E-commerce platforms Shein and Temu have offered a lifeline to smaller suppliers in China’s manufacturing hub, but it hasn’t always been smooth sailing.
In recent years, many Chinese factories and merchants have joined the supply chains of Xiyin and Temu. These two platforms sell a variety of cheap Chinese-made goods, ranging from T-shirts and handbags to electronic products and kitchen supplies, and have become very popular in the United States.
Xiyin and Temu enable domestic factories and merchants in China to reach a large number of consumers around the world. Xiyin’s market covers more than 150 countries, and Temu’s business has reached more than 40 countries.
But there’s a trade-off: Some suppliers told The Wall Street Journal they are struggling with thin profit margins and intense pressure to cut prices. Other suppliers said they had large amounts of unsold inventory and questioned whether dealing with Xiyin and Temu was sustainable in the long term.
Electronic product seller Jason Xie previously sold gadgets such as smartphone screens to buyers from the United States, the Middle East, Southeast Asia and other regions at a stall in an electronics market in Shenzhen. During the epidemic, these buyers stopped visiting, and Xie turned to e-commerce, initially selling products on platforms such as Amazon.com and Pinduoduo. Pinduoduo is Temu’s brother platform in China. In May 2023, he accepted an invitation from Temu’s parent company, PDD Holdings, to sell on Temu.
Xie originally hoped to use Temu’s popularity overseas to expand sales, but a few months later, he began to question the sustainability of Temu’s sales method. Temu wants to do a high-volume, low-margin business, Xie said. There are too many merchants on the platform, and the profit margins are smaller than those on Amazon.
While Xie has had some hits, like a $12 wireless speaker with an LED night light, others have been costly failures. At one point, Xie and his colleagues prepared 1,000 smart watch bands in various colors that sold for $3. But since there were many similar products on the Temu platform, they ended up selling only a dozen.
In addition to this, there are other issues. According to Xie, Temu suppliers bear many costs related to returns, and if consumers complain during the return process, suppliers may also face fines from Temu.
Temu said that the low-price strategy pursued by the platform is beneficial to consumers, and some manufacturers have performed well on the Temu platform and have formed economies of scale.
Temu pointed to Zhejiang Maibo Industrial Co., Ltd. in Wuyi, eastern China, which has been producing water bottles and thermos cups for other retailers for years. In March this year, Zhejiang Maibo Industrial began selling its own brand products on Temu, with a profit margin of 20%. In comparison, the company’s profit margin for OEM OEM for other brands is only 10%.
Bowen Wang, head of Zhejiang Maibo Industrial, said that given that Temu is responsible for both transportation and marketing, the platform’s entry barriers are not high.
New supply chain model
Temu and Xiyin’s on-demand business model disrupts the e-commerce supply chain. The two platforms place orders with suppliers for delivery within days, rely on real-time data to quickly analyze demand, and replenish orders as needed. Not only does this reduce the need for warehousing, it also limits inventory risk.
In some cases, this risk is passed on to the supplier.
Dongguan Michun Clothing Co., Ltd., a children’s clothing manufacturer near Shenzhen, has been supplying Xiyin for about two years, but Zhang Qingwei, the factory’s general manager, said it has basically stopped working with Xiyin in recent months. Xiyin’s cooperation.
When the factory makes a product suggestion, Xiyin may express interest in purchasing a certain quantity of the product, perhaps a few hundred units. Zhang said that if the product does not sell well, Xiyin will only take a small part and the factory will handle the rest, but he will not be allowed to sell the goods on other platforms.
Zhang said the situation has left his factory with a large backlog of Xiyin inventory. The risk is too great for the factory, he said. At its peak, revenue from Xiyin accounted for about 10% of the factory’s total revenue, but now it has fallen to about 1%.
Xiyin said its system gives suppliers insights into customer preferences as well as production capacity, inventory levels and demand.
Xiyin and Temu, which have been competing for suppliers, are increasingly targeting the same overseas customers.
Founded in China and now headquartered in Singapore, Xiyin first made a name for itself in the United States and has grown into a fast-fashion powerhouse over the past eight years. Pinduoduo launched Temu more than a year ago, which quickly put pressure on Xiyin. For most of 2023, Temu has been the second most popular e-commerce app in the U.S., measured by monthly users, after Amazon, according to estimates from digital data and analytics firm SimilarWeb.
Data from Earnest Analytics shows that by July last year, Temu’s sales in the United States had surpassed Xiyin. In recent months, Xiyin has begun to get involved in other fields besides fashion, adopting a market platform model that allows third-party merchants to sell various goods and compete more directly with Temu.
Xiyin and Temu both ship 1 million packages a day in the United States, according to estimates from package shipping consulting firm ShipMatrix.
Xiyin’s fashion business works directly with factories, and the company says it has about 5,400 suppliers, mainly in China. Temu did not disclose how many suppliers it had, but said most were in China.
Six merchants told the Wall Street Journal that they had stopped doing business with Temu because its pricing policy was too strict. Temu usually uses the lowest price among all suppliers as the benchmark, leaving merchants with razor-thin profit margins. Xiyin allows suppliers to set prices within a certain range.
One Temu merchant said that if he did not bring his price down to the same level as other suppliers, Temu would not allow him to replenish inventory to Temu’s warehouse, effectively severing his business ties with the platform. The merchant said he had decided to stop selling goods on Temu.
Some sellers say Temu has helped them increase profits. Huang Yilun in Huizhou, near Shenzhen, has been producing Christmas decorations for export for nearly a decade. The COVID-19 epidemic almost destroyed his business before. After the epidemic, he was eager to find new channels, so he started selling on Temu in June last year. Temu accepted two of the 10 samples he sent and asked him to reduce the price of one of them by another 20%.
Even so, Huang said his profits are still better than before. For example, he once sold Santa Claus cloth ornaments that he made for about 14 cents to an exporter for about 40 cents. In Temu, he could sell it for at least $1 and his profit more than tripled.
But he is currently having trouble hiring people, and workers’ wages have risen. Meanwhile, Temu asked him to further reduce prices on several items.
Huang said Temu was an attractive platform for him, but the pressure was starting to mount.
Since Temu’s launch, many other platforms such as TikTok, Alibaba Group’s AliExpress and Tencent Holdings-backed Sea’s Shopee have also tapped into Chinese supply chains to serve the world. Consumers are offered more and cheaper options. Amazon is also trying to reinvigorate and expand its global sales program, and Chinese suppliers are its main targets.
As the e-commerce market becomes increasingly crowded, sellers are testing which platform brings them the best sales and profits.
In 2021, Bai Yu, who was working in Shenzhen, was laid off from a private education and training school and turned to e-commerce. A few months after she opened a U.S.-market store on Amazon selling golf cart battery chargers, Temu called her.
So she started selling hundreds of golf cart battery chargers a month on Temu, more than she sold on Amazon, but the price on Temu was often half the price of the same charger on Amazon.
Soon, Temu asked her to lower her prices further to compete with other sellers.
She said of the price reduction that she felt passive and had no choice. She said she is now considering testing TikTok’s new e-commerce business in the United States.
2024-01-04 01:30:00
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