Temu Is Losing Millions of Dollars to Send You Cheap Socks

PDD’s push into the US with Temu is costing it a lot, and angering some of its suppliers, but it’s born of necessity. As Chinese customers spend less, other giant ecommerce companies are pushing into Pinduoduo’s core markets, selling unbranded goods and trying to capture a less wealthy demographic. That means the company has to look overseas. “Exploring the US market is the best, and probably the only strategy  Pinduoduo could use, when facing an saturated and overly competitive domestic market,” Si says.

But the US market isn’t just hard; it’s increasingly risky for Chinese companies.

Temu currently takes advantage of a trade loophole that allows for duty-free shipments up to $800 into the US. By shipping small packages from its warehouse in Guangzhou to individual American customers, the company can essentially sell duty-free in the US. But small business lobbies are advocating for this “de minimis” threshold to be lowered to $10. If that were to happen, Temu’s costs would spike.

And, as a Chinese-owned platform, Temu faces scrutiny from US authorities who see the collection of data by Chinese companies as a national security threat. In April 2023, the US–China Economic and Security Review Commission issued a brief that warned of data and supply chain risks emerging from Chinese-owned ecommerce platforms, including Shein and Temu.

Calls to ban Chinese-linked apps altogether have become commonplace in the US. In May, Montana became the first US state to formally ban TikTok, the social media platform owned by Beijing-based Bytedance. The previous month, 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. Even though there is no evidence showing that Temu has similar data security concerns, Montana’s governor Greg Gianforte included the app in a list of technologies he said are “linked to foreign adversaries.”

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

But behind these risks, there is the chance that the supply chain just can’t sustain the low prices that people have come to expect.

In China, some sellers have already given up. A big shift happened in December 2022, when Temu started to require manufacturers to bear half of the shipping expenses to ship products from factories to its warehouse in Guangzhou.

Sandy says that she quit selling pet products on Temu in March. “We sent them a few products to do a test run, these products sold well, and Temu asked us to send them products in large bulk,” she says. “But after we spent money to get the inventory ready, and paid the shipping expenses to ship to their warehouse, Temu asked us to lower our price.”

That sometimes means being asked to sell at a loss, she 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, meaning that while customers in the US feel able to send back their goods without penalty, they’re really pushing the problem back down the line to hard-pressed sellers.

After selling her existing inventory at a loss, Sandy closed down her shop on Temu. She is still being approached by Temu, which has asked her to send some of her best-selling products to one of its warehouses, but she is no longer interested. “Whatever potential the Temu is promising cannot make up for the losses I incurred selling on this platform.”