Chinese e-commerce company Pinduoduo improbably climbed the ranks of China’s e-commerce industry to become one of the country’s most powerful tech firms, even though it launched years later than established rivals like Alibaba and JD.com.
Now, Pinduoduo will reportedly attempt to replicate its disruptive success in the U.S.
Next month, Pinduoduo plans to launch a cross-border e-commerce platform that will target the American market, according to Bloomberg and Reuters.
Chinese media outlet LatePost first reported the news last week and said that Pinduoduo plans to follow the model set by Chinese fast-fashion firm Shein to attract American consumers.
Pinduoduo did not immediately respond to Fortune’s request for comment.
It is unclear if Pinduoduo’s U.S. gamble will pay off, but the American market may look increasingly appealing amid an increasingly challenging environment in China and the breakout success of Shein.
What is Pinduoduo?
After Pinduoduo’s 2015 launch, the firm quickly found a niche in China’s e-commerce market by bringing more social and video game–like elements to online shopping.
Pinduoduo’s pioneering “group buying” platform proved particularly popular. Customers were given the option to buy products directly or they could recruit their friends to purchase bulk orders directly from manufacturers to reduce the cost. Pinduoduo founder Colin Huang said in the company’s 2018 IPO prospectus that he’d tried to create a model combining aspects of Costco with Disneyland.
Pinduoduo became especially popular in second- and third-tier Chinese cities where consumers were more budget conscious, and nearly doubled its revenues in 2020 amid pandemic-inflicted lockdowns. Pinduoduo claims 882 million active buyers in China, nearly equal to Alibaba’s 903 million.
But the firm has been caught in the crosshairs of the Chinese government’s crackdown on consumer-facing digital platform companies, which began in late 2020.
Pinduoduo’s stock price on Nasdaq has dropped over 75% since its peak in February of last year. That drop has wiped $181 billion off Pinduoduo’s market capitalization; the firm was valued at $241 billion in February 2021 compared with $60 billion today. Huang himself has lost over $53 billion amid the decline in value of Pinduoduo’s stock.
Media outlet LatePost last week attributed Pinduoduo’s overseas push to travails in the company’s home market. LatePost said Pinduoduo will assign its top executives to the goal of U.S. expansion.
Shein’s model
On the surface, the business model of Pinduoduo, an agriculture-focused e-commerce company, bears scant resemblance to that of Shein, a fast-fashion retailer. But analysts see similarities between the two firms. Pinduoduo became adept at reducing costs by cutting out supply-chain middlemen and encouraging group buying. Shein, too, built its empire on the back of an ultraefficient (if not environmentally sustainable) supply chain.
“Shein and Pinduoduo do have a lot in common, since while PDD had great hacks for growing the demand side, what it really figured out was how to take advantage of the supply side,” Rui Ma, China tech analyst and host of the Tech Buzz China podcast, wrote on Twitter. “[Pinduoduo] targeting the U.S. market is ambitious, but it is also true that Amazon has clear weak spots, such as fashion, which has made success stories such as Shein possible.”
LatePost reports that Pinduoduo hopes to mimic Shein’s model of having customers engage directly with Pinduoduo’s platform instead of sellers’ platforms when buying products. The Chinese outlet said Pinduoduo has also relocated 80 supply-chain workers to the Panyu district in the southern city of Guangzhou, the same location as Shein’s supply-chain center.
But many analysts doubt Pinduoduo can repeat its China success in the U.S. AJ Cortese, a China tech researcher at MacroPolo, a think tank run by the Paulson Institute, wrote on Twitter that much of Pinduoduo’s popularity in China can be attributed to the power of social messaging app WeChat and the app’s ability to connect customers for group orders.
“I’m rather bearish on [Pinduoduo] in the U.S.,” Cortese wrote. “[But] waiting for more details.”
