Huitongda poised to float on HK bourse

E-tailer with focus on lower-tier areas to enhance merchant ties, supply chain

Huitongda Network Co, an e-commerce platform targeting merchants and suppliers in Chinese mainland's lower-tier cities and rural areas, is expected to debut on the Hong Kong stock exchange later this month should pre-marketing activity go smoothly.

The company, backed by e-commerce giant Alibaba Group, is looking to raise about $284 million after pricing its Hong Kong IPO at the bottom of its marketed range, Bloomberg News reported on Monday, citing market insiders.

Founded in late 2010, Nanjing-based Huitongda has more than 57,000 member stores in its network, covering 21 provinces and over 20,000 towns and villages across China.

Instead of targeting individual customers, the company mainly serves bite-sized business owners with two main pillars－wholesale and business solutions.

It procures merchandise in six categories, from household appliances to auto parts, and sources it to merchants in rural regions. It also provides business solutions, such as the SaaS+ service, to help retail stores improve in-store management efficiency.

Huitongda registered a net loss of 157.9 million yuan ($24.7 million) in the first three quarters ending September, down from a net loss of 306.2 million yuan, according to its preliminary prospectus filed to the Hong Kong bourse. It said it plans to use the proceeds from the IPO to enhance merchant relationships, supply chains, information technology investment and data capabilities.

Retail lower-tier markets in China remain highly fragmented and less penetrated in digitalization, said a report by Frost & Sullivan cited in Huitongda's prospectus. The consultancy ranked Huitongda first in terms of transaction value of commerce business in lower-tier markets, but with a market share of less than 1 percent.

Total retail sales of consumer durables and agricultural equipment in China's lower-tier market are expected to grow to 7.3 trillion yuan in 2025, from 4.7 trillion yuan in 2020, said Frost& Sullivan.

Despite its market potential, e-commerce in rural areas had not taken off until 2017, when high-flying mobile app Pinduoduo carved out a niche by offering cost-effective agricultural products to customers through bulk purchases based on social connections, said Cao Lei, e-commerce director at consultancy Internet Economy Institute.

For instance, e-commerce company JD is upping the ante on the logistics front, pledging to achieve 24-hour and 48-hour delivery in 93 percent of counties and 84 percent of townships, respectively.

"If the first phase of agricultural e-commerce is to try to maximize the free flow of agriculture produce in lower-tier cities, the second phase, which Huitongda is currently at, will feature revolutionizing existing convenience stores and mom-and-pop shops through digitalization revamps," Cao said.

These stores, according to Cao, are typically run by unsophisticated owners, where assortment decisions are often arbitrary, accounts are kept in notebooks, and sourcing options are limited. It is not uncommon for store owners to drive for hours once a month to stock up their inventory at regional wholesale marketplaces.

"But as more internet giants elbow their way to target especially digital infrastructure buildups and capacity-building, Huitongda is facing increasingly fierce competition as a pure player in the business-to-business model," Cao said.

For instance, Alibaba has rolled out a like-minded offering called LST, which is a one-stop shopping platform for ordering, logistics, marketing and other services for offline shops scattered around the country's lower-tier cities, townships and villages.

Pinduoduo has also moved beyond a platform business to enhancing rural e-commerce, Cao added. For instance, to support farmers' upskilling efforts, Duo Duo University, Pinduoduo's training arm, equipped entrepreneurial farmers with e-commerce operational know-how, as well as marketing knowledge and tools to promote farm products to urban consumers.

The State Council, China's Cabinet, published a directive on Friday encouraging the logistics buildup in China's rural areas during the 14th Five-Year Plan period (2021-25). It called for constructing county-level logistics hubs and distribution centers to meet the surging e-commerce needs of rural areas.