Pinduoduo--the parent company of Temu--reported exceptionally strong revenue for its September-end quarter. Revenue grew +94% year-over-year, with transaction commissions up +315% year-over-year. (Readers will recall our Halloween story, “What Frightens Retailers During Halloween? Temu".) Revenue growth for the December-end quarter is likely to be well over 100%. Gross merchandise volume (GMV) in the US will have grown from around $50M last year to over $3.2B in Q3 2023. For Q4 2023, analysts expect a figure of over $4.5B compared $250M in Q4 2022--that’s a lot of market share of holiday spending.
Also notable is Temu’s low prices, which led to market share capture in units for certain categories (toys, electronics, home furnishings, etc.) being 2-3x the dollar value market share capture. The statistics cited above from Adobe and Mastercard capture consumer spending on Temu; the reported monthly statistics for retail sales from the U.S. Census Bureau report does not. If we look at just the General Merchandise, Apparel and Accessories, Furniture and Other Sale (GAFO) segment of the report--which includes non-food, non-auto, and non-gas categories--for Q3 2023, it was up +1% year-over-year. If we add Temu's year-over-year growth to Q3 2023 figures, the growth become +1.8% in terms of consumer expenditure. If we exclude discounters and clubs (who sell groceries), the contribution is twice as much--+160 basis points. We suspect that Temu is one of the reasons that Family Dollar’s general merchandise comparable-store sales declined by a steep -12.5% for fiscal Q3 2023 (which included Halloween); other contributing factors include a more aggressive Dollar General, food inflation robbing discretionary dollars for the less affluent, and adverse weather.
Temu was only a factor in the 2H of 2023. 2024 is going to bring a full year of Temu, especially with it seeking to splash the Superbowl with ads per the WSJ, “Temu has committed to buying multiple ad units during the Super Bowl to be played Feb. 11” where 30-second slots are priced as high as $7M. We would expect Temu to have impact to retailers in the first half of 2024; the second half is to be seen. Will the U.S. consumer become weary of the novelty? Moreover, the second half of 2024 will be lapping a much higher base on consumption making outsized growth more challenging.
Five Below is often viewed as being directly in the sights of Temu. For its fiscal Q3 2023, it reported a +2.5% increase in comparable-store sales and a meaningful acceleration in the comp compared to 2019, with a +29% increase versus the +20% prior three-quarter trend. Explaining Five Below’s success, CEO Joel Anderson said, “I think I've answered a Temu question probably every quarter here...I think they're an online player and the natural place to go is for people to shift their online purchases from retailer A to Temu. Our online penetration is so low. It's probably why we haven't seen a big impact in our business from that perspective. But we'll continue to watch them and see where they go. But as you can see in the consistency of our results, it really hasn't had an impact for us yet.” In our view, “not an impact” demonstrates the Five Below merchant team’s success in creating Wow! excitement, value, and treasure hunt discovery, as well as a more affluent customer segment than Family Dollar, for instance. Placer also shows that by way of traffic, with treasure hunt retail, be it Five Below, Dollar Tree, or off-price outperforming.
