A large number of sellers fled to Pinduoduo across borders: Shopee retreated, Wish suffered huge losses!

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It is learned that Pinduoduo, a domestic e-commerce platform, recently released its 2021 annual financial report. The financial report shows that Pinduoduo's annual revenue was 93.9499 billion yuan and its net profit was 7.769 billion yuan.

Pinduoduo's success demonstrates the market potential of low-price logic. Looking at Pinduoduo's competitors, e-commerce giants such as JD.com and Alibaba are not only competing in the domestic market, but are also looking overseas and accelerating the layout of cross-border export e-commerce.

Although Pinduoduo has not yet made its mark in overseas markets, the Pinduoduo-style approach has long been popular. Shopee, the Southeast Asian Pinduoduo that focuses on the sinking market, and Wish, the American version of Pinduoduo that also relies on social e-commerce to attract traffic... Pinduoduo has become synonymous with low-price strategies, and "Pinduoduos" are stirring up the international market.

One of the underlying logics of online e-commerce is conversion rate, and cost-effectiveness is a killer weapon to impress consumers, so the low-price model has been able to break through strongly. However, although this model is conducive to rapidly promoting market expansion, the low-price strategy based on sacrificing profits often causes companies to fall into an embarrassing situation of insufficient subsequent growth momentum.

Profits are shrinking, the intensive cultivation model is emerging, and the model of quickly capturing the market with low prices seems to be no longer so popular. More and more sellers are rushing to other platforms, and " Pinduoduo" seems to have reached a crossroads in fate.

On March 2, Shopee's parent company SEA announced its 2021 annual results. According to the financial report, Shopee's GAAP revenue for the whole year of 2021 was US$5.1 billion, a year-on-year increase of 136.4%; the total number of orders was 6.1 billion, a year-on-year increase of 116.5%.

As a well-deserved Southeast Asian e-commerce giant today, Shopee delivered a satisfactory answer sheet in 2021. However, behind the high revenue, there are also hidden dangers of weak growth.

Looking back at Shopee’s history, it was officially established in 2015. In the Southeast Asian market where the e-commerce penetration rate was still low at that time, Shopee’s entry awakened the vitality of this emerging market that was waiting to be explored.

Like Pinduoduo, Shopee targeted the lower-tier markets from the very beginning, and its low-price, subsidized strategy quickly captured the hearts of middle- and low-income Southeast Asian consumers.

On the one hand, Shopee established overseas supply chains to reduce logistics and transportation costs, and relied on China's advantages in low-cost and high-quality sources of goods . On the other hand, it spent a lot of money to provide promotional activities such as free shipping subsidies, coupon reductions, etc., thus laying the foundation for a low-price barrier.

Shopee, which entered the market from the mobile end, won the crown in the global app download ranking in 2021, surpassing e-commerce giants such as Amazon, and this is inseparable from its expansion in markets such as Europe and Latin America.

In the fourth quarter of 2021, Shopee's GAAP revenue in Brazil exceeded US$70 million, a year-on-year increase of 326%; the total number of orders exceeded 140 million, a year-on-year increase of nearly 400%.

After a successful start in Brazil, Shopee further launched an attack on Latin American markets such as Mexico and Argentina, and gradually extended its reach to European markets led by France and Spain.

On the one hand, it has Pinduoduo's core strategy of low-price promotions, and on the other hand, it has an unstoppable momentum of expansion. There is no doubt that the strength behind such "arrogance" is the strong support of its parent company SEA.

This Internet company, founded in 2009, has ventured into gaming, e-commerce, and finance. Its gaming business has become the big brother among the three major businesses thanks to its strong money-making ability, nourishing its other "little brothers".

The logic behind Shopee's lavish spending is actually to rely on the huge cash flow created by Genere's gaming business to provide blood transfusions for the expansion of its e-commerce business.

However, in January this year, Tencent, Sea's largest shareholder, suddenly announced a reduction in its holdings, causing its stock price to plummet. To make matters worse, in February, India imposed sanctions on Sea's popular game Free Fire, closing the door to its gold rush in the Indian market.

The series of changes have curbed the growth momentum of Sea's only profitable gaming business, and the digital entertainment business revenue is expected to be US$2.9 billion to US$3.1 billion in 2022, a year-on-year decrease of 35%. This means that in the face of the starving Shopee, the gaming business's blood supply capacity will be greatly reduced.

While the blood sucking encountered obstacles, although Shopee continued to maintain high revenue growth, its profit losses were still expanding. Especially due to the need to expand in emerging markets, high marketing and R&D investment made the loss hole bigger and bigger.

Although Shopee's market size is still growing rapidly, the decline in the funding capacity of its gaming business and the loss loopholes that need to be filled urgently mean that Shopee is still facing many challenges. Not only that, its market expansion has also been repeatedly frustrated.

In September 2021, Shopee officially launched its offensive into the European market, with its first business expansion targets being Poland, Spain and France. However, not long after its launch, Shopee encountered a bottleneck in France.

It is understood that Shopee France announced that it will be closed on March 6 just four months after its opening.

Shopee, which is a big name in Southeast Asia, failed to continue its low-price strategy. From the launch to the closure of the French site, traffic has been relatively low, with only hundreds of thousands of visits per month. The fundamental reason for this outcome is the difference in consumer groups.

Compared with Southeast Asia and Latin America, where economic development is relatively backward, customers in developed European countries have a higher level of consumption, and their consumption concepts tend to pursue high-quality products, which in itself is contrary to Shopee's main concept of sinking markets.

Since products are cheap, they are easily labeled as inferior, which makes it difficult to establish a good reputation. Therefore, Shopee's low-price promotion + order subsidy strategy, which is invincible in developing countries, is unlikely to be favored by Western consumers in France and other countries.

In addition to the French station being aborted, Shopee’s Indian market also collapsed halfway through its expansion.

It is learned that Shopee recently announced that in view of the uncertainty in the global market, Shopee will withdraw from the Indian market.

Shopee began trial operations in India in October 2021 as part of its global expansion. In December 2021, Shopee said it had recruited 20,000 local sellers in India and that the platform's daily order volume reached 100,000.

In February, Shopee's parent company's gaming business was hit hard in India, which not only limited its funding sources, but also lost an important traffic-generating tool. On the other hand, although Tencent reduced its stake in Sea, it still could not eliminate the prejudice against "Chinese companies", making Shopee face stricter supervision in the Indian market.

The differences in audiences in different markets and the tensions caused by geopolitics make it difficult for Shopee to replicate its success in Latin America. The huge cost of market expansion has also made it difficult for it to turn losses into profits.

Not only that, facing Shopee’s eagerness to break through the current development bottleneck, sellers seem to be gradually losing patience.

A cross-border seller revealed that in a Shenzhen Shopee seller communication group he joined, no less than five people have sold their assets within a few days. Today's Shopee sellers have to face a cruel reality: their profits have been almost completely eaten up.

Another seller with three years of experience in Shopee operations said that the current market is dominated by the distribution model, which not only leads to price wars, but also causes serious local inventory backlogs. Previously, Shopee stores with sales of thousands of orders during Double Eleven could not even match the profits of Amazon stores in a few hours during Black Friday.

Although Southeast Asia has a large population and great market potential, its relatively backward economic development also determines its low per capita consumption level. In order to break through the siege, sellers have no choice but to launch a "Southeast Asian Poverty Alleviation Special Project" to impress consumers with low prices, but this is undoubtedly based on sacrificing profits.

In addition, the different treatment of local stores and cross-border stores is also a major pain point for sellers.

Local stores not only have no category restrictions, but also have lower logistics costs and enjoy priority in traffic allocation. Most importantly, local stores are exempt from commission fees, while cross-border stores are required to charge additional commissions.

At the end of 2021, Shopee adjusted its commission policy, raising the platform's commission fee to 6%, which once again increased the cost burden on sellers.

Under such circumstances, many sellers tried to switch to local stores. However, a large number of fake local accounts also emerged, using third-party service software to disguise cross-border stores as local stores. All of this was obviously seen by Shopee, which launched a large-scale account cleanup.

Behind Pinduoduo's low average order value strategy, Shopee sellers' profits are rapidly disappearing and their living space seems to be constantly squeezed.

On December 16, 2020, Wish, a cross-border shopping platform like Shopee, was listed on the Nasdaq in the United States. On the first day of listing, Wish closed at US$20.05, down more than 16% from the issue price.

After successfully completing its IPO, Wish failed to usher in a new growth inflection point as expected. The volatility of its stock price at the beginning of its listing seemed to foreshadow Wish's bumpy downward fate.

More than a decade ago, Zhang Sheng, a Chinese student at the University of Waterloo in Canada, and Peter Szulczewski, a European, became roommates. This friendship will inadvertently promote the birth of a large e-commerce platform in the near future.

After graduation, the two worked for Yahoo and Google respectively, but both programmers questioned Google's advertising algorithm and optimized it reasonably. The two like-minded people eventually co-founded Wish in Silicon Valley in 2010.

At the beginning, Wish was mainly positioned as a technology service company, focusing on mobile advertising business. In 2013, Wish officially entered the cross-border e-commerce field, relying on its proprietary mobile APP for sales operations.

Under the glamorous shell of a developed country, the United States actually "hides" a large number of low- and middle-income people. Wish is targeting this unfathomable sinking market and making full efforts.

On Wish, you can find a large number of cheap clothing, accessories, 3C electronics and other products everywhere. The dazzling discount promotions and super high cost-effectiveness have attracted many low-spending people to come in.

Behind the massive amount of low-priced products is China's low-cost supply chain advantage. Thousands of goods are shipped from China across the ocean and sold to overseas countries with the help of Wish. At the same time, Chinese merchants also occupy this platform, with a market share of more than 90%.

Compared with Shopee, Wish has a stronger Pinduoduo gene. In addition to using low-price strategies to enter the sinking market, Wish, like Pinduoduo, which uses WeChat to attract traffic, has seized the traffic dividend of Facebook and used advertising on social channels and the friend group purchase model to attract customers.

The founders of Pinduoduo and Wish are both programmers from Internet companies, which also determines the similarity of their development ideas: algorithm + product first, that is, personalized recommendations for products and merchant stores based on customer needs.

In general, low prices and social media play constitute Wish's winning formula. However, this play is also a double-edged sword. While it has helped Wish rise to prominence, it may also be the cause of its decline.

The most direct reflection of Wish's decline is its deteriorating performance.

On March 1, Wish's parent company ContextLogic released its 2021 annual and fourth quarter financial report. The financial report showed that Wish's Q4 revenue was US$289 million, a year-on-year decrease of 64%; its net loss was US$58 million, a year-on-year increase of 90%.

In 2021, Wish's revenue was US$2.085 billion, a year-on-year decrease of 18%, and its loss reached US$361 million, and its cash flow from operating activities was negative US$49 million.

In fact, Wish's downward signal can be traced back to 2019.

In 2019, Wish's revenue growth rate dropped significantly from 57% to 10% compared with 2018. In 2020, its revenue increased by 34% year-on-year, but its net loss reached US$745 million. Although Wish's performance has slightly recovered due to the epidemic, compared with the explosive growth of competitors such as Amazon, Wish's performance is obviously not satisfactory.

What caused Wish to fall into this development dilemma is precisely the secret of its past rise.

Extensive advertising on social channels such as Facebook has brought it huge traffic revenue, but at the same time, it also means high traffic costs. The increasing sales and marketing expenses have caused its losses to continue to widen.

In response, Wish has also made strategic adjustments to increase revenue and reduce expenditure . The total operating expenses in 2021 were US$1.5 billion, a year-on-year decrease of 34%. Sales and marketing expenses were US$1.1 billion, a year- on-year decrease of US$606 million. However, cost streamlining also brought the negative effect of reduced traffic. On the issue of how to balance costs and traffic, Wish is in a dilemma.

On the other hand, the low-price model that helped Wish stand out in the fierce e-commerce competition has now become the "culprit" for its current quagmire.

The massive amount of low-priced products has helped Wish penetrate the sinking market dominated by low-income people. However, for consumers, buying at low prices also means they face quality risks. Merchants are limited by the low-price positioning of the platform and are unable to focus on product quality in pursuit of low-cost pricing advantages.

The prejudice that "low price = poor quality" seems to have become an indelible label for Wish. Wish, which mainly distributes goods, is more like a pure sales platform. It lacks the soil to nourish brand growth and it is difficult to establish a reputation and user loyalty. This also forces Wish to face another major pain point: the continuous loss of sellers.

According to sellers, Wish, which used to have 20,000 orders a day at its peak, saw its sales plummet to 2,000 orders a day. After observing the downward trend in Wish traffic in the second half of last year, they gradually stopped expanding their business. Fortunately, they stopped losses in time and basically got all the money back.

It is learned that in the fourth quarter of last year, Wish's MAU monthly active users and the number of active buyers in the past 12 months decreased by 58% and 41% year-on-year respectively. Along with the large-scale loss of users, Wish sellers' sales have also decreased.

Not only that, due to the rampant counterfeiting on the platform and the uneven quality of products, the rampant return rate has become another major problem facing sellers: the refund cost accounts for 10% of the total cost.

The penalty policy that Wish has introduced for counterfeit goods, infringement and other issues has made sellers suffer. Some sellers have been fined hundreds of thousands or even hundreds of dollars. Therefore, many people have said helplessly: Wish's performance is all due to penalties.

It is easy to increase the volume but the gross profit margin ranks last among all platforms. Coupled with the increasingly confusing platform algorithms and frequent penalties, the now declining sales volume has become the last straw that breaks the camel's back for Wish sellers. More and more people have lost their patience and choose to cut back on their business and shift their positions.

Wish, which is gradually losing the support of the people, is also trying to find a way to save itself.

In order to support sustainable long-term growth, better align resources and improve operational efficiency, Wish has adjusted its future operational focus.

On February 24, Wish's board of directors approved a restructuring plan: reducing the company's headcount by about 15% (190 positions), exiting various facility leases, and reducing and adjusting supplier spending. The restructuring plan is expected to save approximately $32-37 million in costs.

In addition, starting from March 1, Wish will withdraw from the markets in 79 countries (or regions) and will focus on deepening its presence in the remaining 61 core markets.

In February, Wish launched a new "invitation-only" merchant onboarding process, requiring new sellers to participate in a multi-step qualification certification process, thereby raising the entry threshold for sellers.

Earlier in November last year, Wish also announced the launch of the Wish Standards program , a performance incentive program that measures merchants based on product quality, shipping experience, customer reviews and other standards.

Looking at the development layout in 2022, Wish aims to strengthen product quality supervision, improve user experience and cultivate branded sellers.

However, based on Wish's rise and survival model, it still faces many obstacles in its successful transformation and breaking the current development dilemma.

Looking back at Pinduoduo, the leader in low-price strategy, as of the fourth quarter of 21, Pinduoduo had 868.7 million active users, a year-on-year increase of about 10%. Pinduoduo, which once grew virally, seems to have reached its peak. However, while Pinduoduo has "slowed down", it has also made more money.

Compared with the embarrassment of its "sister platforms" Shopee and Wish, which are suffering from growing losses, Pinduoduo successfully turned losses into profits in 2021, achieving 7.769 billion. This is inseparable from its strategic adjustment of streamlining marketing expenses, focusing on research and development + cultivating deep-rooted sellers. Today, Pinduoduo is pursuing a mature stage of sustainable development.

Through Pinduoduo's development logic, we can also get a glimpse of the deep-seated reasons for the current predicament of cross-border Pinduoduo.

Success or failure depends on low prices, which seems to be the common fate of Pinduoduo.

The stereotype of cheapness and poor quality is a mountain that Pinduoduo and others cannot overcome. The low-price positioning determines the limitations of product quality. Under the influence of the general environment, merchants tend to win by price rather than quality.

For consumers, the chaotic situation of fakes and knockoffs, genuine products and pirated copies, is also constantly eroding their trust. If a platform wants to seek long-term development, consumer retention and brand recognition are undoubtedly crucial, and cross-border platforms such as Pinduoduo clearly have a long way to go.

As for sellers, the logic of low price wins when two sellers meet in a narrow road is no longer applicable. The price war that leads to a lot of losses not only successfully competes for customers, but also loses profits. The model of hurting the enemy by 800 but also hurting oneself by 1,000 will eventually push them to other platforms.

The assembly-based platforms ignited the low-price fire and soared to the sky, quickly becoming known around the world in the early stages of wild growth and low traffic costs. However, after reaching a certain height, they will inevitably begin to face the dilemma of insufficient momentum for subsequent growth.

For Shopee and Wish, instead of expanding rapidly to seize the market, what they should focus on now is how to "slow down" and find ways to break through the limitations of low prices and achieve profitability.

In the past two years, brand overseas expansion has become a general trend. From cost-effectiveness to the pursuit of personalization, consumers' growing demand for brands has driven the cross-border industry's transformation from white-label overseas expansion to brand overseas expansion, which has also led to a continuous decline in the tolerance rate of violent sales tactics.

The e-commerce platforms led by Shopee and Wish are dominated by the mainstream distribution model of multi-account and multi-store operations and stacking of massive SKUs. There are countless peddlers gathered here, but it is rare to see famous brands.

Under the bombardment of an endless stream of products, the hidden dangers of serious homogeneity and strong substitutability are deeply buried. Consumers are flocking to the products because of the low prices, but they may also be attracted by similar products on other platforms at any time.

In contrast, their rival, Amazon, now a well-deserved e-commerce giant, has always attached great importance to the cultivation of brand sellers, launching a series of personalized services and incentives for brand sellers to help them develop their brands and expand their businesses.

The low threshold and low price model of the Pinxi platform determine that most sellers prefer to make quick money and quickly recover funds, and lack the endurance to deeply cultivate products. Nowadays, more and more e-commerce platforms are shifting their strategic focus to brand building. Although Pinxi platforms have gradually realized this and started to make efforts, their backward starting line is destined to make their brand road more bumpy.

In fact, the price war on the P2P platform is also happening on other platforms, and Amazon sellers are well aware of this. The outbreak of the epidemic in 2020 has caused cross-border e-commerce to go against the tide, attracting many new sellers to compete for entry, while causing a shortage of resources and the outbreak of low-price competition.

From the ups and downs of the Pinyin platforms to the inevitable price wars among the major platforms, after the great waves, a new development path seems to be slowly unfolding.

For sellers who take the low-price route, the transformation to the "high-end" route cannot be achieved overnight. At the current stage, the first thing is to get rid of colored labels such as "cheap" and "poor quality", segment user portraits, grasp consumer needs, and on this basis, explore their own characteristics, innovate products, and set the benchmark of "high quality and low price" .

On the other hand, low prices cannot be used as a trump card to retain users . Only by building a brand can you have the ability to command a premium. However, brand expansion overseas is full of challenges. How to make a brand escape the fate of marginalization and truly enter the foreign market is also a long and arduous journey.

One of the important breakthroughs is to make new and bold attempts on the basis of ensuring price advantage, build brand characteristics, and form an operating system that is both profitable and favored by consumers.

With different market goals, similar rise codes and ups and downs in fate, Southeast Asia Pinduoduo and the US version of Pinduoduo have demonstrated the charm of low-price strategy, but also exposed its limitations. For cross-border sellers, perhaps it is time to slow down and think about how to find the right path for sustainable and long-term development.