GOME Retail has been likened to “China’s Best Buy” for its extensive network of electronics and appliance stores across hundreds of cities. For years, house-proud consumers flocked to these emporiums to pick out their flat-screen TVs and washing machines — the physical expression of the middle-class dream.
But as shopping habits changed over the years and increasingly migrated online, physical retailers like GOME have seen their footfall plummet. The stores were no longer as crowded as before, and like bookshops, many customers were happy to browse the extensive range but place their orders online, elsewhere.
On Sunday, “China’s Best Buy” took a big step toward digitalizing its operations with a strategic partnership with Pinduoduo (PDD), the innovative e-commerce company that amassed nearly 600 million users in less than five years since its founding in 2015.
“This strategic partnership is a win-win-win,” said David Liu, Vice President of Strategy at PDD, while speaking with Haslinda Amin and Rishaad Salamat of Bloomberg TV on Monday. “Consumers win because they get a wider range of top domestic and international brands at competitive prices, GOME wins because they can broaden their access to our 585.2 million users, and PDD wins because we enhance our foothold in household appliances and electronics.”
As part of the strategic partnership, PDD will bring onboard the entire product range carried by GOME, and help the retailer source for suitable merchandise using the consumer-to-manufacturing (C2M) model it pioneered. PDD will also invest $200 million in convertible bonds issued by GOME, helping the retailer weather the pandemic-related slowdown.
In return, GOME will integrate its logistics and after-sales customer care, including installation and repair services, with PDD to improve the user experience.
“These are categories where offline components are quite important, whether it’s delivery or installation or after sell services,” Liu said in a separate interview with Martin Soong, Sri Jegarajah and Emily Chan Tan on CNBC’s Squawk Box. “These are not services that we as an online platform can provide alone.”
“It’s important that we work with a strong partner like Gome to make sure that we provide a holistic experiences to our users to make sure that our users trust the buying experience on our platform and are able to make those purchases very freely,” Liu added.
The partnership with GOME comes on the heels of a $1.1 billion private share placement by PDD at the end of March, the proceeds of which will be used to help finance growth, upgrade the shopping experience for its users and offer more subsidized products.
Reuters said the private share placement bolstered PDD’s ability to finance growth despite recent market volatility.
Undeterred by a coronavirus epidemic that has cast a shadow over the global economy and rocked financial markets around the world, Nasdaq-listed Pinduoduo has secured several long-term investors for the deal, said Reuters.
Chinese companies are also increasingly turning to the domestic market to help buffer a slump in external demand. U.S. retail sales suffered the biggest month-on-month decline in March, while millions have lost their jobs as the economy shut down.
The GOME deal 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.
The deal matters because Chinese retailers, both online and offline, are working together to increase operational efficiency and improve user experience by leveraging each other’s user base, supply chains, and technological capabilities, Technode said.
“The deal furthers Pinduoduo’s push into the consumer-to-manufacturer (C2M) realm by working with GOME to source products,” Technode added.
Indeed, PDD will work with GOME to source for products that are tailored to customers’ needs, a C2M strategy pioneered by the Shanghai-based company where consumer demand and preferences are aggregated through e-commerce.
Simply put, PDD helps manufacturers customize their product before they are made, so as to suit different demographics and customer segments on its e-commerce platform.
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.
C2M is a strategy that helps counter declining external demand and enables manufacturers to reach consumers directly via a more mindful consumption.
Since the outbreak of the coronavirus, PDD has helped 20,000 businesses in Qingdao and Ningbo turn from external demand to serve domestic consumers.
“The deal comes as the COVID-19 pandemic, which first emerged in China last December, has sent a shudder through the global retail industry,” according to Deal street Asia.
The tie-up also strengthens the growing recognition of PDD as the place to go for the best deals in electronics, as was evident when millions of consumers recently flocked to the platform ahead of the pricing announcement for Apple’s much sought-after iPhone SE.
“Many” in Chinese coincides with the abbreviated name of PDD — duo duo — sparking speculation that the e-commerce platform best known for value-for-money products will include the iPhone SE in its popular 10 Billion Yuan Subsidy Campaign.