EP318 - Temu Deep Dive with Earnest Analytics

The Jason & Scot Show - E-Commerce And Retail News

EP318 - Temu Deep Dive with Earnest Analytics

Episode Summary:

In this episode, Jason "Retailgeek" Goldberg and Scot Wingo dive deep Temu, the online marketplace operated by the Chinese e-commerce company PDD Holdings, that has become the fastest growing retailer in history.

Joining us on the episode is Michael Maloof is the Head of Marketing for Earnest Analytics. Earnest works with world-class data partners to acquires, anonymize, and productize insight about the entire U.S. Economy. They have posted numerous insights about Temu in the US this year:

• Feb 28: Temu’s 2024 Super Bowl ad blitz failed to accelerate growth
• March 5: Temu is growing fastest among high income earners
• March 12: Almost half of Wish, AliExpress customers shop at Temu

In this episode we cover who Temu is, how big they have become, who their customers are and what retailers they are likely impacting, their go to market strategy (and especially their marketing spend), the controversy around their use of the Global Postal Treaty, and some of their potential risks. We also explore where they could go next. If you're in the commerce space, you'll want to make sure you are up to speed on Temu.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 318 of the Jason & Scot show was recorded on Wednesday, March 13th, 2024.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Transcript

Jason: [0:23] Welcome to the Jason and Scott show. This is episode 318 being recorded on Wednesday, March 13th, 2024. I'm your host, Jason “Retailgeek” Goldberg. And as usual, I'm here with your co-host, Scott Wingo. Scot: [0:39] Hey, Jason, and welcome back, Jason and Scott show listeners. Jason, one of the topics that is coming up a lot this year, we talked a lot at a lot in our recap and our preview is Temu. By many measures, people think they're one of the fastest growing e-commerce companies in history. If you watch the Super Bowl, I think they spent $8 trillion on ads there. So we want to do a deep dive into this and cover a number of topics. We want to talk about a little background around Temu. What's it mean for U.S. retailers? And, you know, it's a Chinese company. Does it even matter? If yes, why? Because Temu isn't public and they are a Chinese company, they don't really disclose any information. So we wanted to bring on a guest that is basically a Temu expert. So we looked around and we found Michael Maloof. He is the head of marketing at Ernest Analytics. Ernest works with world-class data partners to acquire, anonymize, and productize insights about the U.S. economy. They have posted lots of articles. This is how we found Michael. I think you know him as well from the trade show circuit. So he's going to help us do this deep dive into what's going on at Temu. Welcome to the show, Michael. Michael? Michael: [1:59] Yeah, thanks so much for having me on the show. Big fan of your annual predictions and the work you guys do. So I'm head of marketing at Earnest Analytics. We're the leading credit card retail pricing and healthcare claims data provider for investors and retailers. Before Earnest, I was actually a tech and telco analyst over at Goldman. The two credit card data sets we work with now, Orion and Vela, are probably the most pertinent to my conversations about the consumer economy and certainly this conversation today about TMU. They sourced respectively from a large account aggregator, like a budgeting app, and part of a POS system in the US. And Ernest essentially takes these massive and messy data sets, normalizes structures, and then puts them onto our platform so everyone from portfolio managers to marketers can see this third-party data. For example, you'd see market share, competitive benchmarking, customer behavior, revenue predictions, and macro trends for thousands of companies, including TMU. Scot: [3:03] Awesome. Thanks, Michael. And then, so which sector did you cover when you were an analyst at Goldman Sachs? Michael: [3:08] Tech and telco. So anything in the tech space, we had a few marketplaces in there, telecom companies. It's been a while though. Ernest has been my home now for seven years. Scot: [3:20] Okay. Was this in the Anthony Noto era you were there? Michael: [3:23] This was in the vera rossi era she was my my lead where we recovered uh latin american tech and telco. Scot: [3:30] Very cool awesome yeah they did goldman did the channelizer ipo so i get to know the team there pretty well awesome well before we jump into the data which we're excited to kind of hear what you have to share here jason i know this has become a very hot topic in your world you you You spoke on it at NRF. In your day job, you're getting tons of questions about this. I think you're booked out solid with Tmoo briefings. So those people pay big money for it, and our listeners don't pay. Give us the free version of your backgrounder on Tmoo. Jason: [4:05] Yeah, thanks, Scott. And I'm sure we'll spice in some other tidbits as we go, but I'll try to give a concise bullet. it. Temu is a subsidiary of a company that used to be called Pinduoduo in China. It's now called PDD Holdings, which is infinitely easier to spell, by the way. And PDD Holdings is one of the largest e-commerce companies in China. On a market cap basis, they keep flip-flopping with Alibaba. So they're super competitive. They're way north of like $400 billion in GMV in China and had a really interesting trajectory, but a couple of years ago, they launched Tmoo into first UK and then US, now 49 other markets as a new retail concept. And so a couple of things I'd want folks to know before we dive in with Michael, first of all, the name is a loose English acronym for team up price down. So I always pronounce Tmoo as in team. [5:08] There are multiple pronunciations out there, even from Tmoo employees. So I'm not sure there's an official pronunciation. In the United States, they launched in September of 2022. So they're about 18 months old now. And most folks were not familiar with them until, a surprise, three months after launching, they bought a Super Bowl ad. So they became familiar to millions of Americans with the Shop Like a Billionaire ad that ran in the Super Bowl in 2023. And then as Scott alluded to, they bought five ads in the Super Bowl this year. So they haven't disclosed what they paid. A normal 30-second spot in the Super Bowl costs about $7 million. They ran four ads during the Super Bowl and one during the postgame. So estimates are in the kind of $20 to $30 million that they spent just on that ad. There's a bunch of estimates for how big they are in the U.S. I'm eager to hear what Michael thinks, but his old rivals at Morgan Stanley have them at about $16 billion in GMV in the U.S. But more interesting, Morgan Stanley estimates they're going to be $32 billion by 2030. So you think about a retail company that launched in September of 2022, and then in the first year, business sold $16 billion worth of stuff. That's the fastest growing retailer of all times. We do know from other sources that they get more traffic every year than Target. [6:36] They've been the most downloaded shopping apps on the Android and Apple app stores since they were born. So they've kind of owned the top of that list. And a couple other little interesting things. They are a marketplace. They have invented a model they call next generation manufacturing. So they're a marketplace. It's all three-piece sellers that are selling goods on Temu. But unlike traditional Western-based marketplaces, Temu does a lot more of the work, of listing the products and fulfilling the products for the factory. So they may, if you're a factory, they say the only thing you need is a cellular internet connection, and they provide you all the infrastructure to become a successful seller on Temu. There's somewhere between 80 and 100,000 Chinese factories that are currently sellers on the marketplace. And then one big innovation is this week, they're turning on the ability for U.S. Marketplace sellers to sell and fulfill their goods from the U.S. as well. So one interesting question about a marketplace is, are they competing for sellers with Amazon and Walmart? And now they're bringing that fight to American soil. So that, I feel like, is enough to get us started. There's certainly an interesting company that's worth following. [7:52] The way I originally discovered Earnest is through this show. One of our most popular guests, Dan McCarthy, has been on a few times talking about his his CLV methodologies. And our listeners have really enjoyed his his commentary. He has partnered with Earnest Data several times to do some really interesting analytics. And you guys at Earnest have published a couple of those as thought leadership. And so that's how I first met you. And then, Michael, I noticed you published like three articles on Temu this year. Michael: [8:22] That's right. Right. Teamio has been one of the top client asked for themes. It's definitely something we're seeing a lot in the press. We work a lot with those thought leaders as well. And that's something that we're getting a lot of questions on from everyone from business to fashion to Dan McCarthy. So glad to answer any questions there. We are kind of in a unique spot, kind of have the dashboard on the consumer economy, if you will. Basically what's going on within the last few days we can see everything from customer acquisition they have to their gross market merchandise value. Scot: [8:56] Got it let's let's start at the basics and let's pretend you know so i see Temu and you know it looks like they've got and you know one of my theories is it feels a lot like wish.com so it's really kind of cheap stuff slower ship going to what i would call value-oriented and consumers, you know, in your data, what, what kind of customer are, is buying this and then how fast do you think they are really growing? Michael: [9:22] Yeah, let me answer the second one first. Timmy's growing very quickly. Like you said, from late 2022 onwards, our data is showing double digit month to month growth, which is just explosive, right as it became a household name. In the first three months, for context, it had roughly as many weekly active users in the US as the largest fast fashion brand, Shein, and within 10 months had surpassed Shein in sales. And it had taken Shein years to get to that point. So really, a much shorter timeline. For an idea of size, about 18% of US households have shopped at TeamView since its launch. And in terms of GMV, in February, we saw about 1% of Amazon's US GMV. If you look at that, if you just break that out over the whole year, I believe in 2023, their net sales were something like over $500 billion. You're looking at around $50 billion in gross merchandise value moving through the service. But nevertheless, it's kind of not made really meaningful inroads with the largest online brands. I mean, it's still 1% in a good month. And that's actually decelerated since 2023. In fact, February of 2023 had fewer sales than January, despite the really heavy advertising spend you mentioned. [10:47] So yeah, there's some signs that the growth is kind of changing there. Mainly that retention is increasing even while this like... [11:01] New customer acquisition-based sales growth model is slowing down. TeamU's average customer lifetime value tracks higher than Walmart. And we're seeing customers becoming much more loyal. So that's an interesting kind of plus for them while sales in total are kind of hitting a lull. But yeah, let's talk about who those customers are too. It's definitely been one of the more interesting finds from our data. Despite the really low price points and that kind of gamified discount system, TeamView's US customer base skews middle to high income, actually. Sales among customers earning that over $190K, which is obviously very high up there, they're the fastest growing income bracket. And that's from May to January, May of 23 to January 24. So those sales to customers earning under $55K, like less than the median U.S. household income, that's actually the slowest growing. So today, about 44% of TeamU sales come from earners making over $130K. Not only do high-income earners account for the largest share, they're outgrowing. We just think that TeamU resonates mostly with customers with more disposable income. income, people who can afford to take a gamble on an item that might not work out. [12:27] You buy a floor mat for $5, it doesn't work. A middle high income person might just say, hey, it was $5 wasted, but the poor people don't always look at that. They're looking for a little bit more bang for their buck, can't afford that type of gamble. Yeah, it's interesting. Scot: [12:46] Cool and then you've you know you mentioned that they're you know basically their ltv is going up do you have any insight into why are they getting better at like maybe predictive analytics or recommendation engine or you know they see jason bought some gadget and then they they know he's now a gadget geek and they kind of start targeting do you have any insight into what's driving that that bump in LTV? Michael: [13:09] That's a good question. So I don't really have much insight into that. I try not to get out over my skis in terms of the data that I have available to me. We're looking at retention. We're looking for what's called a smile. Dan McCarthy talks about it all the time, which is over time as a company starts to bring back more customers that stopped stopped spending with them. And that's been pretty rare to see in e-commerce history. That's something they've managed to do. How they're doing that, I'm not totally sure. So it's definitely going to be the key for them to continue growing as new customer growth slows down, though. Scot: [13:52] Yeah. Jason, do you know? Jason: [13:54] Yeah. Well, so I don't know. I just want to point out that while Michael is wisely trying to not get over his skis, I live over my skis. So I'll tumble down the ski slope once again. One of the things I maybe should have said up front or maybe apparent to a lot of people is T-Moves marketing spend isn't just that Super Bowl ad. They're spending a fortune on digital ads and almost certainly losing a lot of money on every sale. So there's a Wall Street Journal article that came out this week that said that Temu or PDD overall spent over $2 billion with Facebook and was Facebook's largest advertiser. They're also Google's largest advertiser in the U.S. And so they're buying a lot of customers. And the the Wall Street Journal estimates that they're losing $6 on every sale. They're spending so much on customer acquisition. And so in that first year, they're doing a ton of marketing. There's a ton of people that never heard of Temu. They're acquiring those customers. They're getting that first order. [14:54] And, you know, a mini version of this is what Wish did until they ran out of money. But though it doesn't seem like there was a lot of evidence that Wish ever got traction, right? Like they didn't get those repeat orders. And what I think we're seeing And what I've seen in some of the data that Michael shared with us is that Temu very much is growing that LTV, getting repeat orders, even as the flood of digital marketing they're spending is sort of losing some efficacy as the law of large numbers kick in. And then I would also say Pinduoduo in China and now Temu in the U.S. Is very well known for their gamification. So they have lots of clever gamification mechanics on their websites, group buying, contests, gifts, one-time deals that are all like very carefully crafted to entice you to make an incremental purchase and to make an unplanned purchase. So I think all of those things appear to be working and then they hit you on social media with, you know, a huge spend, you know, right when you're, you're doom scrolling and expressing some, some purchase intent through your clicks. Scot: [16:08] Very cool. How about you, Michael, you mentioned this, this, this slowdown, which is exactly opposite of what I would have thought given the Superbowl ads. What do you, does the data show you anything there? Is it? Normal or like what what's going on. Michael: [16:23] Yeah i mean i don't know i don't know what would be normal for this company that's still up hundreds of percent a year but when i'm looking at at month over month growth which is the kind of the best way i can think to to look at it it is pretty remarkable there was some sort of a step change in august of last year where it went from growing double double digits each month to growing just single digits or down. The holidays, December actually was smaller than November in terms of their sales. And January was smaller still, makes sense. But February, also very challenged in terms of sales. I'm wondering if they're in a sort of spiral in terms of the new customer's first time kind of buying frenzy is over, or if this is a shift towards very purposely trying to get people in the door and they're just actually tapping brakes a bit on advertising spending. I'm not totally sure what this signals just yet. Scot: [17:35] Got it. Okay. Jason: [17:36] Is it safe to say that there's no clear evidence that spending $30 million million dollars on the Super Bowl had a super observable impact on their sales. Michael: [17:46] Okay. Yeah. So the Super Bowl. Let's talk about that. The million dollar question or $30 million question, I guess. The answer is probably not. There are a lot of ways to measure advertising effectiveness, as you guys know better than most. Brand awareness and net promoter score. But yeah, for a young company like this facing slowing new customer growth, I'd imagine they're looking to move the needle with each of these like big marketing events and the data just suggests that their multiple ads on February 11th had no meaningful boost in sales actually TeamU saw a noticeable deceleration in sales growth following the event actually kind of, like sales were significantly slower in the next few days. So unless they're measuring this on a much longer timeline, I don't think this investment was worth it. I think they would be better just plowing dollars into digital, wherever that is. Jason: [18:42] Yeah, it's super interesting. You know, obviously for listeners that don't know, my salary gets paid by those Super Bowl ads. I work for a big ad agency for which I'm very grateful. But the lot of controversy around our water cooler the day after the show. That was a spin that you rarely see. And in one metric, it clearly had an impact. There was a lot more discussion about Temu than any other company on social media the day after the Super Bowl. So the Super Bowl ads triggered awareness and conversation. I think they were the second behind Verizon, which had Beyonce, right? And so there was a lot of talk on social media. It was not all positive. There was a lot of discussion on social media, but people that hated the team who had the first time they saw it because it was sort of by Super Bowl standards, not a very high production animated ad. I think they made it in-house and they, you know, ran it with much greater repetition than audiences are used to. So it generated a lot of conversation that didn't necessarily translate to sales, at least that we can measure in the short term. And so that that's going to be interesting long term case study about what what these kind of, you know, splashy big reach audiences can and can't can't do. Right. Michael: [20:00] You know, I don't, again, skis and getting over them. It just seems like the outcome for them at this point should be a little further down the funnel. And I don't see how advertising spend like that will marginally get someone, persuade someone to buy a team you that wasn't already going to. It seems, yeah, it was a lot and there was no really movement in our data, either in new signups or in sales. I think there's some other research out that downloads are trending downwards or slowing down as well. We don't have that data, but I was reading elsewhere. So I think, Scott, this is maybe more to your 2024 prediction that people are realizing this is wish and slowing. and becoming less enamored or falling out of it. Jason: [20:52] No, no, no, no. Scott's predictions cannot be right. Scot: [20:55] Wait, if I hear that, you're pre-anointing that I'm right. Is that you're here in March, you're saying I was right with my prediction. Man, I'm good. Michael: [21:04] I didn't want to pick a side here, but I think people might be falling out of love with it, although it's not because it's not wish, it's because they're out wishing wish. We can talk to it a little bit. But I think people just realize Teamio is managing to disrupt Wish. And we can talk to the brands that it's disrupting. That's just one of many. It's got higher retention, bigger scale than Wish. But it does have the same limits as Wish and that this deep discount model doesn't have the big household brands that people want when they're making those everyday purchases that are slightly bigger, like the Tides and Cloroxes or the recognizable alternatives. There are just some things you don't want to replace and you don't want to gamble on. I don't think anyone wants to spend a dollar on detergent and see what happens. It's just going to be tough for them to scale at some point. I think the question we should be asking is if they've reached that point yet. I'm not sure. The sales growth slowing suggests they could have. But in the meantime, they are actually taking a wrecking ball to several other brands. So just because total sales is slowing doesn't mean the disruptive effect is slowing. Scot: [22:22] Yeah, let's go, Jason. Jason: [22:51] Because Temu is buying so many ads and driving the price on all those auctions up. So don't know if it's moving the needle on consumer impact or not, but it for sure is having an impact on their competitors, at least in that regard. Michael: [23:04] So you're saying maybe their goal is to just suck all the oxygen out of the room? Jason: [23:08] I'm saying that's potentially an unintended positive benefit. Mm-hmm. Scot: [23:15] Yeah, and you've teed us up there. Who is, is it retailers or is it more brands? Who's getting impacted by this? And kind of embedded in this question is, do you have an idea of the categories? Like if we looked at that pie of the 50 billion GMV, is it largely electronics? Is it apparel? Like what are the big wedges inside of there? Michael: [23:35] Yeah, well, so the great part about transaction data, it's really good at looking at brand disruption, or I should say retail disruption by brand. Not great at looking at the categories. You know, I don't see what an individual breakout of a credit card receipt is. I'm just seeing where people are spending. So I think that's the question I'm more equipped to answer. In terms of impact, some of the folks you think of when you think of mass market and discount retailers like Five Below and Walmart, the ones that you immediately want to ask if they're being disrupted, they seem like they'd have the most overlap. They've been pretty untouched, actually. Part of its overlap, only 19% of Walmart and Amazon's customers have even tried TeamU. And that's about the same as the total percent of US households that have tried it. substantially the whole country has made a purchase at Walmart and Amazon. So they're just not as at risk, maybe on the margins. But what we're seeing, I guess, next step up with some risk is the dollar stores. Dollar General, they share about a quarter of their customers with TeamU. And if you look at Dollar General's customers spending at TeamU, it's up over 800% year to year from January 23 to 24. Obviously, a super small base and flat. at Dollar General itself. [24:54] And then those TeamU customers who aren't, or those Dollar General customers who aren't TeamU customers, they're spending slightly up at Dollar General. It suggests that there's some impact. Again, not the biggest that we've seen. So I'd say like dollar stores kind of marginally. [25:10] This is not as supported by data, but just putting the data point together that the TeamU customers are spending less and TeamU customers are richer, you could come to the conclusion that Dollar General role is losing out on richer customers looking for deals a little bit. Maybe they're popping in for something they really don't want to spend a lot of money on, like a party, something like that. That's where the sales that they're losing is. Which actually kind of takes us to the last and biggest impact. Wish and AliExpress, as well as all those hobby lobby party supplies, like Oriental Trading. So I'll start with Wish. Their customers are just fleeing. I think there's no better way to say it. 50% less spend on Wish in January 2024 than January 2023, and over 680% increase at TeamU. That's just astounding. The Wish customer, once they try I, TeamU, they're done. It's game over. It's similar for AliExpress. And I think that what TeamU has really done early on, we need to think of them less as like an Amazon killer, and more as a brand that just came in to consolidate the existing demand for this deep discount online spending that these two, AliExpress and Wish kind of got off the ground in the US. [26:35] In terms of the hobby space, Oriental Trading, Hobby Lobby, Party City, they all experienced double-digit declines year-on-year in February among the customers who also shopped at TMU. And these brands, they're catering to occasional and discount merchandise. I think they're really going to struggle adapting to TMU. It's like I said, the person who doesn't mind throwing away $5, $10, $15 on party supplies if they don't work out. But it's a one-time thing anyway. way you know it's it's things that they're somewhat disposable items to these customers and very interchangeable got. Scot: [27:12] It i noticed you didn't mention amazon on that list is there is it there been an amazon impact or has it been. Michael: [27:18] That's great good catch pretty negligible just just like walmart they're just brands on those platforms at this point that you can't find at at these places i think when i say on the margins that's what i mean there could be hey, I need this small thing for my kitchen that I could get for $1 or get for $3. And that might be the sale they lose out on, but they're doing a better job of being one-stop shops. And I think with what we've seen, it doesn't seem like the business model is set to take on Amazon yet. Scot: [27:57] Got it. Yeah. Jason: [28:00] You know, a couple of things that come to mind. A, I think the dollar store thing is super interesting because historically dollar stores haven't sold very much online. Like, and, and, you know, usually their excuse is that, that super low price point discounted items don't work online. Right. And I, I think like in some ways I look at Temu and I say, they're actually the digital dollar store that did figure it out. Now. [28:25] It remains to be seen whether they can make money doing it in the long run. But it doesn't surprise me that those are some of the categories that are being disproportionately impacted. And I think you really hit something interesting on some of these everyday essential retailers that sell the brands that consumers are looking for and trust. [28:46] That, to me, feels like a different shopping occasion than the shopping occasion I think Timo is winning. Branding there's this whole new trend on all the social media platforms called dupes and you know people think of like knockoffs and forgeries where you you try to pretend you're a brand that you're not but dupes is a something different dupes is this is a very similar product to a name brand product but it it overtly is not the name brand product and it's a way better value and they're now these big cohorts of consumers that talk about their dupes and brag about their dupe finds and, you know, proudly make these, these dupe decisions. And it feels like those are the kind of things where, where Teemu's playing really well, where, you know, you're into, you know, crafting and you've, you know, there's some expensive machine, a cricket machine for cutting vinyl. And you say, oh man, I found a dupe on Teemu for 20 bucks, right? Like those Those feel like the kinds of occasions they're winning when you're willing to trade down for that no-name product and take a gamble versus when you know you want the Tide dishwasher soap. Michael: [29:58] I think that's a great point. They're taking advantage of the trading down phenomenon in general right now that a lot of brands are seeing, a lot of retailers are seeing. This is the perfect spot. I'll just go ahead and see if Temu has it. Maybe they will, maybe they won't. Scot: [30:15] Cool. One topic, and this is kind of a jump ball for you guys, is the, you know, I read a lot about this shipping model, and this was always Wish's kind of secret sauce is there's this, there's this like loophole in the postal code where if you send this something small, you know, it doesn't have any tariffs, number one. And then number two, there's like this really cheap postal rate, or I can't remember if China subsidizes it or it's free or we subsidize it, but there's some, there's kind of like double loopholes. There's a tariff one and a shipping one. And I've seen some noise lately about people wanting to kind of shut this down. Do you guys, either of you more expert on that than I am and have an opinion on if it's going to be sustainable or not? Jason: [30:57] I could certainly jump in there. So what you're talking about is there's this thing called the Global Postal Treaty. And it's a prearranged agreement between like 95 countries, 94 countries for how they'll deliver each other's mail. When you try to ship a letter from the U.S. to Germany, the U.S. Post Office is going to hand it to the German Post, and they need to know in advance how much the German Post is going to charge the U.S. Post Office to deliver that so that the U.S. Post Office can charge a rate in advance to you to deliver those things. So this global postal treaty is super valuable, and it makes it possible to cost effectively and, you know, with predictable rates, mail stuff all across the world. [31:41] Unfortunately, there's a couple of problems with it. There was the developed nations agreed that for less economically developed nations, they would have a preferred rate. So they would charge even less to deliver. The U.S. post office would charge less to deliver mail from a developing economy than they would from an established economy. And until recently, China was characterized as a developing economy, which is probably not accurate. And then the Postal Treaty specifies a dollar limit that it only is in effect for packages under a certain value. And so this is called the de minimis clause of the Postal Treaty. In the United States, the threshold is $800. So when Temu ships something to a consumer in the U.S. that costs under $800, they get a predetermined rate from the U.S. Post office, which is often cheaper than the rate to mail something from one part of the U.S. to the other. And Scott, per your point, there is no tariffs charged on that item and there is no import inspection on that item. So, you know, normally when we, you know, if a U.S. Retailer imports a container of goods from China, there's all kinds of inspections to make sure that the factory in China met labor standards and, you know, met environmental standards, and then they pay tariffs on all that. [33:08] The team who hands one package to the U.S. post office, they they get to bypass all that, which, you know, is, of course, controversial. No one wants to get rid of the Global Postal Treaty or even de minimis. But what they're saying is that the U.S.'s 800 hour threshold is probably way too high. Like China's threshold for reciprocation is something like forty dollars or something. So you could you could put a big dent in Temu if you just lowered the the threshold. And so there's There's, you know, noise in Congress about trying to change that limit. I would say that, you know, it is an unfair advantage in many ways, and U.S. Companies are certainly right to complain about that. [33:51] I would say that Temu is different than Wish. Wish took advantage of this cause. Temu takes advantage of it way more effectively, right? So Wish sold, you know, was a marketplace, and they had a factory sell something to an American consumer. And then it was up to the factory to get it to the American consumer. So the factory had to have their own postal account. And then they, you know, had to trigger this postal treaty. And there was no shipping confirmation. And often Wish products took a very long time to ship and a very long time to arrive. As part of this next-gen manufacturing model that Temu has, they do all that for the seller. And it uses Temu's postal account. And they expedite all of these things. Most of these goods get air freighted to the U.S. and put into the U.S. postal system. So while Wish items would have averaged three or four weeks delivery time. [34:46] Temu normally averages like five to seven days, and they almost always outperform their shipping promises. And in fact, they even have a guarantee. They give you $5 back if the package arrives late. So, you know, part of the reason that I don't think they're just purely Wish 2.0 is they actually do have a better, more reliable shipping experience than Wish. And they actually more effectively take advantage of this postal loophole than Wish ever did. Scot: [35:18] Yeah. And Wish took the proceeds of their IPO and built out some fulfillment centers. And they almost did their own version of that Amazon dragon boat or whatever that was called. Has T-Mood signaled they're going to do something like that where they have, you know, even more? Jason: [35:32] Yeah, they already have in some. So they're in 49 countries now. So they do have D.C. fulfillment centers in some of those countries. They've actually talked about opening a fulfillment center in Mexico for delivering goods in the western U.S. And so so they are talking about that. But then this other big thing is starting this week that a U.S. Seller could list their goods that, you know, the goods are already in a warehouse in the U.S. that US seller could list their goods on Temu and then deliver those goods from a US fulfillment center. So that's a potential way to get much faster delivery times for Temu. And we've already seen some badging. Temu has items with a rapid ship badge that are guaranteed for two-day delivery. So it does seem like Temu recognizes that over time, their fulfillment model is going to have to be more nuanced than just the the individual parcels uh coming one at a time but but you know that still seems like the the sort of biggest foundation of how they're delivering all these goods got. Michael: [36:36] It um the minimus though i can't imagine that much they would change would really have an impact we're seeing average ticket prices at 38 last month for for timmy like are they thinking thinking of reducing it by that much or. Jason: [36:52] So, I mean, a just talking about way over our skis, like my, my political acumen is very poor, but yeah, I don't think Congress is gonna do anything. I think like at most they'll have a, a hearing and try to look like tough guys talking about how unfair it is and how they're gonna try to protect the American businessman and the American consumer. And then when push comes to shove, they won't, they won't do anything, which is my, my cynical nature. But you're right. Right. Nobody's talking about dropping the de minimis low enough to to, you know, really trigger the bulk of these these Temu shipments. So it's it's more likely if they made a change, it would be a gesture, not like, you know, some some game changing thing. Now, you know, there's another big Chinese company out there, ByteDance, which is TikTok. And like there there is a bill going through Congress right now to ban TikTok. And so, you know, if something like that were to happen with, with a PDD or Temu, you know, that, that would of course, you know, be a, a big threat of a disruption. Scot: [37:54] Yep. And then on that example you gave, Jason, of a U.S. seller in a fulfillment center, is that Temu's fulfillment center or the seller's fulfillment center? Jason: [38:04] The seller's fulfillment center. So potentially what would be one of the ironies of this is, of course, as Amazon has expanded their fulfillment services, you could be an Amazon seller, be using FBA, and sell something on Temu and have Amazon fulfill it for you. Scot: [38:20] Yeah, Wish did something like this. What we found was the U.S. Seller struggled to get things in the price point that consumer wanted, right? It's like it's such this low quality stuff that almost has to be offshore for even to the manufacturer. Jason: [38:36] Yeah, I think you are 100 percent right there. I don't think they're going to like we don't know what the uptake is going to be on these U.S. Sellers. It's an interesting talking point, but it doesn't seem like there's going to be a bunch of U.S. Sellers that are going to likely participate in this like low price dupes demand that they have today. Now, what would be interesting, Pinduoduo, I mentioned, which is a huge, huge entity in China. Pinduoduo started with this same stuff. They started with really inexpensive marketplace goods. And as Pinduoduo got bigger and more established and won the hearts and minds of Chinese consumers, they moved up market. They started selling brand name stuff. They started selling higher quality stuff. And today they're a hybrid seller. PennDuoDuo in China sells their own goods in addition to marketplace items, which I've never seen before. Usually it always goes the other way. And so there's at least a premise that like maybe the U.S. sellers don't like add to the current assortment, but maybe the U.S. Sellers help Temu round out their assortment with some higher price point, you know, more recognizable goods for the U.S. consumer that helps them win more wallet share. Scot: [39:49] Interesting. Cool. We're running up against time. Do you guys have any other topics you want to hit before we call it a show? Michael: [39:58] No, I think it's fair. You know, I already mentioned one of your predictions. I should talk about the other one. Just to pick on Jason for a second. I don't think we'll make it to the 75% of target USC comm this year for Temu, Jason. Sorry. It's like a stretch. Scot: [40:17] Man. How do we get Michael on the show more? Like, I'm really enjoying this. This was a really good guess. Jason: [40:24] I feel like you're calling the winner of the Super Bowl in the first quarter, man. Come on. Michael: [40:27] Okay, well, I'll just put it this way. At 18% of the US households, three months into the year, it seems unlikely at their current growth that they get there. My view basically though, writing this, is that they've done a great job in the first year of attracting folks with a lot of disposable income to buy things that they likely wouldn't have bought anywhere else, like party supplies, household goods. It's maybe a different model than they they have in China. The challenge for them now, you guys both definitely identified this, that it's basically to convince people to switch everyday spending from Amazon and Walmart on those bigger items. And they don't have the assortment right now for that. And that's what you're mentioning. They need to either move up market or figure out what that assortment looks like. But that's going to be a bigger hurdle. They're reaching critical mass. They just have some decisions to make internally at this point. Jason: [41:17] Yeah. Well, in general, I feel like that is going to be a great place to leave it for this show because we have run out of our allotted time. But Michael, we really appreciated your insight. We'll certainly have you back. I know your view of the U.S. economy is useful for a whole bunch of topics that come up frequently on the show. But as always, if listeners enjoyed this episode, I hope you will jump on iTunes and leave us that five-star review. Scot: [41:46] Thanks, Michael. And this has been really good for Jason's ego. So I feel like you've knocked him down a couple of pegs. I appreciate that. And then if folks want to read more about your writing or connect with you, is LinkedIn the best place or are you more active on TikTok? Where can people find you? Yeah. Michael: [42:04] Michael Maloof on LinkedIn. I'm always posting a lot of Ernest data on there. And then also on our company blog, ErnestAnalytics.com. Go to the Insights blog and subscribe. Jason: [42:17] Yep. And I will put links to both the team new articles you guys published and your LinkedIn in the show notes. Michael: [42:23] Thank you. Jason: [42:24] Until next time, happy commercing!