 30 days, the price will be automatically cut. Sellers are given 24 hours to appeal.?

“It happened to me during the Chinese New Year. We didn’t respond in time because everyone was on holiday. In the end, more than half of our products were 20 percent off,” Xiaobing, a seller, told Jiemian News. “Margins are razor thin on Temu. Of course, we lost money.”

Xiaobing has closed four stores on Temu.?She has retained her stores on Amazon and AliExpress. On these sites, she said, there’s laying a foundation and building up. She can sell below cost at first to win good reviews and raise prices when the rankings are high enough.

“On Temu, there’s no raising prices back,” she said. “No building up. We dig deep and get buried.”

End of the beginning

Ma Kaiyue, the e-commerce consultant, says 40 percent of sellers won’t last. Survivors will be those who can afford Temu’s terms – likely a mixture of big brands and independent sellers with supply chain advantages.

Pinduoduo went through similar stages in China. It became a phenomenon by a blitzkrieg of unbelievably cheap knock-offs sold by small, unknown sellers before signing up big-name brands. Whatever happened to those small unknown sellers remains unknown.

But with regard to Temu, everything is on steroids even by Pinduoduo standards. Six months after its launch, big brands such as Xiaomi and Lenovo have already opened stores there. The stamping out of the little guys has begun sooner than anyone expected.

Learning from TikTok

Most e-commerce insiders interviewed by Jiemian News are bullish about Temu. When volumes are high enough, profit will follow, with higher commissions and lower supply chain costs.

Essentially, Temu will eventually “build itself up,” as the already-departed seller Xiaobing put it.

Risk exists, of course. Geopolitical phenomenon TikTok faces divestment or a ban in the US due to data privacy issues. Pinduoduo is doing its best to cut Temu off completely from operations inside China in case of a TikTok-style repercussion from state and federal governments.