If there’s one thing you hear from buyers and analysts alike about Chinese e-commerce phenomenon
Pinduoduo,
it’s the rock-bottom prices.
“It’s not even close,” said 33-year-old Albert Liu, a music DJ in the southern city of Guangzhou, referring to the prices he sees on Pinduoduo’s platforms versus domestic rivals
Alibaba Holding Group
and
JD.com.
While those often big discounts have given the company a reputation as a platform for lower-income shoppers saddled with goods of questionable quality, the once-niche approach has paid off handsomely.
After a year of meteoric growth, the Nasdaq-listed company—formally known as
PDD Holdings
—surpassed long-time incumbent Alibaba in valuation to become king of Chinese e-commerce.
Sensational third-quarter earnings blew away its rivals and pushed PDD’s market capitalization to $195.5 billion, easily surpassing Alibaba’s $182.6 billion.
Most Chinese tech giants saw their stocks crash in late 2020 when China began a crackdown on the sector—including PDD, Alibaba, JD.com,
Baidu,
and
Tencent.
On top of new rules that hurt the industry, Alibaba was fined $2.8 billion and was forced to cease what Beijing called its monopolistic practices.
But while share prices for these other players haven’t recovered—and continue to fall—PDD’s began a sharp turnaround early this year. Shares are up about 79% so far this year.
PDD’s surge is impressive for a number of reasons. It defied what has been a massively disappointing year for China’s overall economy and for consumption in particular.
For much of the year, growth in retail sales and gauges of consumer sentiment have hit their lowest points in decades outside of the pandemic period. But eight-year-old PDD managed to maintain growth in a chaotic and crowded market, relying on cutthroat discounts and creative group-buying plans.
Its domestic rivals have been forced to acknowledge their displacement. “We congratulate Pinduoduo for its decision-making, execution, and efforts,” Alibaba co-founder Jack Ma wrote in a recent internal company forum before urging his employees to “correct our course.”
Richard Liu, the founder of JD.com—which once nipped at Alibaba’s heels but is now worth less than half of its two larger peers lamented about JD.com’s “huge and bloated organization,” and he took the blame for not adequately implementing low-price strategies, according to Chinese media outlets, citing a leaked internal company memo.
None of the three e-commerce firms responded to Barron’s requests for comment.
PDD’s overseas platform Temu—which became the most-downloaded app in the U.S. and much of Western Europe after it was rolled out in September 2022—has eaten into sales for
Amazon.com
and Shein, the latter of which it surpassed in sales revenue in May. Shein has confidentially filed to go public but is now facing U.S. regulatory scrutiny.
PDD’s rapid rise is due in large part to its innovation in two key areas, said Doug Young, director of Hong Kong-based Bamboo Works, which analyzes Chinese companies listed in Hong Kong and abroad.
The first is pricing, which Pinduoduo has kept low by working more directly with sellers, who are often actual manufacturers, giving the company much stronger pricing power, Young said. By comparison, Alibaba often works with merchants who aren’t actual manufacturers.
The second is the social element, which “PDD has excelled at by getting people involved in group buying, and getting their friends and family members and anyone else they know to buy things,” he said.
Pinduoduo sellers often establish relationships with buyers, adding them on
WeChat
and notifying them when relevant discounts arise.
Yang Liyuan, a 28-year-old from Shanghai, told Barron’s she has had an online connection with a specific seller of cosmetics for four years. The seller, whose vendor name is Yangtuo, befriended Yang through WeChat after Yang bought perfume from her on Pinduoduo.
Yangtuo, whose given name is Yang Tuojun—no relation to Yang Liyuan—now has a series of large private WeChat groups she manages that are based around products she sells. While the group conversations center on product postings from Yangtuo herself, the banter often veers into random topics, giving the group an air of socializing rather than mere commercial interest.
One exchange in a Yangtuo group of 315 users seen by Barron’s began about the use of a specific product after minor cosmetic procedures, which led into which weather conditions to avoid after such procedures.
The exchange then broadened to discussions of weather in their various cities, with some even sharing plans they had for the weekend.
Besides the social nature Yangtuo has created around her products, she offers cutthroat prices on goods not often seen on mainstream platforms like Alibaba’s Taobao or JD.com. One of her fortes is small perfume tester bottles seen at retail stores.
Buyer Yang Liyuan said she calculates the per-unit prices of tester bottles compared with standard bottles sold on mainstream platforms and invariably finds them cheaper. She said that most of her purchases are made through Pinduoduo’s sub-platform Kuai Tuan Tuan, which is a mini-app embedded into WeChat. “Kuai Tuan Tuan isn’t the only place you can get things like tasters or samples. But it systematized it,” she said.
Another user, also in the Yangtuo group, told Barron’s she is in multiple WeChat channels that are each based on specific types of products.
“One guy I’ve been buying fountain pens from for years now has a group for instant noodles, and another for really cheap kitchen products like tinfoil, chopsticks, and water bottles,” said Sunny Ma, who is from the western metropolis of Chengdu.
These are examples of PDD’s adaptability and speed, said Bamboo Work’s Young. “The key takeaway with PDD passing Alibaba is that nothing is ever completely constant in such a fast-moving world like e-commerce, particularly in China, which is a super complex market with so many market dynamics,” he said.
Write to [email protected]
Read the full article here
