China’s fastest growing e-commerce startup Pinduoduo in disputes with merchants

Pinduoduo, which rides the wave of popularity of WeChat, claimed it has punished over 200 stores on its platform, less than three out of ten thousand among its monthly active shop owners.

Image credit to Visual China.

HUANG Zheng, the founder and CEO of Pinduoduo is having a difficult time. His startup, China’s fastest growing e-commerce platform, is in disputes with shop owners after a clampdown on counterfeit products.

Starting from June, some penalized store owners have been protesting against Pinduoduo’s policies around the company’s headquarter in Shanghai. By June 13, the number of people in the WeChat group of protesters reached almost one thousand. Protests grew violent with a few of the protesters brawling with the security guards, according to local media TMT Post.

Pinduoduo claimed it has punished over 200 stores on its platform, less than three out of ten thousand among its monthly active shop owners. The e-commerce platform is estimated to have frozen over one hundred million yuan in merchants’ accounts, according to the abovementioned local media.

“Counterfeit products are a profoundly rooted social problem in China,” said HUANG at the first press conference held on 18 June since he founded Pinduoduo in 2015, “The fund is kept in a supervisory account, so Pinduoduo won’t enjoy the interests. All the money goes to reimbursing the consumers.”

According to HUANG, Pinduoduo offers customers cash coupons which will be valid for 50 years, and so far 95% of the coupons have been used.

 

Crackdown

It’s necessary to impose strict standards because Pinduoduo has to raise the cost of selling counterfeit products. “Otherwise, bad money drives out good”, HUANG told media.

When many shoppers file complaints over a product, Pinduoduo would buy and check it. If the platform finds the product to be a counterfeit, it would freeze ten times the total sum of the trading orders of the whole batch of these problematic product, meaning losses for shop owners could be huge.

In fact, this is not the first time that Pinduoduo is in disputes with merchants on its platform. Three shop owners, who were subjects to the penalty, had sued the e-commerce company, but the local court in Shanghai rejected their claims, as per documents provided by Pinduoduo at the press conference.

 

Shoddy products

The recent clampdown comes as part of Pinduoduo’s plan to remodel its brand image.

Leveraging on group buying campaigns on WeChat and steep discounts, Pinduoduo claimed it has already 300 million users, most of who live in tier 3 and lower Chinese cities.

Despite the rapid growth, Pinduoduo was struggling to cast off criticism for low-quality products on its platform. Pinduoduo sells a wide range of products, including electric shavers at 2 dollars and sneakers at 3 dollars.

Richard Liu, founder and CEO of China’s second-largest e-commerce platform JD, suggested earlier in an interview that Pinduoduo-like social commerce apps are selling lots of counterfeits and shoddy commodities.

The company was also under pressure from the regulators who claimed earlier in June an investigation into the e-commerce platform which has allegedly been selling products related to violence and pornography.

 

Growth & Competition

Founded in September 2015, Pinduoduo’s GMV surged to over 100 billion yuan (approx. $ 15.9 billion) in 2017. It took Alibaba’s Taobao and JD respectively 5 and 10 years to reach the value. Surpassing JD, Pinduoduo is now the second most popular e-commerce app by weekly active penetration rate, only losing to Taobao, according to mobile big data analysis platform Cheetah Data.

Its eye-popping growth has drawn fire from Alibaba and JD. The two Chinese e-commerce conglomerates have reportedly established dedicated departments to curb Pinduoduo’s development. KrASIA previously reported that Taobao has launched discounts app to fend off Pinduoduo.

The startup counts Tencent as a backer. The social networking and gaming giant has invested in the startup in July 2016 and has led a USD3 billion round in Pinduoduo in April.

 

Editor: Jason Zheng