T-Shirts, Toilet Paper and Rotten Mangoes. This Chinese App Sells It All.
Posted July 25, 2018 6:34 p.m. EDT
BEIJING — Apple, Gucci, Tesla. Many Chinese shoppers love their top-shelf brands.
But another big slice of the population goes gaga for a 40-cent pair of earrings, a $1.50 wireless smartphone charger and 50 rolls of toilet paper for $4.75.
These are the shoppers on Pinduoduo, a Chinese app that drew close to 350 million customers in the past year, more than the entire population of the United States. Its parent company is expected to list shares on the Nasdaq Stock Market on Thursday, just three years into its existence.
The lightning-fast ascent of Pinduoduo (pronounced a bit like “PING-daw-daw”) suggests that China is not done producing high-flying internet upstarts, despite the vast reach of incumbents such as Alibaba. It also illustrates the clout of an underserved category of Chinese consumers.
They live outside the country’s prosperous megacities, in the smaller cities, towns and hamlets that more than a billion Chinese call home. They skew older, less internet savvy. And they absolutely cannot resist a bargain, even if the stuff they’re buying isn’t exactly top of the line.
In the southern city of Foshan, Li Tianqiang and his wife sell rice noodles and other breakfast food out of a three-wheeled truck to hungry factory workers. Over the past two years, Li, 45, has bought nearly $1,000 worth of merchandise on Pinduoduo — the equivalent of around two months’ income for him. Among his purchases: an inflatable paddle boat, a fishing bag and a cherry-red motorized car for his young daughter to drive around.
Li knows he is a little addicted. And regretted purchases? He has a few.
Some were made out of curiosity. In other cases, the items were of such lousy quality that he threw them out after they arrived. The toys he has bought for his daughter — including dolls, a violin and a keyboard — have been particularly bad, he said.
It is all so inexpensive, though, that he said he didn’t mind the occasional misfire.
“It’s nothing, really,” he said of his spending on the app.
For many years, China was a byword for shoddy goods produced at mass scale. But that is changing. Wages are rising, forcing manufacturers to compete on quality. Communist Party leaders want to nurture brands known globally for their innovations. Gadget makers such as Xiaomi and Huawei are investing heavily in design, chasing cool and cachet.
To shop on Pinduoduo, however, is to be reminded that many Chinese consumers still check prices first, and that low-end suppliers remain a big part of the country’s economy. The Pinduoduo app’s main page is a bottomless cascade of groceries, fast fashion, household sundries and electronic bric-a-brac — all carrying wildly improbable price tags.
A pair of stretchy, “Playboy"-brand men’s pants: less than $3. Eleven pounds of rice: $4. A four-pack of boxer briefs printed with an image of a wolf’s head: $2. A purple water kettle with “LOL” written along the bottom: $3. A pink, around-the-neck smartphone stand that lets you lie down and watch videos at the same time: $1. A vibrating electric belt that goes around the midsection and supposedly helps shed fat: $6.
Shipping is always free.
Pinduoduo wants shoppers to involve their online friends in the process. Group orders receive discounts. New users who persuade others to sign up are rewarded with one of a selection of free purchases. Tiny pop-ups within the app provide relentless, real-time updates on what others are buying, creating a sense of urgency. Everyone is getting great deals and you are not.
Between the deliriously strange product selection, the next-to-nothing prices, the barrage of coupons and deals, and the ease with which purchases are made, the experience feels less like shopping and more like playing a shopping video game. In regulatory filings, the company calls the app “a combination of Costco and Disneyland.”
Pinduoduo started operations in 2015. It has grown swiftly enough to attract powerful backers including the venture firm Sequoia Capital and the Chinese internet giant Tencent. The company, which is based in Shanghai, expects to raise $1.4 billion in this week’s share offering. That would give it a valuation of more than $20 billion.
Because it offers so much cheap stuff, however, Pinduoduo is still way behind its rivals in the total value of goods sold. The company, which is unprofitable, said that its average shopper spent less than $90 on the platform last year. That translates into revenue per shopper of a dollar and change.
“This is the lowest quality of traffic you can get,” said Steven Zhu, an analyst in Shanghai with the research firm Pacific Epoch. And if older people are driving Pinduoduo’s popularity, Zhu added, then its prospects for long-term growth are grim by default.
The platform has also been accused of being awash with knockoff products. Last week, the company was sued for trademark infringement in the United States.
Pinduoduo declined to comment. But in its filings with stock regulators, the company said it immediately removed counterfeits from the app. And this year, the company’s founder, a former Google engineer named Colin Huang, described his philosophy on price versus quality to the Chinese business magazine Caijing.
His own mother complained to him when two of the nine mangoes she had bought for $1.50 on the app turned up rotten, Huang told Caijing. Still, he said, she continued to use Pinduoduo. “If you can buy seven good mangoes for $1.50, you’re not losing out,” he said. For the most part, Kang Xia agrees. Kang, a 52-year-old retiree in the southwestern city of Chengdu, has used Pinduoduo to buy shoes, clothes, gadgets — “quite a lot,” she said, although the quality isn’t always great.
This spring, she got stung by two bad purchases. First, there was a $5 wardrobe with colorful fabric panels and a “real wood” frame. One touch was all she needed to realize the thing was no good. Then she bought a chiffon skirt with a floral pattern — less than $6, including a yellow T-shirt to wear with it — that arrived with a jagged tear down the side.
Kang said she is now less likely to buy things on Pinduoduo solely because they are cheap. But she still looks at the app every day.
For the established big shots of Chinese e-commerce, it is unwelcome news that many shoppers will buy very nearly anything if the price is right.
To retain customers and avoid regulators’ ire, Alibaba, which served more than 500 million buyers last year, has fought sales of fakes on its Taobao marketplace. The retailer JD.com, which had around 300 million buyers, has courted upmarket brands and cultivated a reputation for reliability.
“From time to time, there are new players, but the question is whether they can sustain themselves,” Alibaba’s chief executive, Daniel Zhang, said at a recent event in San Francisco. “We are also climbing.”
Terry Yao lives in Dandong, a small city in China’s northeast. After looking at some sneakers on Pinduoduo — pairs that should retail for more than $100 were going for a tiny fraction of that, he said — he made up his mind about the authenticity of the platform’s products.
“China has developed so much,” said Yao, 28. “But if residents of these third- and fourth-tier cities can only use things like Pinduoduo, it feels to some degree like a big failure. We’ve gone backward.”
But Pinduoduo does not have to be stuck in the bargain bin forever, said Tian X. Hou, founder of T.H. Data Capital, a research firm in Beijing. Now that it has used low prices to attract so many users, it can do as Alibaba did and go premium.
“Once you have this trust, you can grow out of the current business and create a new business,” Hou said.
That might turn off the most fervent deal hunters. But it could raise Pinduoduo’s profile among other consumers.
Zhang Huajin, 34, a manager at a tech company in Guangzhou, bought an iPhone 7 Plus on Pinduoduo this month. Or he thought he did. What arrived was a smartphone, but it was not made by Apple.
Zhang got his money back, though. And if Pinduoduo improves quality control and helps big brands sell directly on the app, he will probably buy from there again, he said.
Taobao managed the transition, he said, and shoppers’ expectations shifted accordingly. On Taobao, Zhang said, “everybody already knows what kinds of product should be sold at what price.”