A retail website is counting on a tried and true strategy in its efforts to break into the U.S. market by offering highly discounted prices on a variety of consumer goods.
It usually takes a few years for apps and platform that are huge in China to conquer the Western market. This could be seen with social media platform TikTok, fast fashion retailer Shein and even retail platform Alibaba (BABAF) .
Similarly to Shein, the e-commerce platform offers goods at the rock-bottom prices — but, in addition to clothes that mirror the styles popular designers, Pinduoduo is used for groceries, everyday home goods and small electronics.
Founder Colin Huang, who spent a few years working at Google (GOOGL) - Get Free Report before leaving to found Pinduoduo, had previously described his brainchild as a cross "between Costco (COST) - Get Free Report and Disneyland (DIS) - Get Free Report." Another description might be as an online dollar store.
The Model of the Online Dollar Store
As Pinduoduo has grown to reach over 882 million active users, the company has increasingly set its sights on the U.S. market.
At the start of September, the company launched an American sister site called Temu, which, like the larger Pinduoduo, offers U.S.-based buyers items like rubber slippers for $3.49 or a draining soap holder for 19 cents, or Lenovo wireless earbuds for $3.70.
The ultra-low prices have already started luring in some U.S. buyers — a set of hair clips costing 4 cents has already been sold over 6,000 times.
According to the company, shipping from China can take from 7 to 15 days and will be free for orders above $49.
"It's important to keep in mind that you may see longer delivery times than you're used to from other e-commerce websites," the Temu website reads. "This is due to the fact that items that may be coming from another country or need to be bundled or packaged with other similar-sized items."
The concept of Chinese goods sold cheaper than even the cheapest dollar or discount store in a given country has been a winning strategy for several big names. Despite growing criticism over the impact of fast fashion, Shein has been pushing out formerly cheapest-option companies like H&M (HNNMY) and Fast Retailing (FRCOF) 's Uniqlo with its $7-for-a-dress prices.
In Southeast Asia, Alibaba brand Lazada has carved out a major market.
Building Trust (And a Brand)
As Pinduoduo works directly with Chinese producers and factories in China, its edge comes from the ability to offer these types of penny prices.
Numbers from analytics platform Data.ai found that Temu was the most-commonly downloaded shopping app on Android for a period of time in September.
But while Pinduoduo started out by targeting low-income Chinese buyers and slowly attracting more affluent ones, it may face a tougher road in the U.S. due to an abundance of familiar e-commerce platforms like Amazon and Shopify (SHOP) - Get Free Report.
While prices in cents rather than dollars can win over buyers by their rock-bottom cheapness, the slower delivery times and lack of brand recognition may make it difficult to carve out customers who choose it over other options.
Earlier this month, PinDuoDuo announced that it hopes to invest multiple billions of yuan into both developing and partnering with brands that it wants to make common names in the U.S.
While down 8% this month, Pinduoduo's stock has grown by over 36% in the last six months.
"Erring on the cautious side, traders should wait for two consecutive strong closes above $70 before going long PDD," Bruce Kamich wrote for TheStreet's RealMoney.