Chinese authorities raid and arrest more than 100 angry protesters who have surrounded the E-Commerce giant PinDuoDuo's (PDD) TEMU headquarters

The Chinese authorities have stormed the Temu headquarters in GuangZhou, dragging out and arresting more than 100 furious protestors who have surrounded the e-commerce giant's headquarters. The protesters, a coalition of over 300 small and medium-sized merchants, have unleashed a storm of accusations against Temu, alleging "malicious trickery and cheating of sellers." Tension has now reached an all time high, with protestors now vowing that they would exhume the ancestral grave of former CEO Collin Huang if their demands are not met.

Some protesters are even breaking into the office, staging a dramatic sit-in that has captured the attention of the world. Protestors are saying that the new draconian new regulations introduced by the company is the final straw, and they are now launching their own attack back at the company for its exportionate policies.

In order to ensure the quality of goods on its platform, Temu released new rules earlier, specifically tailoring a new fine mechanism for merchants whose items do not fit the quality requirement of the buyers or if the buyers decide to refund their goods. According to the data provided by the sellers, as of yesterday, the total amount of money penalised or locked after sale amounted to about RMB200 million. Given that many affected are small and medium sized merchants, this substantial financial burden is proving extremely challenging to manage.

Temu ridiculous earnings in first half of 2024

Temu has just submitted a stunning report card for the first half of 2024. Within half a year, Temu reported their gross merchandise value to be at USD$20 billion, surpassing it overall sales of USD$18 billion in 2023. In the second quarter, Temu's GMV amounted to approximately USD $12 billion, with the United States contributing to around 45% of sales. On top of the $200 billion GMV, the company's monthly traffic also surged by 700% compared to the previous year.

However, when comparing Temu’s reported GMV to the fines imposed on sellers—totaling USD 200 million—it becomes evident that these penalties constitute nearly 10% of the company’s earnings. This raises concerns about the fairness and impact of such fines on merchants.

So what are the so called extortative rules and regulations

Here is a highlight of what is happening between Temu and its merchants:

1. Temu has incurred massive fines on their merchants. Merchants are claiming that they have been unfairly slapped with fines totaling up to 1 billion RMB in total, a blow that has left their businesses teethering on the brink of collapse.

2. Since May 2024, merchants have been reeling from a lenient refund policy that consumers are exploring, leaving sellers to shoulder the financial burden.

3. Temu's penalty system is shrouded in secrecy, with merchants often left in the dark about why they're being fined, exacerbating their frustration.

Delicate balancing act between pantering to customers and taking care of merchants

The conflict between Temu and its merchants has highlighted a very poignant issue in today's e-commerce world: the balance between quality control and vendor support. While I do agree that strict penalties are an effective measure to maintain high quality product on the platform, vendors are now complaining that some of these regulations are excessively harsh.

It also seems that Temu would also have to go back to their drawing boards when it comes to their refund policy. The company's item-only refund option seems to be frequently exploited by consumers, resulting in high return rates and subsequent fines for vendors. This would not only eat up the profits of the merchants but increase their operational burdens as they would have to put in extra money and resources to handle all the logistical work from frequent returns and restocking.

Of course, they would need to better communicate the reasons why they are incurring those fines and penalties to the merchants. This would allow the merchants to be clearer with the rules and regulations of the company and allow them to better navigate through the system while being able to prevent future infractures.

But this isn't the first conflict Temu has had with its seller. Temu also previously leverages on convoluted scammy business models to trick merchants and squeeze them dry of their money.