Learning from Temu’s Marketplace Crash

On August 19, US-listed shares in PDD, owner of low-priced retail marketplace Temu, plunged 33% , wiping out $55 billion in market value in a single day.? Just three months earlier, Temu completed an 18-month sprint from pre-revenue startup to US shopping app download leader, amassing 250 million downloads in 2023. Then, whiplash.??

In 2023, Temu spent $2 billion on Meta ads, losing over $600 million, or $40 per order. PDD succeeded with this strategy at its Pinduoduo marketplace in China, moving into the #3 market position after its 2015 IPO and turning profitable in 2021. Temu's problem: Revenues missed a $14 billion consensus forecast.??

Financial spokesperson Jun Liu’s further grave warning of “intensified competition and external challenges ” triggered an instant selloff. But a deeper look suggests the problem isn’t just external.??

One Marketplace Size Does Not Fit All?

Pinduoduo has thrived in China through a blank-slate-designed marketplace commerce model perfectly tuned to China’s market dynamics, including:??

• A price-sensitive market, where 62% of consumers prioritize low price over brand name. And, where brands do matter, consumers prefer local brands sourced in-market.?
• A dense manufacturing ecosystem, where 70% of Pinduoduo’s suppliers are located within a 300km radius of major logistics hubs.?
• A strong base of technical talent , geared to support rapid digital innovation aligned to Temu’s custom-built gamified social shopping platform.

For Temu, the US represents a starkly different landscape. While price remains important, 78% of US consumers rank product quality as their top priority, followed by fast and reliable shipping or ease of pickup (71%). These demands have shaped a market dominated by Amazon and Walmart, where same-day or next-day delivery is increasingly viewed as the norm. This different mix of requirements presents PDD with unfamiliar challenges, including managing a supply chain that spans an average of 7,000 miles from Chinese factories to US consumers, compared to the 300km average in China.?

Blinded by Tailwinds, Now Confronted by Risk?

Thus far, Temu has managed to thread the needle thanks to an extraordinary convergence of tailwinds, including:?

• The parent company’s willingness to buy customers at an extraordinary loss.???
• A younger middle-income consumer niche who prioritize low prices and are willing to wait a few extra days on shipping for a 90%-off deal.??
• A break on reportedly variable product quality.??

But new stakeholder challenges are sprouting like mushrooms. These include:?

• Quality issues and limits on returns are starting to show in consumer reviews. A recent snapshot of 23,923 reviews on TrustPilot showed a distribution of 43% rating Temu a one out of five.

• Supplier defections are accelerating, with a recent CNN report suggesting that 30% of Temu's active suppliers have experienced payment delays or disputes, compared to an industry average of 10%. As of this writing, fresh street protests have just erupted in Guangzhou, China, with suppliers reportedly staging sit-ins.?
• Amazon’s new Shenzen innovation hub aims to onboard 100,000 Chinese suppliers directly, potentially disrupting Temu's supplier base?
• Amazon has also lowered its marketplace fees from 17% to 5% for items under $15 and 17% to 10% for items between $15 and $20 – a direct shot at Temu’s supplier terms advantage.??
• US regulatory attention continues to ratchet up as legislators like Oregon’s Earl Blumenauer press for the removal of de minimis duty advantages for small-parcel shippers, potentially killing one of Temu’s key cost levers.?
• Scope 3 disclosure and carbon border adjustments will deploy in Europe in 2026, with a likely domino effect in the US, directly impacting Temu’s reliance on air shipments, which are 30-50x more carbon intensive than sea freight.??

It’s been an exceptional run, but two years into Temu’s marketplace history, the foundation of the operating model is under attack.? Perhaps the market is finally appropriately pricing in PDD’s total cost of risk.???

And Yet... Still Winning?

Temu should by no means be counted out. And marketplace growth statistics still give reason for immense optimism on the category. Global online marketplace revenues doubled from 2018-2023 and will double again to a staggering $6.8 trillion by 2028.???

But the writing is on the wall for any firm that’s not systematically studying success drivers and points of vulnerability as it takes on new marketplace opportunities.?

To that end, we need to complement our understanding of Temu’s pitfalls with a careful understanding of the success factors behind PDD, Amazon, and Walmart marketplace strategies as they each vie for supremacy in their respective markets. When we do, we see five key marketplace leadership themes:?

1. Know the ecosystem – Pinduoduo means “together, more savings.” Temu might benefit from a review of this sentiment and Walmart’s comprehensive supplier development programs that illustrate the value of strategic information sharing and co-immersion.?
2. Grow the pie – Temu’s recent supplier protests suggest a zero-sum game between the marketplace operator (Temu) and those who rely on its platform. Temu should look to SHEIN – the company makes strategic bets in supplier upskilling and pays suppliers up to 30 days early in return for flexibility and efficiency.??
3. Know the structural hurdles and leapfrog them – As effective as it was for early customer acquisition, Temu’s marketing blitzkrieg appears to have hidden the structural rocks and innovation opportunities that are only now becoming evident as sales growth plateaus. For a model of 3-horizon thinking, Temu might look to Amazon’s continuous investment in future-facing PR/FAQ initiatives that allow for steps-ahead industry reinvention . Or, explore Walmart’s recent partnership with Silicon Valley 3D sustainable apparel manufacturing startup unspun.io .?
4. Create the space to fail small before scaling big – Temu entered the US with a go-for-broke market entry strategy that forced multiple simultaneous PDD firsts. The stakes for Temu are, therefore, now existential. For a master class on de-risking innovation, Temu might consider a visit to European marketplace master Zalando .?
5. Digitize in service of (not instead of) the above four themes – Temu has access to some of the most powerful digital marketplace development capabilities on the planet. The company could accelerate digital and AI ROI by ingesting Walmart’s Global Tech people-led manifesto .??

Perhaps the ultimate takeaway is that the only skill we must perfect is the art of discovering our own knowledge gaps before the market does so for us. Let’s get looking.?