WHY IT MATTERS
Earlier today, the Late Post exclusively obtained details of PDD's 10bn RMB subsidy 2.0 plan as well as other strategic goals. Below are some of my takeaways from the article (my translation):
- 2.0 subsidy plan: targeting mid-level products/stores (equivalent to Tmall stores with 4 star rating); in 2019, the main target was high-priced popular products e.g. Apple, Dyson
- Promote the change from wholesaler/franchisor model to direct brand supply model
- Mid-tier stores are expanding their product inventory to improve its richness which could give PDD an opportunity to capture some of that
- Trendy shoes is a target category for PDD in 2020. Via our proprietary Hedgeye GMV Database, shoes/handbag category has been the biggest laggard in 2020 in terms of GMV growth for PDD. I estimate shoes/handbag sales (RMB) accounted for 5% of PDD's GMV YTD.
- Wants to be like Dewu ("得物(毒)", which means get things) - the largest domestic shoe resale platform (valuation reached US$1bn last year); the US equivalent is a platform called Goat
- Tmall's "key accounts" stores is <1%; 10% of its stores are at the mid-level; a Tmall insider remarked that Tmall's customer service is keeping a close eye on its top 1% but it's hard to keep close track of its 10% mid-level stores
- Features such as PDD's Small Circle, similiar to Wechat Moments, and live broadcast are needed to retain its current users
- Will fight BABA on payments and logistics this year (PDD obtained payments license in January 2020)
- PDD accounted for 31% of total business express delivery volume in 2019, according to data released by the government
We remain leaning Long on PDD.
