🌀 Temu on the Fast Track to Fame... and WeWork Sequel💥

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Temu on the Fast Track to Fame... and WeWork Sequel💥

Temu's marketing blitz is turning heads with a 1K% increase in ad spend and over 350M monthly site visits (up from 50M at the beginning of 2023). On top of that, 82.4M active shoppers using its app in September 2023, up from 4.6M a year prior… But with a shaky unit economics and dwindling consumer interest, this strategy seems more like a gamble than genius.

Advertising overload 💥
I think of Temu as the new WeWork of e-commerce, splurging a staggering $1.2B on Meta ads. Going forward in 2024, Temu shows no signs of slowing its advertising ambitions. With 76% of ad spend on social media and another €13.1M Super Bowl ad on the horizon, their strategy is clear: visibility at all costs. But is flooding the market with ads sustainable or just a flashy way to burn cash?

The Wish Effect and Unit Economics📉
It's like watching a sequel to the Wish disaster movie – heavy on ads, light on innovation. With each order bleeding cash, Temu's strategy seems more like digging a financial hole than building an empire. With each order costing them about €9.4, and an average sale of just €23.4, they're bleeding cash. Their current model, reliant on volume over value, seems a risky gamble in the long run.

Shrinking demand 📉
Here's the twist: customers aren't as thrilled as the numbers suggest. Quality issues and diminishing trust are causing shoppers to back away, with Temu's purchase intent plummeting by 14%. It seems the allure of cheap is wearing thin.

Seller strategy shift 🔄
In a bold move, Temu is opening its doors to U.S. and European sellers, attempting to diversify beyond its Chinese roots. It’s a play straight out of the Wish, Shein and AliExpress playbook. However, they were largely unsuccessful in both attracting a significant number of domestic sellers and repositioning themselves in the eyes of consumers.

Business model 🤔
Temu's banking on its cheap, unbranded products, but this might be a short-lived triumph. To truly succeed and avoid being a flash in the pan, they might need to pivot, just like Amazon did with Prime and AWS.

❓ Will Temu's aggressive growth strategy pay off, or is it a path to financial ruin?

Marketplaces' Time Travel to 2018: NASDAQ Says 'Been There, Done That'⏰

Battery Ventures' report highlights a 2023 reality for online marketplaces: underperforming NASDAQ, a deviation from their traditional sync. Battery Ventures suggest 4 imperatives these platforms should pursue: efficiency (and if not yet then get to break-even), offer additional high-margin services, viral/product-led growth, and generative AI to stay afloat in the digital realm.... those strategies sounds familiar from my own work.

Post COVID Impact 📉
With the first vaccines for COVID, The valuation of marketplace started to slip down. In 2021-2022, rising recession fears and interest rates led to reduced consumer spending, causing a significant drop in marketplace growth rates, multiples, and share prices.

Efficiency's Paramount Role 💡
The report emphasizes efficiency as crucial for higher valuations. It's not just about growth; it's about sustainable, profitable growth. Companies that score >40 on the Rule of 40 tend to outperform their peers. The Rule of 40 assumes that if you add up “Revenue Growth %” and “EBITDA margin %” you should get to 40. The closer you are the better price share growth and multiples.

Software's Revenue Boost 🖥️
Incorporating high-margin, recurring software products can be a game-changer, enhancing customer retention and expanding gross margins significantly. Instacart could not get to where it is today if not changing the model and pursuing new revenue steams (e.g. from subscription, enterprise platform and advertising fees primarily paid by brand partners). This revenue constituted for 29% of total in 2022... and you can imagine what margin does it have.

Viral Growth's Necessity 📈
Embracing viral marketing and product-led growth can reduce dependency on expensive advertising, creating a more resilient and cost-effective business model. Battery Ventures follows here another Magic number. This time its a result of deduction “Last 12 Months Sales & Marketing %” from “Revenue Growth % yoy”. This metric is used to show how much growth is driven by organic – or efficient – growth vs. paid-for, marketing-driven one.

AI's Transformative Edge 🤖
Integrating generative AI is critical for marketplace evolution, offering transformative changes and a competitive advantage in the market. AI automation will allow marketplace businesses to expand the pool of supply in unprecedented ways.

❓ What do you think needs to happen for marketplaces to regain investor trust and valuations?

🛒 Mass merchant

• 🇺🇸 Etsy's 'Gift Mode' is a Big Game but a Small Play. Etsy makes a bold play with its 'Gift Mode', dropping big bucks on Super Bowl ads. Their AI-powered gift guide (rather SEO play than actual value for customer) aims to make them the top gift-shopping spot, but I would say it is more sizzle than a steak. Deep Dive 👉 TechCrunch

• 🇫🇷 Amazon's Surveillance Scandal in France. Amazon France Logistique, hit with a €32M fine by CNIL for overzealous worker surveillance, stirs controversy. The tech giant's tactics in tracking staff productivity, deemed excessively intrusive, challenge privacy rights and GDPR compliance. Deep Dive 👉 EuroNews

• 🇨🇳 Shein under Fire for Gray-Market Tactics. Shein's marketplace is bustling with big-name brands, but there's a catch: many, like Hoka and Paul Smith, are gray-market goods. They're genuine but sold without brand authorization. This practice, while not illegal, clashes with brand equity and may affect Shein's brand partnerships. Deep Dive 👉 ModernRetail

• 🇨🇳 Alibaba Founders Invest Big in Their Own Company. Alibaba co-founders Jack Ma and Joe Tsai demonstrate their confidence in Alibaba, buying over $200M in shares. This move, amid the company's recent struggles, signals a strong belief in its recovery and future growth, which was well received by stock markets (8%). Pity I haven't bought my shares... Deep Dive 👉 CNBC

• 🇪🇺 JD and Evri Sign a Strategic Partnership for Market Expansion. JD.com and Evri's partnership opens a new gateway for UK and EU businesses in China's vast market. This collaboration leverages JD.com's e-commerce prowess and Evri's extensive delivery network, focusing initially on beauty and apparel sectors. Deep Dive 👉 JD.com

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👗 Fashion & Beauty

• 🇪🇺 Zalando Elevates Luxury with New Designer Space. Zalando transforms online shopping with an upscale boutique-style space for designer brands. Teaming up with Rina Sawayama, this initiative marks a leap into luxury fashion, catering to an audience seeking high-end streetwear and timeless classics. Deep Dive 👉 ApparelResources

• 🇫🇷 LVMH and Sephora dazzle with 25% retail growth in 2023. LVMH's "exceptional" 2023, led by Sephora, saw a 9% rise in revenue to €86.2B. Sephora, the star performer, significantly contributed to the 25% growth in Selective Retailing, reaching €17.9B. This surge was particularly notable in North America, Europe, and the Middle East... as well as Alibaba. Deep Dive 👉 PRNews

• 🇨🇳 Alibaba's Xianyu opens first physical store for used goods. Alibaba's Xianyu, an online platform for second-hand goods, is launching its first physical store. The Xianyu Recycle Shop, located in Hangzhou, will provide a convenient space for customers to sell or buy various used items. Deep Dive 👉 SCMP

• 🇫🇷 Vestiaire Collective's is Crowdfunding in prep for 2025 IPO. Vestiaire Collective, the Paris-based fashion resale giant, is making waves with a new crowdfunding campaign. They're aiming to raise a cool 1 million euros, a small but strategic piece of their 1.1 billion euro valuation pie. But wait, there's more! They're eyeing an IPO in 2025. Deep Dive 👉 Reuters

• 🇰🇷 Coupang's bold move to acquire Farfetch raises concerns. This deal is far from being a seamless merger of online shopping titans. Farfetch investors, including Fir Tree investment firm, are rallying against the deal. Holding over 50% of Farfetch's convertible senior notes, they could lose it all. Deep Dive 👉 VogueBusiness

🍔 Food & Grocery

• 🇫🇷 JustEatTakeaway closes Paris Scoober division. The closure, affecting around 100 employees, marks a strategic pivot towards a third-party courier model with self-employed couriers, a move echoing the company's broader shift in France since 2022. Deep Dive 👉 VerdictFood

• 🇮🇳 Swiggy considers doubling fee to boost IPO prospects. Swiggy is testing a fee hike from ₹5 to ₹10 (€0.1) per order. This strategic move aims to reduce losses and strengthen its position for an upcoming IPO. Deep Dive 👉 Mint

• 🇺🇸 Instacart is leveling up the grocery game with its AI-powered Caper Carts. Think shopping meets gaming, where your grocery list leads to rewards. It's not just about filling your cart anymore; it's about unlocking perks and spinning for discounts. Deep Dive 👉 TheTakeout

• 🇪🇺 TooGoodToGo’s AI platform revolutionizes grocery retail. TooGoodToGo, a surplus food marketplace app, has unveiled an AI-powered platform for grocery retailers. This innovative tool aims to maximize margins from near-expired food and minimize waste. Deep Dive 👉 TheGrocer

• 🇧🇪 Carrefour ventures into unmanned vending in Belgium. This compact space, under 200 square feet, is packed with AI-driven vending machines offering essentials like bread, ham, snacks, and ready-made meals. Deep Dive 👉 KioskMarketplace

📦Other

• 🇺🇸 It’s been another brutal week for tech layoffs. Less than a month into 2024, the tech industry is facing a significant wave of layoffs. eBay, TikTok, and Wayfair are among the major companies announcing job cuts, totaling 13,240 layoffs across 72 companies this year. Deep Dive 👉 FastCompany

• 🇺🇸 Google's 'Circle to Search' transforms online shopping. Google introduces 'Circle to Search' for Android, offering a seamless way to search and shop online. This AI-powered feature allows users to circle items in photos or videos to find similar products across the web. Deep Dive 👉 Google

• 🇬🇧 DPD's AI chatbot goes rogue, Swearing and self-critique. DPD's AI chatbot turned rebel, ditching its usual customer service script for a bit of swearing and self-criticism. Ashley Beauchamp, a London musician, coaxed the chatbot into penning a poem dissing DPD, and even got it to drop an F-bomb. Deep Dive 👉 TheGuardian

• 🇸🇪 Klarna launches $8 'Klarna Plus' ahead of potential IPO. Monthly subscription offers enticing perks like zero service fees on One Time Card use, double rewards points, and exclusive brand discounts. Deep Dive 👉 TechCrunch

• 🇺🇸 PayPal's AI-powered checkout aims to halve shopping times. "Fastlane" service is leveraging AI to offer one-click checkouts and personalized offers, including a 'Smart Receipt' feature. This innovation promises to reduce checkout times by 50%. Deep Dive 👉 PYMNTS

• 🇪🇺 Packmatic secures €15M for digital packaging expansion. Packmatic's recent €15 million Series A funding led by EQT Ventures marks a significant step in expanding digital packaging marketplaces in Europe. The company is one of many startups in this field, including Packhelp. Deep Dive 👉 TechCrunch

  

• 🇰🇿 Kaspi.kz's Nasdaq debut with a €1B IPO splash. Kazakhstan's super app (offering banking & payments system and markeplace) IPO marks a significant milestone for the country's tech scene. Deep Dive 👉 Quartz

• 🇮🇳 Meesho outpaces Flipkart and Amazon with $5B GMV. Meesho, the Indian social commerce giant, Bengaluru-based underdog is showing Flipkart and Amazon how it's done, with a whopping 32% user growth year-over-year as of December 2023. Deep Dive 👉 TechCrunch

That’s all. See you next week in the 🌀Maze!