E-commerce platform Temu has grown fast.
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PDD Holdings, the online shopping giant founded by China’s second-richest billionaire Colin Huang, is facing a crisis after vendors on its highly popular Temu global e-commerce platform took to the streets of Guangzhou to protest what they called shabby treatment.
Shares of the Nasdaq-listed PDD slid 3.5% on Tuesday, wiping out $1.6 billion of Huang’s net worth in a single day, as investors reacted to the demonstration Monday in Guangzhou. The 44-year-old, who stepped down as PDD chairman in March 2021 but continues to derive his wealth from a company stake, now has a fortune of $43.4 billion, according to Forbes estimates.
Investors worry that Chinese authorities might step in to scrutinize the company’s treatment of vendors on Temu, says Robert McKay, a Shenzhen-based senior research associate at research firm Blue Lotus Capital Advisors. According to one clip posted on China’s Weibo microblogging platform, several hundred merchants gathered at PDD’s offices in the southern city of Guangzhou on Monday to demand improved treatment, including more transparency in fines levied on them by the platform.
The merchants allege that Temu often withholds payments or levies fines for quality problems or poor after-sales service without detailed explanation. McKay says the fines are very high, up to five times the value of products sold. “I haven’t heard about such issues on other platforms. Some merchants have been suggesting to move to AliExpress instead.”
A Temu spokesperson says a group of merchants recently gathered at a company logistics affiliate in Guangzhou, and Temu is working with them to find a solution to their complaints.
“They were unhappy with how Temu handled after-sales issues related to the quality and compliance of their products, disputing an amount worth several million yuan,” the spokesperson says via e-mail. “These merchants have declined to resolve the disputes through the normal arbitration and legal channels stated in the seller agreements.”
Founded in 2015 by Huang, a former Google engineer, the e-commerce giant launched budget shopping site Temu in 2022 to expand globally. It offers low-cost goods and products from China and uses tactics such as aggressive discounts and splashy marketing to interest consumers abroad. In the U.S., for example, Temu rose to prominence thanks to its Super Bowl commercials, which this year included more than $15 million in coupons and giveaways, and featured slogans such as “Shop Like A Billionaire.”
Temu, which is now expanding in Europe and Southeast Asia, is a key to PDD’s rapid growth. In a May note published via research platform Smartkarma, Blue Lotus Capital Advisors analysts wrote that Temu’s improving unit economics—such as higher sales and lowered logistics costs—drove higher-than-expected profits at PDD during the first quarter. For the first three months of 2024, the entire company more than doubled sales to 86.8 billion yuan ($12 billion) from a year earlier, while net income skyrocketed 246% to 28 billion yuan.
Late last year, the company briefly overtook Alibaba as China’s most valuable e-commerce company by market capitalization. Its eye-popping pace of growth once prompted Alibaba cofounder Jack Ma to pen an internal letter. Ma, now China’s sixth richest man with a wealth of $24.9 billion, wrote at the time, “I firmly believe Alibaba will change and amend itself.”
