Temu is another e-commerce platform that launched in September of 2022. Think of it like Alibaba or Aliexpress. But with a different business model. Lower prices but faster shipping.
Temu has gone all out on marketing. Spending upwards of $100 million on advertising. For instance $14 million on a 30-second Super Bowl ad. With these marketing campaigns. They have grown exponentially.
Becoming the 6th most visited e-commerce website. With over 226.3 millions visits and downloaded by 50 million people!
Temu revenue is estimated to be close to $6 billion.
But the big question, is it profitable?
In other words,
Is The Temu Business Model Sustainable?
Temu sells goods directly from the factory mainly in China to the end consumer. Which drives costs down significantly. But the differentiator is the short delivery times. Unlike Aliexpress and Alibaba they transport products from China to the US using airplanes instead of cargo ships.
This enables Temu to boast shipping times of about 1 week in contrast to Alibaba's 1-2 months delivery time.
It costs the company about $10 per order and with an average order size of about $25. After paying for marketing, production, and shipping the burn rate sets in. Temu is definitely losing money.
All these perks are incredible for the end consumers, however, they come at a cost. According to Wired, Temu is burning cash at an annualized rate of about $500 million - $ 1 billion a year to run its operations.
Temu's current business model is unsustainable. If so,
What's The Game Plan?
By spending so much money in the short term they can attract enough loyal customers that will continue using their e-commerce platforms even after they raise their prices.
Will this strategy work? In my opinion no; if the whole concept is based around only offering unbranded products and cheap prices. The moment prices are raised I don't think customers will stay around.
Amazon had this same approach. But remember, Amazon only became profitable by implementing other services such as Prime membership or AWS services.
Therefore the only way I see this strategy working is by Temu pivoting to other services.
Either way time will tell if Temu is on to something or this would be a big flop
Well in your argument youre bundling operating cost and gross margin as a snap shot of the present.
Since volume at scale changes the relationship where small gross margin will significantly change bottom line as well as OC lowering once they have their desired market share its hard to tell without a p&l and budget.
Penetration strategies are usually budgeted for 5-15 years.
If your strategy post-penetration isn’t at least 18 years, you’re in trouble.