A threat or an opportunity to the D2C brand owners? Chinese e-Commerce Giant has eyes on the US market...

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As the inflation rate continues to soar in the US, a lot of consumers start to feel the pain and stretch their spending. Platforms like Amazon and Walmart are showing weak performance. So do the 3rd-party seller businesses. However, a Chinese company, TEMU, sees this as an opportunity to enter the US market. ­­TEMU is SHEIN on steroids!

­Temu was launched in September 2022. It is an online marketplace that aims to provide consumers with the best possible products and services at an affordable price. If you have heard of SHEIN, TEMU is SHEIN on steroids.

TEMU is a new startup that aims to empower American consumers with a fresh approach to shopping online. It comes at a time when traditional retailers, such as Amazon and Walmart, are struggling with the talent shortage and weak growth.Before we go into details about TEMU. I would like to list a few facts about its parent company Pinduoduo, the largest e-commerce platform in China by number of monthly active users.

Overview of Pinduoduo (PDD)

PDD Revenue Growth (in red line)

The red line is PDD’s revenue growth compared to ByteDance (Tictok), Google, Amazon, Facebook, and Snap. I believe understanding PDD would shed some light on TEMU’s game. Pinduoduo was launched in 2015 by an ex-Googler, Colin HuangThe platform had a miraculous rise in China when Alibaba’s Taobao and JD.com had already dominated the market.By Q1 2022, Pinduoduo had 751.3 million monthly active users in China, surpassing giant JD.comPinduoduo invented a famous “team purchase” mechanism, which made the online shopping experience a social activity.Pinduoduo adopted the consumer-to-manufacturer model in terms of supply chain management. This is an important feature that has a profound impact on the business model, cost structure, and market dynamics. I will try to explain more in the next section.­

­How Temu sells quality products at affordable prices

­Through its consumer-to-manufacturer (C2M) model, Temu, similar to PDD,  aims to provide its customers with the best possible products and services at an affordable price. It aggregates the consumer’s needs and orders directly from the manufacturer. It eliminates the supply chain to go through multiple distributors and suppliers as much as possible. This also eliminates some of the costs associated with buying goods online. The Temu model is built on top of the existing PDD infrastructure. Through their shared logistics lines and talent network, Temu can provide American consumers with the best possible products and services that already serve the Chinese market. This business model is the reverse of Amazon.com. Instead of providing consumers products with a lot of different varieties, Temu will limit the SKU count by 10x. Amazon has over 100 million SKUs, and Temu will end up having in the order of 10 million. Temu tries to find the common denominator of needs for most consumers. By eliminating some distributor layers,  reducing supply chain complexity, and shrinking inventory levels, Temu will be able to further reduce their product offering prices. ­

How Temu impacts existing e-commerce sellers

Within less than a month, Temu app has already ranked among the top 10 shopping apps in the US. It is worthwhile to take a look at Temu’s app and pay attention to its growth. With the current form factor, the app still lacks the most popular feature “team purchase”. I’m sure it will keep evolving. For most Amazon sellers and D2C brand owners, Temu will not threaten the business immediately. If Temu follows PDD’s strategy in China, it will most like to target lower-tier cities in the beginning, and offer really deep discounts to consumers.In the long run, private label businesses have to continue to invest in brand building and product differentiation. Otherwise, they will be outcompeted by white-label products from China with higher quality and cheaper prices.