Discount shopping firm Temu’s supply chain faces scrutiny amid mainland protest

“From the company’s perspective, the most important task now is to rapidly expand the market and gain more customers, especially when substantial marketing inputs need to be justified,” said Ivy Yang, founder of Wavelet Strategy, who also writes the Substack newsletter Calling the Shots. “If prices continue to be pressed down, merchants will have to cut costs to maintain profits, leading to lower product quality, and this is a vicious cycle.”

Monday’s protest showed that suppliers have had enough of Temu’s strict disciplinary measures – including intellectual property and certification requirements in overseas markets – as these merchants face further erosion of their already razor-thin profit margins.

A Guangzhou-based home decorations merchant named Huang, who joined other sellers on Tuesday to complain at Temu’s office in the city, said she started selling on the platform in May this year. Although prices were set low on the platform, sales volume often reached thousands of orders per day.

Huang, however, said it was a surprise for her to later learn that she could not withdraw in full the amount of sales she generated. Huang alleged that her account was suspended amid certain complaints and more than 2 million yuan (US$276,000) of her funds was kept by the platform. After several unfruitful negotiations with Temu, she decided to join the protest and demand changes.

An unnamed merchant from Putian, a city in southeastern Fujian province, was quoted by a China Securities Journal report as saying that Temu’s policy on suspending payments to merchants for some infractions has damaged his cash flow and made it difficult to pay his workers.

A Shenzhen-based smartphone seller, who declined to be identified, said their business incurred losses of about US$80,000, including fines and withheld funds. In addition, this merchant said the cost of more than 200 smartphones was refunded to consumers without the products being returned. Temu offers a refund-only policy within 90 days for most products.

Each product is given a “quality score” by the platform. The lower the score, the higher the fines for after-sales issues, up to five times the amount, according to a document provided by Temu merchants.

Temu said in a statement to the South China Morning Post on Tuesday that a group of merchants “have declined to resolve the disputes through the normal arbitration and legal channels outlined in the seller agreements”.

In its 2023 annual report, parent PDD described relationships with merchants as a business risk. “If we fail to maintain and expand our relationships with merchants, our revenues and results of operations will be harmed,” the company said. “We may have disputes with merchants with respect to their compliance with our quality control policies and penalties.”