Temu Is Losing Millions of Dollars to Send You Cheap Socks | Hacker News Reader

Temu Is Losing Millions of Dollars to Send You Cheap Socks

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46 pointsedward47 comments

It worked for Jet.com.

Then again, Jet.com existed when 0% interest rates were a thing. I don't think repeating that strategy in a 5.25%+ interest rate market will have the same effect.

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On the other hand, China has what? 15+% unemployment right now?

Chinese companies must be dumping goods in an effort to survive, even if it's below profit levels. Maybe TEMU can exist in this market from the Chinese / low cost supply side perspective.

They raised around $1b in the secondary market on top of their IPO in 2018 raising around $1.6B and generate around $4-5B a quarter in revenue.

They have a massive amount of cash on hand to allow them to execute their global expansion

> Chinese companies must be dumping goods in an effort to survive, even if it's below profit levels

The youth unemployment figure is largely due to a lack of white collar jobs, which is unrelated to industrial capacity.

Low value manufacturing is still chugging along, and this is where PDD/Temu really shines - by providing a better marketplace UX for these kinds of manufacturers to sell globally.

Medium value manufacturing would never sell via PDD/Temu, instead acting as a white label manufacturer or B2B.

You've got my argument backwards.

Unemployment is good for manufacturing.

Unemployment means that factories have their pick of workers and are free to fire low performers. This tends to lead to better performance for export driven economies (and TEMU is an exporter).

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High interest rates is bad for companies with (presumably) short term money losing / dumping strategies. It means that everyone's runway is proportionally less.

$2.6 Billion in raised money means that the company needs to make $136 Million in profits PER YEAR to be comparable to a risk-free money market fund like VMFXX.

The more money you raise, the more money you have to make to be comparable to the risk-free rate. It's a loadstone above and beyond.

Jet.com had basically $0 vs MMFs because risk-free MMFs had nearly no money growth in 2016.

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If your investors are willing to dump $2 Billion before turning a profit, your runway is far longer at 0% interest rates than at 5.25% interest rates.

The kind of person in the 16-24 bracket that is un/underemployed in the Chinese market is much more educated and unwilling to work in unskilled manufacturing.

If you have a Bachelor degree it's a tough pill to swallow to work on an assembly line when your entire life you were told that a Bachelors degree would guarantee you a white collar job.

Earning $5-6k working on an assembly line in a city where rent is around $200-300/month isn't worth it, so people decide to quit the job market to either take competitive civil service exams, studying to apply for grad school, or start small businesses (eg. Street vending, dropshipping, influencers) while staying with parents.

We saw the same thing in the US after 2008 with skilled workers not as open to working service jobs.

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> If your investors are willing to dump $2 Billion before turning a profit, your runway is far longer at 0% interest rates than at 5.25% interest rates.

Ok. Fair point. That said, PDD's stock has held pretty stable following their COVID era peak. They're still trading 4-5x above their listing price, which was what was used to raise the equity round, so they have a pretty healthy bottom line.

I see what you mean.

I don't live in China so I'd be blind to an issue like that.

We hear about the graduates in the news especially since Xi told them to go work on farms, but what percentage of Chinese youth get a degree (I genuinely don’t know). If it’s anything like the US the majority of people entering the workforce don’t have a degree. And manufacturing in China has really downsized over the past year. I suspect it isn’t easy for them to find jobs either.

Based on released govt and market data, the early career white collar market has bottomed out.

Approximately 25% of 16-24 yr old jobseekers are college graduates (this is probably overstated as China recently began treating both Vocational Institutes and 4 year programs as colleges in statistics), but only around 15-18% of college graduates end up signing an offer by graduation, and most industries have seen around 50%-66% of companies reduce NCG hiring. [0]

By most standards this is absolutely a skilled jobs or white collar recession.

Manufacturing downsizing has happened, but that was done by Chinese companies either moving factories abroad to Vietnam, Laos, Cambodia, India, etc or begin automating manufacturing [1]

Note: treat college in above as any post-secondary program (eg. Vocational school, 4 year degrees, graduate degrees) as all 3 types of programs are merged as a single bracket in Chinese govt statistics.

[0] - https://pdf.dfcfw.com/pdf/H301_AP202305151586638633_1.pdf

[1] - https://www.mfat.govt.nz/assets/Trade-General/Trade-stats-an...

You are correct but it should be noted that most factories in China provide food and a dorm so rent is not an issue.

True. Salaries are also lower. Around $3k-5k instead of my upper bound.

Slight nit-pick

> Earning $5-6k working on an assembly line in a city where rent is around $200-300/month isn't worth it…

Did you mean 2000-3000/month? Even in beautiful heavenly EU, majority of the people I know, pays between 33-45% of their net-income as rent.

Compared to that, 300/5000 = 6%, unless you mean there is some seriously heavy tax or other cost of living involved.

I'd assume those are yearly income and monthly rent. So $2400-$3600 out of $5000-$6000 is quite a lot.

$5-6k per year. That tends to be market rate in Guangzhou, but also why low skill factories began moving to interior China and ASEAN. The economics of low wage manufacturing don't work once wages break $2-3k/yr.

I really don't get the appeal of Temu. I checked it out a while back and it's literally the lowest quality garbage at the lowest price possible. I was curious enough to see what I'd receive if I bought anything from them and spent like $10 on 7-8 products. They did arrive within 2 weeks but were absolute garbage that went straight into the recycling bin.

Am I missing something?

Some stuff, like electronics, can be petty decent from unbranded sellers. And some people are broke and need the cheapest clothes money can buy, regardless of the quality.

Amazon sells most of the same stuff.

The appeal is that if you buy cheap stuff from Amazon you can get it for cheaper on Temu but have to wait 2 weeks instead of 2 days.

Amazon 2 days? I haven’t seen that since before the pandemic

Where? I'm in southern Ontario Canada, and my orders usually take 2-3 days and I'm not even using Prime.

Turns out there's no value in holding something in a warehouse when you have it ordered.

I think all Prime gets you is:

1. if the product is in a distant warehouse, Amazon will bring it over by plane instead of rail/truck.

2. Your orders are de-prioritized if they're over-subscribed (e.g. Christmas holidays, pandemic online shopping, Prime day)

My last three Amazon orders took between something like a week and a half and three weeks. They probably were actually my last three Amazon orders. I'd rather go to the store.

sounds like they were drop-shipped from Asia

Amazon products, or third-party using Amazon as a store-front?

In my experience, a median item costs $15 on Amazon and $3 on Temu, while both being stuff manufactured in China for cheap.

Looks like someone did a white label of Ali express . I can’t believe these junk stores get meaningful VC money

They're public and generating billions a year in revenue. Check out PDD's quarterly earnings.

They don't seem a lot cheaper than Aliexpress other than the bundle deals with are the lowest quality stuff.

You don’t indicate what you bought, but when I buy parts or components from Ali express its generally things where quality doesn’t matter or where quality goods would be prohibitively expensive. Like a $10 sensor that just needs to be roughly accurate. Amazon is just as much Chinesium unless you pay way more for brand names so I don’t see what the issue is with cutting about the middle man for applications where quality is not critical.

I don’t know if it applies to TEMU and AliExpress, but their originals (Pin Duo Duo and Taobao) cover different markets, with PDD being significantly lower in quality (and price). You can get sensors that work roughly fine on Taobao but with PDD you’d get one emitting seemingly random values priced at like $3.

>the lowest quality garbage at the lowest price possible

A cynic would say you get it perfectly, and that this is the way retail has been since maybe the 80s?

they sell mostly end of line stuff. Hence why they can sell very cheaply as factories would otherwise just clear them by the lot or dump them. as such most are cheap products but you do occasionally get decent items (e.g. factories retooling for a 10,000 MOQ run but buyer only needed 9000 or something).

But they are turning currency-controlled Chinese Yuan/Renminbi into US$.

Surely that's worth losing a few percent on each sale?

Anyways, just bought some bike lights from there for the first time that were cheaper than aliexpress (I buy quite a few to donate to my bike co-op).

Got a too-good-to-refuse offer at payment window for 150 6" zip ties for CAD$1.79.

Impressed that they offer a $5 credit if my order arrives after 11 calendar days.

Wouldn't touch the app though.

So this is a pre-existing thing burning some money to enter a new market. This seems… normal? Presumably if all goes well, they’ll build a US distribution/fulfilment network, costs fall, all is well.

The relationships with suppliers just sound industry-normal, tbh; Amazon, big supermarket chains etc also have a reputation for being very aggressive on supplier pricing.

I know this isn’t an ad for Temu, but it makes me curious about it. I assumed it was a Slicker AliExpress.

It kind of is an ad for Temu. Please don’t check it out. Temu is internet cancer. It needs to be cut out.

Is there anything that makes it worse than AliExpress, eBay or Amazon?

They are very much (ab-)using the old get-you-hooked-by-loosing-money-then-slowly-crank-up-the-prices-til-it-hurts-when-you-have-a-monopoly trick?

The others were never as aggressive in their quest for monopolies and made it on some other merit. Not to say the others are much better, but Temu will have to make that money back somehow, eventually.

Basically price-dumping to destroy the competition and gain market share.

I somehow doubt they're going to destroy Amazon anytime soon. The market they're in reminds me more of Blue Apron/Hellofresh than Uber/Lyft. May as well take advantage their funders' bad bet before the river.

Don't need to "destroy" Amazon to be successful. Just need a few percent of sales.

What I've noticed from Aliexpress reviews is that a lot of reviews are from places that don't have much of an Amazon footprint (e.g. Russia, E. Europe, Mid east).

The other thing is that ship-from-China circumvents a lot of duties that can be hefty on some goods. And sometimes sales taxes (not in USA anymore, but still true elsewhere).

Will it make Amazon nervous? Then I kind of like it...

Also, is wish.com the same thing as temu, or basically the same thing? I mean, there's some tungsten ring for 50 cents on it that like another poster I might buy that and 20$ of other things just to see what actually arrives.

Tungsten rings are a bad idea if your ring needs to be cut off. If you ever injure your hand/fingers wearing one, remove all rings immediately, but especially a tungsten or other hard metal ring.

FYI a tungsten carbide ring, although it cannot realistically be cut off your finger, is brittle, and can easily and safely be snapped with a pair of locking pliers (locking to avoid clamping down on your finger). You may be thinking of titanium rings which are not removable in this fashion and thus are less safe.

ah, good to know. That method and another (not as great, but maybe more at hand method) here: https://www.youtube.com/watch?v=eKxUYvKR-jw

and a more proper (and $$$) method: https://www.youtube.com/watch?v=MqupCjkNqUk

> Slicker AliExpress

Kinda.

It's Chinese owner Pinduoduo is competing at the low value market with Alibaba, while JD is competing with Alibaba on the higher value market.

Pinduoduo is going through the hypergrowth expansion phase right now to compete with Alibaba now that they have become complacent after Jack Ma did some scummy stuff at Ant Group.

JD?

Everyone is talking about the economics but ignoring the possibility that the goal of Temu is not strictly revenue and profit.

I mean, this is a Venture Capitalist forum of discussion, is it not? The focus on ycombinator / Hacker News is almost always going to be on business models and profits?

What are other reasons for TEMU to be doing its actions? We've definitely seen dumping before in terms of a business strategy so its a thing we're familiar with, at least from a US-lens / perspective.

Perhaps this person is thinking from a surveillance aspect

What’s the goal then?

idk, selling services/goods below cost is kinda the playbook most SV startups use so nothing new here.

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