Summary of Key Points
Temu has recently been closing its collection warehouses in multiple locations across South China (merging them into larger warehouses in Yiwu and Shenzhen) while aggressively building local warehouses in Europe. This change is driven by the EU's tax reforms, which have eliminated the cost advantages of direct shipping methods, forcing Temu to shift from a "direct shipping + full management" model to a "semi-management + local fulfillment" approach. This transformation represents not only a shift in Temu's own business strategy but also a significant turning point for China's cross-border e-commerce industry, as it moves from a model of "tax-free distribution for quick profits" to one of "compliant and meticulous operations." Sellers are now faced with the decision to either continue to rely on low-cost, light-asset strategies or take on the higher risks associated with managing substantial assets.
1. The EU Tax Reforms: A Fatal Blow to Temu's Direct Shipping Model
Previously, Temu's success in Europe relied on a loophole that allowed small parcels under 150 euros to be shipped duty-free. Chinese sellers could airfreight low-priced items (such as T-shirts for 10 euros) directly to Europe at minimal cost. However, with the new EU regulations implemented in July 2026, the situation has completely changed:
- Increased taxes: Regardless of the value of the goods, a fixed duty of 3 euros plus approximately 20% VAT is now applied per item, resulting in an additional cost of at least 3.6 euros per shipment. For example, if a package contains both a T-shirt and socks, a tax of 6 euros would be incurred.
- Drained profits: The gross profit margin on Temu's low-priced items (under 20 euros) is only 15%-25%, so the additional 3 euros in taxes can significantly reduce profits or even lead to losses. If prices are raised, consumers may refuse to buy due to the increase.
- Dramatic order declines: After the new regulations took effect, Temu's orders in Europe decreased by 60%-67%, with some sellers experiencing a complete drop in orders in July. With no domestic direct shipping options, these warehouses had to be closed and merged. Local European warehouses, on the other hand, can avoid these taxes, which is why Temu is rapidly expanding its presence there, aiming to make local deliveries account for 80% of its business by the third quarter.
2. The End of the "Easy Money" Era with Full Management
What made the full management model so attractive? Sellers only needed to focus on production and supply, while the platform handled traffic, pricing, shipping, and after-sales services, allowing a large number of small and medium-sized sellers to enter the market and rapidly growing Temu into the world's second-largest e-commerce platform. However, this model is no longer viable:
- Platform pressure on sellers: Higher costs due to tax reforms have forced platforms to either lower purchase prices (for example, charging less than 2 euros for chargers that previously generated a 30% profit) or charge a 5%-11% commission, sometimes even requiring sellers to subsidize the platform if their profits are insufficient.
- Shift towards semi-management: In the semi-management model, sellers must store goods in overseas warehouses and handle local fulfillment, with the platform providing only traffic and sales channels. This effectively shifts the inventory risk and fulfillment costs to the sellers. According to the US market, the proportion of semi-managed orders has increased from 25% to 75%, while full management accounts for less than 30%.
- Selection of suitable sellers: Only top-tier manufacturers (capable of reducing costs and supplying popular products) or sellers of non-standard/customized items (unsuitable for overseas inventory management) remain in the full management model; most small and medium-sized sellers have been phased out.
3. Semi-management: Opportunities and Challenges
Switching to semi-management is not just about changing the shipping method; it represents a significant shift from a low-asset to a high-asset approach:
- Opportunities: Sellers who adopt this model can gain market share from those that withdraw, such as those with German warehouses, which have seen daily order volumes increase by 2000%.
- Challenges: Inventory management becomes critical; unsold goods in overseas warehouses can result in significant losses. For example, if 3000 items remain unsold, the monthly warehouse rent of 1200-1800 euros, plus additional long-term storage fees and return shipping costs, can amount to more than the value of the goods, and destroying them can cost over 1000 euros.
- Eligibility criteria: Sellers must meet certain criteria, such as having no more than 10 SKUs, average customer spending above 25 euros, daily orders exceeding 50, and monthly sales of over 300,000 yuan (with monthly operating costs between 20,000-100,000 RMB). They also need financial strength, supply chain capabilities, and inventory forecasting skills. Many factory-based sellers, who are only proficient in production, struggle to manage overseas inventory.
4. The Transition of Cross-border E-commerce from "Wild Growth" to "Precision Agriculture"
Temu's changes are not isolated; they reflect a broader trend in the industry:
- End of the dividend period: The era of easily making profits through tax-free, low-priced shipments is over. Increased compliance costs (taxes and local warehouse expenses) make this model unsustainable.
- Platform preferences for higher-capacity players: Platforms now favor sellers with the ability to handle compliance challenges, overseas warehouses, and stable supply chains.
- Path for small and medium-sized sellers: They must either upgrade to a high-asset model or specialize in niche categories (non-standard or customized products) or face elimination.
In short, the era of easy profits in cross-border e-commerce is behind us. New rules emphasize compliance, strong supply chains, and localized operations. Temu's warehouse closures and expansions are a direct result of EU tax reforms and industry evolution. For sellers, this means adapting to a more capital-intensive approach; for the industry as a whole, it represents a shift from extensive expansion to refined, compliant operations.
Conclusion
Temu's strategic moves are not incidental but are inevitable consequences of EU tax reforms and industry development. Sellers must either adapt to the semi-management model or risk being eliminated from the market. For the industry as a whole, this marks a transition from reckless growth to more sophisticated and compliant practices. The days of easily dominating global markets with simple, tax-free shipping methods are truly over.