In the past few weeks, a poster has been circulating in the seller community outlining Temu’s local sellers service model, set to debut on March 15th in the U.S. and later in Europe.
But why did Temu decide to launch local sellers when it has been operating as a full consignment model since its launch?
Join us as we delve into the motivations behind Temu’s decision to launch local sellers in the US, examining its impact on Temu’s operational efficiency, and if this puts them in direct competition with platforms like Amazon and TikTok Shop.
Tune into the full episode here:
Also available on Apple Podcast.
Who is Temu, momentum Works
Live Commerce Immersion to China, Momentum Works
An analysis of Temu’s cross border supply chain & logistics (1/2), TheLowDown
An analysis of Temu’s cross border supply chain & logistics (2/2), TheLowDown
[00:00:18] Jianggan: I was having a discussion with Weihan who you have probably heard in some of the earlier podcast episodes. That when we were working on “Who Is Temu” report in January 2023, it feels like a century away. Right? So back then it was like a dozen countries or something, or maybe just the US plus a few others. It was very small back then.
Over the course of a year, every time we describe about Temu, we have to go and check on their website to see which other countries they are already in.
I think now it’s 40 plus. It was tricky because they never make any announcement. You have to really look at their website and to see whether they have launched in a new country. And of course another proxy is its app ranking because typically when they start working in a new country they will invest lots of marketing resources and to push the ranking of their app. I heard they are the largest customer of Facebook now advertising. Yeah,
[00:01:16] Sabrina: Last year as well. Right? One of the biggest.
[00:01:19] Jianggan: It’s the biggest. I think the second biggest is Shein
[00:01:22] Sabrina: they have deep pockets. They can, they can afford to.
[00:01:24] Jianggan: They do have deep pockets, right? Last year, even with like hundreds of millions of dollars spent on advertising and promoting Temu, we talked about earlier, and Pinduoduo is still very profitable.
[00:01:35] Sabrina: And I think these few days, especially on the podcast, every time we talk about eCommerce or Alibaba, Pinduoduo or Temu always comes up so they are really just they’re growing very fast and of course now they haven’t announced this, it’s just a poster that we’ve seen circulating in the seller community that they are going to be launching local sellers in the US, right?
So, what does this mean? What do they mean by local sellers?
[00:02:00] Jianggan: Okay, first I would like to discuss about this poster that Sabrina you mentioned about. So it basically is a very simple text based poster saying that, okay, an introduction of Temu’s local to local service model. So I’ll just quickly describe what’s been written on this poster.
It says that, okay the whole thing’s in Chinese, right? First is the basic description of the model. It says that for the merchants, if your goods are already outside China and in a destination markets, you can process on consumer orders yourself and you can send the goods and arrange for fulfillment yourself.
So the plan is expected to be launched on the 15th of March in the US and by end of March, they plan to extend that into Europe, which I think is now is what is the 30, 40 percent of their total volume. It’s quite big, right? So the responsibilities of the sellers or the merchants is to first start a shop and choose this semi consignment, half consignment, whatever that’s called.
I mean, there’s no like industry word for that yet to choose that as an option. So then you will upload the information about the goods, you will fill in the basic information, you will maintain the inventory but you don’t have to go through the full consignment process that Weihan you can talk about full consignment in a bit, which you need to send the sample to Temu team and you need to get a sort of verification, et cetera.
I think you need to negotiate on the price. So , What is interesting here is that the merchants can fulfill the goods directly to consumers and handle the reverse logistics, which means returns, cancellations, failed deliveries, et cetera. So the last part of this simple poster, which is just text and it’s not even a attractive infographic.
And it says that the benefit of this is that we will alleviate merchants burden on market promotion and customer service. We will use our expertise as well as the resources as eCommerce platform to help you improve the competitiveness of your products. I don’t know how they do that.
And the last thing is that if you can arrange for fulfillment yourself, you can improve the customer satisfaction. So this is basically what the poster is about. And it has been circulating the last few days. But whatever they’re discussing here is not new.
End of last year, there were already discussions saying that Temu is going to launch this. Because full consignment, they have some bottlenecks on how much they can grow.
[00:04:34] Weihan: So I think just to give everyone an overview of what they have been doing in the past so that it’s a better comparison to what they are launching now is that previously what the merchants have to do is that they are only responsible for supplying the products to Temu and this process, sometimes it could take a pretty long period of time because they have to send in first the product samples as well as product description to Temu and then afterwards Temu will have representative to check this products and if the products are undesirable, they are returned to the suppliers and if the suppliers want to still sell on the platform, they have to set in better products so this process could be quite stringent as Temu I think have set a certain standards that they expect their suppliers to follow while at the same time making sure that this product costs remains very low. So I think for a lot of suppliers, they would really have to wreck their brains doing this supply portion, but then afterwards, should their products be selected by Temu, the platform would handle everything else, including all your store setting, your price setting, marketing even the fulfillment for the sellers. So the sellers would just have to wait for Temu to actually return them their profit after taking away some commissions for the platform.
So I think this is a step away from what they are used to doing, especially because The previous model is mainly targeted at Chinese sellers who are trying to sell their products to overseas markets. But then with the introduction of this new semi consignment model format, they’re trying to, in a sense, open up the supplier base to allow people who already have goods abroad to sell directly to whatever market they’re in, and in a sense, help Temu eleviate some of this operational processes and also to ensure that the shipments are made faster because currently the old model that Temu is operating on would often have like shipping times of 10 to 15 days. And this might cause consumers to feel like, Oh, it’s too long, I don’t want to wait and then turn to other platforms, especially you have TikTok shop, yeah, we have a large local seller base as well. So I think this is the, quite a big change in terms of what they’re adding to their entire ecosystem.
[00:07:10] Jianggan: I think, I think just one clarification from what you just said you mentioned about commission, right?
So of course, effectively is you take the spread between what consumers are paying versus what merchants are get, but I think for Temu historically is not exactly a commission model. It’s basically, you agree to supply them goods at a price, and they sell at a different price, and you have no transparency of how much they’re selling.
But essentially, this is like retail, but they don’t undertake the risk of owning the inventory. But of course, as Weihan said, right there are some constraints to this model. The first is that, okay, Temu handles everything. So, of course, your inbound warehouse capacity and your logistic capacity, of course, work with third parties.
And this all constraints to how they can grow. On the other hand you look at this in the U. S. market, there are a lot of Chinese brands, merchants, sellers, which have had the goods stored in the U. S., and many of them have been sent on Amazon, some of them have been sent on eBay, and some calculation say that 40 to 50 percent of the third party’s seller volume on the GMV, that works out to be about 200 billion dollars a year is done by China sellers. Many of them have the goods already in the US. So this is a huge reservoir of supply that you can tap into. I think TikTok has been tapping into that. We know that they have been using two models. First is a full consigned model. And the second is that getting the people who already have the goods in the US to basically advertise on TikTok and run for their own fulfillment.
The second part has been doing really well. The data I have is full consignment for TikTok shop is about 10 percent of their total sales volume in the U. S. And the rest are goods mostly stored by Chinese sellers and Chinese manufacturers in the U. S. And I think on Black Friday they had 33 million dollars of GMV on that day alone, which coming from almost zero base half a year ago is quite significant, but of course, I have people telling me that, look, this is impossible because I alone, I sold like 3 million worth of goods on that day. So, so this is the whole thing must be much bigger. But regardless, I mean there are lots of supply there, and I think Temu wants to tap into it.
[00:09:26] Sabrina: I think the one of the reason why Temu wants to tap into this, cause it helps them be more operationally efficient in terms of fulfillment. Right? Which is interesting. Cause I feel like every time we talk about Temu or Pinduoduo, the parent company, we talk about how operationally efficient they are already.
And so it’s interesting to see that they are trying to become even more efficient when they already one of the most efficient companies out there
[00:09:51] Weihan: I think, to build on, we have seen this efficiency firsthand. We actually visited Pinduoduo’s headquarters last year, I think during last quarter. And yeah, it’s like exactly what you Jianggan described their poster to be. It’s all text, no infographics, no pictures. They’re very straight to the point. So, when we went to the office back then, you really see that the staff members there are also very straight to the point. They don’t bother beating around the bush.
If there’s, let’s say, a meeting, they’ll just sit down. These are the agenda on the cover, this, this, this, this, this. And then afterwards, they just go, there’s no formalities that you would expect from many of the companies that we are used to seeing or are exposed to.
And then they translate this efficiency exactly into whatever business that they are doing domestically or in the global market.
[00:10:43] Jianggan: I have some friends who are tracking Pinduoduo’s market. They are equity funds focusing a lot on e commerce and tech kind of equity.
So many of them have been interviewing lots of people at the mid level of Pinduoduo to try to get a sense. You know, investors, right? They go and try to work out unique economics and ask for lots of data points. And what they told me is that what struck them is they speak to the mid and junior level employees at Temu. They’re all saying that, okay, oh, they work long hours, but they’re not tired. Because they have no, they don’t have to think about all these complexities, right? I mean, they just execute on whatever that has been dissected super well. And of course in their own areas of responsibilities.
They have some flexibility to negotiate, but they don’t have to guess what the manager actually means when the manager gives unclear instruction. So the whole company functions in a way that from top down first, don’t have that many layers of complexity, and second whatever that’s been handled down that has been clearly thought through.
And clearly communicated so you don’t have to spend lots of time guessing even at Momentum Works, a small organization, sometimes you have this issue, right? And so instructions are passed and then it gets executed. Then, okay, because the person passing the instruction, sometimes me not giving clear instructions and the results are different from what is expected.
But I think that kind of issue is minimal at Pinduoduo. That makes them quite efficient.
[00:12:04] Sabrina: So now that you think, now that they are launching this local sellers in the U. S. market, right? Do you think this will put them in competition with, let’s say, Amazon Marketplace or maybe TikTok Shop, since now they are trying to tap into the sellers that have been doing well on TikTok Shop?
[00:12:19] Jianggan: I think that’s that’s a question which started sometime after we launched who is Temu report because initially when Temu went in the prevailing sort of sentiment for people who have noticed that Temu was actually there is that, oh, they’re selling very cheap stuff or we should not worry about them.
They’re not in the same league as Amazon. Whenever you hear this kind of a sentiment, you sort of realized, okay. Like for the first few years of Pinduoduo’s existence in China, they said the same thing, right? Okay. It’s not going to threaten Alibaba. It’s selling cheap stuff, it’s targeting people who are outside of 5th ring road of Beijing who are very poor.
So, so then, look at now, their market cap has been above Alibaba for the last few weeks. And they occupy a significant market share of e commerce and they are very profitable. So, so So, so I think it’s hard to dismiss them and of course they are talking in a segment that at the moment they’re talking in a segment that Alibaba, I’m sorry Amazon has not been very strong in because, I mean, we have been looking at some of the tracking data by different data services that you don’t see much overlap between frequent Amazon users and frequent SipTemu users, but we are in a competitive environment. We are in the evolving environment, changing environment.
So once they get a foothold, into the U. S. market by the whatever model they have been operating, full consignment valuable money, cheap stuff, you know, and many people have been dismissing it as garbage, but somehow they get sales, right? They’re doing like two billion a month in October. Yeah, so USD. So that’s quite significant.
And of course, once they have a bitch head and, and what they are thinking is that, okay, how do we continue to grow this business? How do we, Get out to consumers who have already spent so much money to pay Facebook to acquire to be sticky with us. And of course they think about different things.
So what has been launched now is probably one thing to complement the existing full consignment offering. So, consumers would have the option to have something which is fulfilled from the U. S. faster, maybe some premium goods to test to see if it actually works.
We don’t know, but that leaves lots of possibilities, right? I mean, when Amazon opened third party sellers, that also opened up lots of possibilities. I know third party sellers is like two thirds of the total GMU of Amazon. So I do think that eventually they will compete against Amazon for the sort of consumption power of the consumers.
Would they go head to head on head or would they chip away? Or would they be just sort of looking at Amazon saying that okay, this is too formidable. We try to occupy a niche that Amazon not in we don’t know yet. But but I think This is a group of people who are working very hard and who are very diligent at looking at their competitive position and grow their business so we should not ignore them
[00:14:58] Sabrina: I also wanna talk about TikTok shop. ’cause I feel that nowadays when we talk about e-commerce, in addition to Temu, TikTok shop is another name that we hear very often, mm-Hmm. And we do know that ,TikTok shop has plans in the US where Temu is spending a lot of their marketing expenses there. So how do you think Temu or TikTok shop would see each other as competitors?
Do you think there’s any overlap in terms of consumers or do you think they’re focusing on a very different target audiences?
[00:15:26] Jianggan: I do think there’s a, there are some differences. So for instance Tiktok shops will probably want brands to work with them because it’s at the end of the advertising platform, right?
So, brands have lots of money to spend. And the TikTok as a format is you will not be placed in next to cheap garbage. So I do think it’s a natural playground for brands if they manage to figure out how to create content at scale and and iterate the content fast.
So, I do think TikTok won’t want to target that. I’m not sure to which extent Temu wants to do that because the way that the platform is structured, even in China, it’s very hard for them to work with established brands. For some new brands, yes, but established brands, very hard.
So TikTok will probably have a bit of difference there. Eventually, how will they converge? We don’t know. And these companies are not static, right? I mean, they look at market consideration, they look at the changes, and they make changes to their own operations. I think the only thing you can do is look at their inherent strength, their inherent weakness, and figure out what’s most likely for them to do next, and what is low hanging fruit for them, what is so hard for them.
So, for instance, the full consignment for For tiktok shop has been very hard. We know that they’ve been trying that for Saudi Arabia. I mean the results have not been great Because it’s not the company’s forte and to build that forte it takes, as we mentioned right takes lots of attention from the leadership to build something which is very different from what the organization has been traditionally strong in So yeah, so I do think They will compete to a certain extent.
I don’t think it’s that direct at the moment, but but I do think that they watch each other very, very carefully.
So, Weihan was with us on a visit to China, like last quarter, right? So we visited a lot of companies in the ecosystem. We visited MCN, we visited, I think Temu and SHEIN. We visited almost all large e-commerce logistic companies. Has it changed some of your perspective about certain things?
But it certainly made me evolve some thoughts about certain companies, because quite often what you see from outside or what you think is logical for them, but once you observe this organization, observe their people, and the way they handle things at a close distance, and you get a better perspective of what they can do and what they can’t do.
[00:17:43] Sabrina: I think that’s especially true for Chinese companies, right? Because, I mean, compared to maybe American or European companies, they’re very secretive. They’re not big in the news, they don’t have their CEO coming out and making speeches or running their own Twitter accounts.
[00:17:57] Jianggan: That’s for a different reason, right? Have you heard of this saying: 棒打出头鸟 a bird amongst a flock of birds, if you stick your head out, you get hit. So that’s historically has been the political context, right?
[00:18:11] Weihan: But isn’t it also like a different generation of Chinese companies as well?
Because in the earlier days you do have for example Jack Ma whatsoever. They are very vogue. Who else? Aside from Jack Ma, who else? Actually it was just Jack Ma. Maybe he’s the reason why people don’t want to come out and see anymore because he made such an impact on the space and then people started to either copy what he’s doing or start to bash what he’s doing.
And then people will be like, Oh, in order to protect what I have built or in order to not have my competitors be able to catch on what are my strengths and my weaknesses so quickly, I have to just stay silent and just focus on doing what I do best. Yeah,
[00:18:52] Jianggan: I do think that most of the leaders of that generation of companies are geeks, right?
I mean, Pauline Ma of Tencent, he was a geek. Jack Ma was an English teacher, right? He naturally he wants to talk, he wants to share which is good because lots of his early words still carry lots of wisdom even to this day. But, for the others, The first generation of entrepreneurs rarely came from a community background.
And also, I think, the difference between them and people like, say, Bill Gates is they came from a generation which is pretty much the first to build wealth. And if you look at all these immigrant entrepreneurs in the U. S., they tend to be of the quieter type compared to people who grew in relative affluent income families, had privileged since they were young.
So they are more confident to talk in public. So I do think that there’s a factor there as well, and of course in the current political environment in China, you don’t want trouble, right? Because there are lots of negative sentiment in a society.
You don’t want anything to be misinterpreted and the natural way is not to talk about anything.
[00:19:53] Sabrina: It’s very similar to what we discussed in Keith’s podcast, where he said that a lot of people are concerned about talking to Western media as well, because they’re worried that their words would be misinterpreted.
And I think that’s true for Chinese companies as well, right? Which is why it’s very hard to see the full picture. Do you think that gives the Chinese companies some sort of an edge when they go out? Like when they start expanding overseas, when they go to US and Europe, their competitors can’t find information about them, because one, they’re secretive. And they’re quieter. And two, even if you read news reports about these companies or what’s going on in China, you don’t often get the full picture.
[00:20:31] Jianggan: I think for American companies, when you read news headlines, you don’t get the full picture as well, right? But of course for Chinese companies a key problem is that lots of things which get reported in the English media typically do not have access to what’s really happening in China, especially nowadays, I look at lots of sort of tech reporters focused on China. They are based in Hong Kong. Some of them are even based in Taiwan, so they don’t really have a lots of contact points on the ground to get the first. We have probably no more than them, because you have been to the warehouses, you have been to the factories, you have been to the live streaming studios, you have been to all these facilities, so that of course your understanding will be different.
So I would hope that I don’t know, the journalists would make more of these trips, but of course in the current political environment, lots of things get misinterpreted, it becomes a bit harder. So we are actually last year we went to China quite a few times. Sometimes we went alone, sometimes we went without clients and we are organizing something in March.
[00:21:24] Sabrina: On 19 to 21st March, we actually have a live commerce immersion to China. So it’s a three day immersion and it’s packed with visits to companies and of course focus sessions as well, providing you with networking opportunities and an opportunity to see what is actually happening on the ground in China.
Because from what I’ve heard from the team, it’s just mind blowing, right? It’s so different from what we’ve seen in Southeast Asia, especially the MCN.
[00:21:51] Jianggan: Well, I certainly know when your hand came back, she doesn’t talk anymore. She said there’s so much information she needs to process.
[00:21:56] Weihan: Interesting because you have been reading about, Oh, they’re doing this, they’re doing that, but being able to see it firsthand really just blows your mind because you don’t know how much scale they’ve actually built the entire just just looking at live streaming alone how much scale they have built. They ran out like old factories just for live streaming studios. And you see multiple hosts just streaming at the same time with an entire team supporting them It’s so different from what usually you expect what we see in Southeast .Asia.
So if you are able to join, do come and just experience it for yourself. It would really change your mind on how things work in China and how you might be able to bring this back to what you are doing in your company as well.
[00:22:40] Jianggan: We look at what’s also happening behind the scenes, right? So you have like, I don’t know, 40 live streamers doing that at the same time.
And how do you organize this? How do you make sure that they have enough goods to sell? And how do you optimize the traffic across different platforms? And how do you incentivize the streamers or the hosts which are doing better than others. And I think, I think behind that, there’s a lot of, lot of sort of operational considerations, which I think are very valuable.
Some of them would apply to Southeast Asia or other regions some of them might not, but I think having a first understanding will probably makes more sense for operators as well as for investors, right? So you have the reference point, then you see what can be adapted, what can be applied, then it’s probably better than reinventing the wheel.
[00:23:26] Weihan: Yeah, I think, and they have AI hosts as well, right? Which is something that we don’t I think we’ve seen it in the US and Europe, but it’s not to the skill that China has been able to do.
[00:23:37] Jianggan: I think skill is one thing, but how fast this sector is evolving is another thing, which is super interesting, so even the platform’s attitude towards AI hosts for live streaming has been evolving. Like two years ago, the platform said, now this disrupts our ecosystem and this disincentivizes the real hosts, which are creating content and creating value to the ecosystem. But as you can see, when the AI created sort of virtual hosts becoming better and better. The platform’s attitude is also changing, right?
So they now allow certain percentage of frames to be allocated to AI based hosts. There are still lots of issues to resolve before AI can be massively adopted. So for instance, I mean, how do you digitize the goods that they are supposed to hold in their hands to sell and different kinds of goods, how to render that experience.
So, but I think there are lots of people working on that. It might be the future. It might not, but certainly, I mean, you have lots of people working on that. It has the potential to disrupt.
[00:24:33] Sabrina: So if you guys are interested, I will link more information about our live commerce immersion down below It’s not just an opportunity to go to China and learn, but you also get to meet key players in the ecosystem and build meaningful networks.
So with that, thank you for tuning into another episode of the Impulso podcast. We hope you enjoyed today’s episode. Do like our podcast and follow us on Spotify, apple Podcast or your preferred podcast platform to stay up to date on the latest happenings and trends in tech, new retail, and the broader digital economy.