Unlock the Editor’s Digest without spending a dime
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Temu has modified the world of on-line procuring. Its fast progress means it rivals Amazon in lots of markets. However this week, shares of its proprietor PDD Holdings have fallen essentially the most on file after it warned that income progress would inevitably development downwards amid rising competitors and an financial slowdown. The largest menace to Temu, nonetheless, could also be altering rules within the US and Europe.
Chinese language-owned ecommerce platform PDD’s US depositary receipts fell practically 30 per cent in New York on Monday. The corporate faces aggressive competitors from rivals corresponding to ByteDance’s TikTok and Alibaba. PDD’s gross sales of Rmb97.1bn ($13.6bn) for the June quarter missed expectations. Its fast income progress, greater than doubling in latest quarters, is proving unsustainable.
Profitability ought to begin taking successful, too. An enormous a part of PDD’s fast progress has been because of its ultra-low pricing technique. As native friends began following PDD’s technique, it has needed to splurge on advertising and marketing and promoting to maintain prospects. That is mirrored in its practically 50 per cent improve in working bills in its newest quarter, whereas normal and administrative prices greater than tripled because of staff-related bills.
One other pillar of Temu’s success has been a loophole that waives import tariffs for shipments into the US with a good retail worth beneath $800. Within the European Union, beneath present rules, packages which are purchased on-line from a non-EU nation usually are not topic to customs duties if their worth is beneath €150.
Closing these loopholes shouldn’t be proving simple. A change within the present rules would imply native web shoppers are charged import tariffs on cross-border purchases. That in flip would imply greater prices when shopping for a variety of merchandise from abroad — and never simply when procuring on Temu. This has raised considerations over the potential for steep import charges and different duties on gadgets corresponding to clothes.
However, Temu’s surging market share in latest months has accelerated requires additional regulatory scrutiny on the present import tax exemption, with the EU engaged on a proposal to shut the loophole. Within the US, lawmakers have additionally been pushing for a crackdown.
PDD’s shares have gained 24 per cent up to now yr, considerably outperforming Alibaba, whose inventory is down greater than a tenth, and Temu’s second-largest rival, JD.com, which is down practically 1 / 4 over the identical interval.
Even so, PDD trades at simply eight instances ahead earnings, a small fraction of world friends corresponding to Amazon, reflecting a slower progress outlook. Temu has proved {that a} world enlargement technique is the best way to go amid a saturated ecommerce market at house. However even that’s now wanting fraught with problem.
