PDD just announced a strategic partnership with Hong Kong-listed GOME Retail, which will see PDD invest exclusively in GOME convertible bonds and integrate the latter’s product range, logistics and after-sales customer service with PDD to bring more value-for-money merchandise for PDD’s 585 million users.
The investment comes on the heels of the $1.1 billion share placement by PDD to long-term investors last month. We had said then that we’d planned to use the proceeds to help finance growth, upgrade the shopping experience for our users and to offer more subsidized products. Here are the financial details:
As part of the partnership, PDD will:
This is PDD’s first strategic investment and follows a successful sales promotion between the two companies on March 31, involving more than 6,000 items across 10 product categories, including household electronics, computer and related products, beauty and cosmetics, and general merchandise.
With the strategic partnership, expect GOME’s offline retail stores to become an extension of the shopping experience for PDD users who may want to touch and feel and see demos in person before making a big-ticket item purchase online through the platform.
The tie-up also strengthens the growing recognition of PDD as the place to go for the best deals in electronics. Millions of consumers recently flocked to the platform ahead of the pricing announcement for Apple’s much sought-after iPhone SE.
CONSUMER-TO-MANUFACTURER GETS PANDEMIC BOOST
The deal also furthers PDD’s push into the consumer-to-manufacturer (C2M) realm by working with GOME to source for products that are tailored to customers’ needs.
PDD has been a pioneer and champion of the C2M model, where consumer demand and preferences are aggregated through e-commerce to help manufacturers customize their product design prior to the manufacturing stage to suit different demographics and customer segments.
This consumer-led manufacturing model shortens the supply chain by bypassing the middlemen, directing consumer feedback to manufacturers in a real-time, data-driven manner.
By producing what consumers want, how they want it and when they want it, manufacturers are able to cut costs by reducing mismatches in demand, and better plan their inventory and logistics.
Passing on the resulting cost savings in the form of lower prices in turn stimulates demand, leading to a virtuous demand-supply circle.
So instead of targeting consumers with advertising to persuade them to want or need something, C2M flips the retail model on its head by giving consumers the ability to tell manufacturers exactly what they want or need.
We think that the coronavirus pandemic has created conditions that are conducive for C2M to take off in a big way.
Consider that many export-oriented manufacturers (the so-called OEMs that earned China the reputation as the “World’s Factory”) were facing a grim outlook even before COVID-19 hit, due to the year-long trade war with the U.S.
With U.S. retail sales suffering the biggest month-on-month decline in March since official record-keeping began three decades ago, the “World’s Factory” is now looking more than ever to consumers at home.
To that end, since the outbreak of the coronavirus, PDD has helped 20,000 businesses in Qingdao and Ningbo turn from external demand to serve domestic consumers.
At the same time, consumers in China are emerging from their weeks-long coronavirus lockdowns more conscious and mindful of their spending. They want value-for-money for their purchases, they want these products to suit their needs, and this trend holds true whether in the big cities or small towns.
The combination of (1) declining external demand, (2) the need for manufacturers to reach consumers directly, and (3) more mindful consumption, thus makes for a powerful argument for C2M.