JD.com, Pinduoduo battle out in new price war

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There seems to be a new price war taking place among two of China’s top ecommerce players, JD.com and Pinduoduo.

JD.com is reportedly earmarking US$1.5 billion in subsidies to its self-operated shops and those set up by third parties to help drive down listed prices. The company is said to make an official announcement before a shopping campaign next month.

Kenny Ng, a securities expert at Everbright Securities, told Forbes that JD.com is seeking to compete particularly with Pinduoduo. After the news, stocks of both JD.com and Pinduoduo fell, reflecting investors’ concerns about costly price competition. For Pinduoduo founder Colin Zheng, that’s a US$3 billion loss in net worth.

The development follows JD.com boss Richard Liu reportedly berating the company’s top managing staff over the platform’s relatively slow growth. An email at the time showed Liu telling execs that “low prices were the most important weapons responsible for our past success, and they will be essential in the future.”

A report from Morgan Stanley already sees Pinduoduo overtaking both JD.com and Alibaba in gross merchandise value by 2024.

In the third quarter of its 2022 fiscal year, Pinduoduo logged a 65% year-on-year growth in revenue to almost US$5 billion. Profit also saw a 388% rise in the quarter compared to the same period in FY 2021.

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Meanwhile, JD.com has taken some serious cost-cutting measures, particularly in Southeast Asia. It exited both Thailand and Indonesia after laying off 30% of its staff over “challenges of the rapidly changing business.”

In June 2022, JD.com was also reportedly merging its Jingxi Business Group into its JD Retail division as part of a round of organizational restructuring. These included laying off employees from divisions under the former unit.

George Atuan, an analyst that contributes to Seeking Alpha, said that JD.com’s asset-heavy model and logistics prowess – which contribute to lowering prices – are among the company’s key strengths in its fight against Alibaba and Pinduoduo.

It’s unclear how long the firm’s US$1.5 billion campaign could sustain the fight.