Tax Loop Holes and Data Plays 🧐

What are the nuggets? 💎

🛍️ Origin: Founded by Colin Huang, PDD Holdings started with a group-buying app called Pinduoduo in 2015, a mix of e-commerce and social media. Huang’s Google background gave him a global perspective, but he focused on China’s smaller cities. Within three years, they’d IPO’d and raised over $1.6 billion. But the seeds were already planted, PDD was collecting data on what customers might want, and they used that playbook to launch Temu in the US in 2022.

🛍️ Cutting Out the Middleman: One of Temu’s (many) killer advantages is that it lets vendors in China sell directly to Western customers without distributors in the middle. That means products hit your door for prices no local retailer can match. Temu has even told some sellers to sell at a loss. With the idea of creating a habit of shopping there. Because once you’re hooked, they know you’ll be back. This is PDD’s secret sauce: creating a habit loop that doesn’t just capture customers; it traps them.

🛍️ Matching Amazon’s Moves: Temu onboarded U.S. warehouses to shorten delivery times, allowing them to ship bigger items faster and dodge the usual “slow shipping from China” stigma. Amazon had to respond by letting more Chinese sellers ship directly to buyers, bypassing their Fulfillment by Amazon (FBA) system. What does this mean? A full-blown supply chain arms race that threatens to kill one of Amazon’s biggest plays, FBA.

🛍️ De Minimis Tax Loophole: This is where it gets insanely sneaky. Temu’s competitive edge is built on exploiting the de minimis tax exemption, basically, if you buy something under $800, it skips import duties. Temu’s entire model was built around shipping in tiny volumes to avoid these taxes (a third of US 2023 de minimis imports were from Temu and Shein). But here’s the twist. The Biden administration is planning to close this loophole. But twist number two, this will kill small sellers margins, and Temu have been prepping with U.S. warehouses, ready to adapt. If the rules change, they’re still in the game, and their smaller competitors might not be. They’ve put the US in checkmate. 

🛍️ The Data Play: By refining their AI algorithms and supply chain, they’ve created a platform that learns faster than the rest. They’ve turned browsing habits into a science, predicting what will catch on before it does. Amazon sells buyer data to manufacturers at a premium, Temu is currently giving this information to their manufacturers for free and as part of their strategy. It’s why you see TikTok trends spill over to Temu faster than any other platform.

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Laying Out The Figures 💵