Temu Watch #4: Challenges for the semi-managed model and product quality
Content
Things that caught our attention
After delivering their China Retail Innovation study tour, Tech Buzz China’s Ed Sander and K5 Future Retail’s Sven Rittau set down in Shanghai to review the tour and discuss topics like ecosystems and live commerce. You can listen to the podcast here.
A few months ago, Ed interviewed Vincent Nys about his findings regarding Temu’s data security. After the interview was published on Tech Buzz China, Ed and Vincent were invited to a panel discussion hosted by the Belgian Chinese Chamber of Commerce to discuss various insights into Temu. The recording is now available on YouTube.
Meituan’s lightning warehouses are seeing explosive growth. Ed summarized a report by Latepost on LinkedIn.
Luckin Coffee is planning to expand to the United States. Ed summarized the news on LinkedIn.
Introduction
In March 2024, Temu launched its semi-managed business. In this operational model, merchants ship goods to overseas warehouses, and Temu sells them on behalf of the merchant. This model reduces Temu's logistical costs and enables it to sell more bulky goods that don’t fit in a small package transported by air freight. It also prepares Temu for potential import tariffs on its fully managed shipments from China and improves consumer delivery times.
In May, we explained the semi-managed model in more detail and updated you about its progress in August. In this new episode of our Temu Watch series, we give you another update about the model's performance.
We will also update you on Temu’s sales figures and regional developments and examine how Temu has adjusted its penalty system for merchants and is taking measures to improve product quality.
The sales figures and regional developments are available to all subscribers, but the rest of this report is accessible to our paid subscribers. If you want to stay updated on Temu, consider supporting us and getting a paid subscription.
We will publish Temu Watch #5 next week, examining developments in Temu’s logistics, marketing, profitability, and outlook in greater depth.
Cheers,
Ed Sander – Research Editor
GMV & Regional Markets
Let’s start with some updated market statistics.
Temu's fully managed services in the United States, Europe, Japan and Southeast Asia are expanding rapidly and have significantly improved operational efficiency.
Temu's total merchandise transaction volume in the first quarter reached US$11.3 billion, and the second quarter was expected to be between US$13 billion and US$15 billion.
Temu performed well in the third quarter of 2024. The number of returning customers increased significantly, and the average order amount increased slightly. The total merchandise transaction volume in the third quarter reached $18 billion, comparable to the total order volume for the whole of last year.
Looking forward to the fourth quarter's growth potential, the platform's GMV is expected to reach $25 billion to $28 billion.
In terms of market expansion, Temu added Latin America and Southeast Asia in 2024. This move aims to reduce dependence on a single region further.
Temu's performance in various markets around the world presents different characteristics. By the end of October, the North American market had achieved double-digit month-on-month growth, but its share of sales had dropped below 40% from more than 50% at the beginning of the year. This is consistent with the strategy Temu formulated at the beginning of the year to reduce the share of US GMV.
At the same time, Temu's performance in the European market has shown an upward trend. Its GMV share has increased from about 20% at the beginning of the year to more than 35%. This is mainly due to Temu 's strategy of actively expanding the European market this year.
In the Asian market, the share of global GMV of Japan and South Korea is about 10%. In emerging markets, such as Brazil and Southeast Asian countries (such as Thailand, Malaysia, the Philippines, etc.), Temu's GMV share is less than 10%.
Temu's global expansion strategy focuses on the US, European, and Latin American markets, as well as market opportunities in Japan, South Korea, and Southeast Asia. But in each region, Temu faces different challenges…
Asia
Temu's initial attempts in Southeast Asia have achieved good traffic and orders. Temu's promotion efforts in the region are much smaller than those in Europe and the United States, and it has not yet launched large-scale new user subsidy promotion activities.
Although Indonesia is difficult to enter due to governmental policies, Malaysia, Thailand, and the Philippines may become key target markets for development. However, these countries might follow Indoneasia’s example and also take action to prevent their domestic manufacturing industries from being affected by competition from China. Temu has, therefore, adopted a cautious strategy in the region.
When expanding these markets, Temu needs to follow the relevant regulations of cross-border e-commerce and adapt to the habits of local consumers. Next year, Southeast Asia's 312, 712 and 618 shopping festivals are expected to become essential promotion opportunities for Temu.
Latin America
While attracting investment in the US market is relatively simple, there are more challenges in Latin American regions such as Mexico. Currently, only basic promotion activities are being carried out In the Brazilian market, but it will become a focus of attention next year. Temu needs to balance the newly launched fully managed and semi-managed businesses. This balance is crucial to its success in the region. By 2025, Southeast Asia and Brazil are expected to become the main drivers of Temu's GMV growth.
Middle East
Political instability and customs clearance issues in the Middle East have led to air and sea transport obstructions, making cross-border e-commerce businesses face many difficulties. The region's logistics conditions are unstable, and cargo loss occurs from time to time, which undoubtedly increases business risks.
Despite the strong market demand in the Middle East, Temu still faces problems such as slow delivery and the risk of lost goods in the region. To solve these problems, the region must introduce warehousing facilities, optimize the standardized process of fulfilment and delivery, improve road conditions, improve transportation, and build a sound information system.
Europe
The European market has high operating costs, low user willingness to pay (in advance), and a fierce competitive environment with platforms like Shein and Alibaba. Low-priced goods and counterfeit products have led to restrictive measures in several countries, including France, Spain, Italy, and Germany, including fines and advertising removals.
In addition, Temu faces challenges such as tax policies, product restrictions, and frequent user complaints in the European market. Together, these lead to the dilemma of low customer acquisition efficiency and high costs.
A unique challenge of the European market is that local merchants are widely distributed and tend to operate independently.
The rest of this report, which includes an update on the semi-managed model and Temu's measures to improve product quality, are available to paid subscribers.