PDD,
the owner of discount-focused online retail platforms Pinduoduo and Temu, has made obvious advances against Chinese rival
Alibaba
this year—but investors may be more surprised its gained momentum against U.S. rivals from
Amazon
to
Dollar General.
PDD’s
Pinduoduo competes against
Alibaba
as well as
JD.com,
and has seen staggering growth this year amid China’s economic slowdown, with financially pressed consumers flocking to its budget-friendly alternatives. But its U.S. platform, Temu, which launched ahead of the fourth quarter of 2022, is also making remarkable strides.
Sales at U.S. Temu have ballooned more than 1,000% in the 2023 holiday season compared with its first full quarter of U.S. operations last year, according to a report this week from market research group Earnest Analytics. Temu’s market share among U.S. discount stores increased to 17% in November from 2% at the beginning of the year, while
Dollar General’s
43% share in November was down from 57% at the start of the year, according to Earnest.
Temu, the new kid on the block, looks like a direct threat to some of the legacy discount names. Look no further than Dollar General itself, which reported grim third-quarter results on Thursday, with same-store sales down 1.3% year over year and operating profit slumping 41%. While the results were ahead of Wall Street’s expectations—and Dollar General stock was up 2.6% in Thursday trading—even the company’s CEO was unimpressed, with Todd Vasos saying in a statement that “we are not satisfied with our financial results.”
Perhaps more surprising is how Temu may be poking the bear of e-commerce.
Amazon
this week revealed changes to U.S. take rates from sellers for 2024, including reducing marketplace fees for Apparel items below $20 and a further reduction for items under $15.
“This is an attempt to make Amazon more competitive vs low-priced apparel entrants such as Shein and Temu,” Bernstein analyst Mark Shmulik wrote in a Wednesday note. The logic is that Amazon levies high aggregate take rates on Chinese sellers, according to Bernstein, which creates an umbrella under which Temu can offer lower prices.
“How Amazon’s competitive response to Temu and Shein ramps up from here on will have important implications for both companies and the broader global e-commerce industry,” wrote Shmulik.
Indeed it will, with PDD clearly emerging as a rival to Chinese and U.S. online retail players alike. And the stock market sees it too: PDD stock has almost doubled—up 96%—over the past six months. Amazon shares have risen 19%, by comparison, with Dollar General stock slumping 14% over the same period. Shares in Alibaba have dipped 16% in the last half-year, with
JD.com
stock down 27%.
“We don’t think Amazon’s decision will have a material impact on Temu’s ability to succeed in the U.S.,” Shmulik wrote. “At a high level, we remain optimistic Temu can continue to contribute to upside for PDD’s share price.”
Write to Jack Denton at jack.denton@barrons.com
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