In 2023, the four emerging overseas powerhouses gained significant momentum. Pinduoduo's overseas platform, Temu, which went live just over a year ago, rapidly caught up and achieved remarkable success, with order volume and GMV (Gross Merchandise Volume) soaring continuously. In November, Pinduoduo released its financial report, temporarily surpassing Alibaba in market value and once again becoming the focus of attention across the internet. Although specific data for the overseas market was not disclosed, an undeniable fact has taken center stage: behind Pinduoduo's growth is the resounding success of Temu in international markets.

Online for just one year, Temu achieves quarterly revenue exceeding 10 billion

Temu's first overseas destination was the United States, officially launching on September 1, 2022. In a year marked by rapidly changing consumer market dynamics, weakened demand, and consumption downgrades, Temu found fertile ground for development. After its launch, through aggressive low-price subsidies and substantial marketing budgets, Temu quickly surpassed Amazon, SHEIN, and Walmart. It claimed the top spot on the App Store download charts in the United States, consistently ranking in the top three. In just two to three months, Temu became the new dominator in the U.S. e-commerce market.

In February 2023, leveraging the success in the North American market with a boost from the "Super Bowl," Temu rapidly expanded to other overseas markets, including Australia, New Zealand, Europe, South America, Africa, the Middle East, and Asia, adhering to an aggressive strategy. In a short period, it successfully opened the doors to markets in 48 countries worldwide.

Temu has become the most downloaded cross-border e-commerce platform globally, consistently occupying the first position on both the Apple App Store and Google Play download charts. The projected GMV for the full year of 2023 is expected to reach $14 billion, with market sentiments even more optimistic, aiming to exceed the $15 billion GMV target. According to CICC's forecast, this figure could even reach $18 billion. There are reports suggesting that Temu has set a GMV target of $30 billion for 2024 and plans to increase advertising budgets further in the U.S. market.

According to SensorTower's data in December, from September 2022 to November 2023, Temu's global downloads exceeded 300 million, with a 44% share in North America and 29% in Europe. Temu successfully recruited 90,000 merchants, offering over 1 million SKUs, with more than half of the merchants coming from Pinduoduo's main site and Duoduo Mai Cai. The rapid growth of this number is closely tied to Temu's sustained leadership in global downloads.

Soaring Revenue, Global Expansion: What Did Temu Get Right?

Behind Temu's rapid expansion lies its fully managed model. Temu's fully managed model is an operational approach where sellers supply goods, and the platform handles sales. In this model, sellers only need to focus on producing goods, upload photos and size information to the platform, and deliver the goods to Temu's designated domestic warehouse. The subsequent operations, including store management, product sales, pricing, marketing, warehousing, cross-border logistics, and after-sales services, are all fully managed by the platform.

The logic of the fully managed model operates as Factory-Platform-Buyer, simplifying the complex processes between sellers and platforms in traditional e-commerce cross-border models. In this model, sellers on the Temu platform mainly adopt the Vendor Managed Inventory (VMI) and Just In Time (JIT) models.

The VMI model is a "prepare goods before listing for sale" stocking method. Sellers need to apply for stocking from Temu in this model, send the goods to Temu's warehouse after securing warehouse space, and the platform is responsible for warehousing. Temu then handles order processing and shipment. In the VMI model, sellers only need to bear half of the shipping costs to the warehouse, reducing logistics risks, but they may face the risk of selling links being taken down due to delayed warehouse stocking.

The JIT model is a "generate orders before shipping" pre-sale model. Sellers don't need to stock in Temu's warehouse in this model; they just need to pre-sell goods on the platform after approval. In this model, sellers need to send the goods to Temu's domestic warehouse themselves. It has the advantage of not needing to stock goods but requires high timeliness. If the shipment does not meet the platform's delivery time requirements, sellers may face certain fines.

Temu's fully managed model eliminates the intermediary steps in the traditional e-commerce chain and further integrates marketing, sales, logistics, etc., reducing costs and gaining lower price advantages, attracting customers.

As the platform provides an all-in-one solution, manufacturers become sellers directly and do not need to manage their stores, significantly reducing operational and time costs. It also widens customer and order channels, making it easy for less-experienced sellers to enter international markets.

However, Temu's fully managed model is not without its drawbacks. The "elimination of intermediaries" and the model of full authority handed over to the platform do not apply to all sellers.

Due to Temu's insistence on low prices, sellers relinquish pricing rights. To highlight a more significant competitive advantage, Temu continuously lowers prices. Faced with price pressure, sellers' profit margins are squeezed, and they also face the pressure of competing with peers.

The more sellers on the platform, the fiercer the competition. Sellers in the same category and track may get caught in intense competition, mainly reflected in the comparison at the supply chain level. Larger manufacturers with stronger supply chains and production capacity have a more significant advantage in this battle, while small and medium-sized sellers without independent and complete supply chains may face the risk of elimination.

On the other hand, although the fully managed model is friendly to new sellers going international, it is not the optimal solution for sellers with certain differentiated advantages and deep operational experience. These sellers may achieve higher profits by relying on their own operations.

With the help of the managed model, Temu attracted a large number of upstream manufacturers in the supply chain and integrated sellers of industrial and trade integration. It quickly drew attention from overseas consumers with a rich SKU and competitive prices, leading to a rapid surge in order volume. In this process, one major downside of Temu's fully managed model quickly surfaced. Due to the highly centralized nature of each link, Temu has to handle logistics shipment and returns for sellers, which tests its logistics fulfillment capabilities.

In terms of shipment, if orders increase sharply and warehouse capacity and operational efficiency cannot keep up, there may be situations of stockouts and order explosions. Temu has indeed encountered this challenge. Regarding returns, due to the overseas "7-day no reason return" policy, the return rate of overseas consumers is high, and parcels have to be returned to the domestic warehouse, resulting in high logistics costs. So, Temu still has shortcomings in logistics.

Currently, Temu still spends heavily on marketing, and despite rapid revenue growth over the past year, it remains in a significant loss position, with profitability yet to be improved. Meanwhile, in Temu's rapid advancement, it also needs to face other competitors on the fully managed track, including TikTok, SHEIN, and AliExpress. These major cross-border e-commerce platforms each have their strengths. Faced with strong opponents, Temu must remain vigilant and be well-prepared for both offense and defense.

Logistics Catching up with Order Volume, Reducing Costs, and Accelerating on Two Fronts

In Temu's fully managed model, the cost of logistics is compressed to the extreme. Currently, its logistics process can be roughly divided into three stages, each involving collaboration with different logistics providers.

Specifically, Temu's logistics can be divided into three stages. The first stage is the initial leg, where manufacturers deliver goods to Temu's domestic warehouses. This short-distance journey is mainly handled by express delivery companies. According to previous reports, carriers such as Kuayue Express, SF Express, AnE Logistics, Yimidida, ZTO Express, YTO Express, Deppon, and Best Logistics are among Temu's service providers. Among them, Kuayue Express and SF Express handle the largest volume of business.

Temu's domestic warehouses are mainly distributed in Guangdong Province. As of October 2023, incomplete statistics from "Wandian Finance" showed that Temu had at least 30 warehouses, with 12 in Guangzhou, 8 in Zhaoqing, 5 in Foshan, and others in Dongguan, Qingyuan, Zhongshan, mostly located in suburban logistics parks, and each address may have more than one warehouse. Warehouses in Guangzhou and other locations have been continuously recruiting since the National Day.

The second stage involves international long-haul transportation, mainly consisting of air transport routes and cross-border parcels. For Temu, the main logistics partners for this stage are Jitu and Yuntu Logistics.

In terms of air transport routes, Temu's cost optimization strategy is reflected in three aspects. Firstly, Temu primarily sells small-volume, lightweight products, most of which come from its excess cargo resources, offering lower prices. Combined with the relatively flexible transportation timing of Temu's fully managed model, it can choose the day with the lowest shipping cost. Small packages from Guangzhou to the United States can be controlled at a few tens of cents, and batch transportation can further reduce costs. Secondly, Temu pairs large-volume bubble cargo with relatively small heavy cargo for shipment to fully utilize the aircraft's payload space and save on freight costs. Lastly, Temu prioritizes tail cargo flights in flight selection. Tail cargo flights refer to flights that sell the remaining cargo space at a low price when the aircraft is already at a break-even point. This allows Temu to further compress air transport costs.

Considering the above factors, Temu generally chooses collection points in regions with dense flights, concentrated supply, and the ability to provide matching heavy cargo. Its receiving warehouses are mainly distributed in the Pearl River Delta due to the developed aviation freight in the Guangdong-Hong Kong-Macao Greater Bay Area and the rich resources of tail and heavy cargo. It's important to note that Temu itself does not have enough heavy cargo resources, so it needs to cooperate with freight forwarders with heavy cargo resources.

In terms of capacity composition, Temu's cargo flights are mainly provided by Chinese domestic airlines, supplemented by outbound and foreign airline transfer services.

The third stage of Temu's cross-border logistics is the last-mile delivery, i.e., the local delivery from the destination airport to the recipient's home. In the United States, if Temu's subsidiary imports first and then distributes, it needs to pay tariffs. Therefore, Temu has not built overseas warehouses locally but relies on freight forwarder companies to coordinate local logistics service providers for direct delivery. The main services used are USPS and UPS. By delivering goods directly from the airport to the sorting centers of these logistics companies, Temu can obtain certain price discounts. Through further negotiations with USPS and UPS, Temu still hopes to continue getting more competitive prices.

Additionally, Temu has established warehouses in Mexico. Goods are sent from China to Mexico and then quickly transferred to the United States to reduce long-term warehousing costs. Since there are no tariffs, the Mexican government may provide subsidies, making the transfer and distribution costs more economical than pure domestic delivery in the United States.

According to reports, Temu's order volume has grown rapidly. In the first quarter of this year, Temu experienced warehouse explosions due to a surge in orders, leading some warehouses to suspend replenishment and undergo upgrades. In the third quarter, Temu's sales exceeded $5 billion, with daily export parcel volume exceeding 400,000, and daily cargo weight reaching around 600 tons. Overseas media reports estimate that Temu's daily parcel volume in the United States is around 1 million, on par with SHEIN.

To keep up with the soaring order volume, Temu had to accelerate the construction of its logistics facility network, continuously build warehouses, and recruit personnel. Temu has planned to build overseas warehouses in the eastern and western United States. Furthermore, it has partnered with international well-known shipping companies such as MSC, Evergreen, DHL, Maersk, and COSCO Shipping to launch fast ocean shipping services. This, combined with the landing of overseas warehouses, aims to further improve logistics fulfillment capabilities and reduce the costs of cross-border logistics.

Summary

In just over a year, Temu has grown from nothing into a colossal force that astonishes both domestic and international markets. As user and order volumes continue to climb, Temu's fulfillment logistics has also started catching up. However, building a comprehensive logistics supply chain network is not an overnight task. For Temu, logistics is currently a noticeable weak point. Whether expanding further, reducing costs, or gradually improving profitability, fulfillment logistics is a crucial aspect that cannot be bypassed. Temu has recognized this and taken swift action, but more time is needed to plan and establish its global logistics network.