This week, hundreds of merchants did a flash mob at the offices of PDD in southern China, protesting against the rising unfair penalties that Temu’s owner often imposes.
According to them who were present and social media videos circulating, suppliers who are mostly smaller businesses selling Chinese products to western shoppers via the rapidly growing Temu platform held signs high and chanted slogans outside Guangzhou company outlet on Monday. A few made it inside Temu office but they dispersed without meeting senior executives multiple witnesses said asking not to be identified because they fear retribution.
Merchants and third-party sellers have grown increasingly frustrated in recent times with what they claim is PDD’s increasingly exploitative global expansion strategy. Complaints include PDD holding back money from traders found wanting by customers for one reason or another. It could be late delivery or mismatched product descriptions.
The fines increase at a very fast rate within the last months without giving real reasons, as alleged by those interviewed. It was revealed that either PDD or even Temu usually do not pay for already sold items or charge an amount several times than retail prices. PDD shares fell 3.5% in New York on Thursday, their biggest single-day fall since June.
During this dispute, the brand has been aggressively expanding across all corners of earth. Pinduoduo (PDD) is listed on the US stock exchange.This was after it had started competing with Shein and Amazon.com Inc in some markets. Launched only this month in Thailand.
At one point during this rapid global expansion, PDD became China’s largest internet retailer by value surpassing long-time leaders Alibaba Group Holding Ltd. and JD.com Inc., according to data compiled by Bloomberg.
Several of these demonstrations happened this week alone while others have been reported by the local press such as Yicai, with at least two rallies taking place since May. According to a representative of Temu, they have about 12 vendors that they are currently in a dispute with about “after sales issues” involving quality and compliance of their products. The contested amount is several millions according to the same source.
The vendor said that a group of these retailers had recently gathered near the Temu logistics subsidiary premises but refused to go any further.
The statement read: “These merchants have declined to resolve the disputes through the normal arbitration and legal channels stated in the seller agreements,” The situation is stable, and the company is actively working with the merchants to find a solution.”
Temu’s increasing foreign expansion partly has roots in China’s domestic consumption which has remained weak since coronavirus outbreak. However, Shein among others also focus on this area. This could hit profit margins while leading to rising costs.
Beijing has repeatedly voiced its support for cross-border e-commerce or sales of Chinese-made products internationally, which led to both Shein’s and Temu’s popularity in America. But this year there have been reports about declining satisfaction among Temu’s merchants in China who ship most affordable fast-moving goods sought by global consumers.
Several analysts believe that loss-making Temu cannot maintain its combination of low costs and fast delivery in the future, unless it can encourage buyers to return. On the other hand, there are those who argue that this company will be among the leading global corporations within a short period.
What Bloomberg intelligence says
According to media reports in China, tensions between PDD’s Temu and merchants on the platform which have led to protests, means that Temu may need to give subsidies to sellers against deserting to other international platforms such as Amazon.com, Alibaba’s AliExpress, Shein and TikTok Shop that according to our research has more adjustable business approaches. This would lead to increased costs thereby resulting into deeper than anticipated margin declines for PDD by 2025.
-Catherine Lim and Trini Tan, analysts
It remains unknown if PDD is attempting to calm down the vendors’ sentiments. If suppliers and sellers choose another platform over Temu, then the flow of goods essential for sustaining this nascent platform’s growth will be disrupted.
In Q1 2021, PDD increased its revenues by more than 100%. It has entered over sixty countries but these rapid expansions have increased exposure to regulatory risks in important markets like America where ByteDance was blocked from owning TikTok due to data privacy issues.
Consumer groups across Europe complained about Temu this year alleging unfair trade practices and not safeguarding customers’ rights.
