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Chinese ecommerce platform JD is lesser known amongst international audiences, but its mid-annual 618 shopping festival generated almost $25 billion in gross merchandise value this past June. The company has a 33% share of China’s B2C ecommerce market and generates more direct revenues than Alibaba. Google’s latest $550 million strategic investment in the company is the latest in a series of partnerships JD has orchestrated, as it seeks to challenge Alibaba and Amazon for ecommerce dominance in both China and the rest of the world.

JD’s Direct Retailing Model Gives it a Strong Competitive Advantage

JD’s business model is distinct from that of Alibaba’s in that it is a direct retailer – meaning that it purchases inventory wholesale and sells products directly to individual customers, rather than simply acting as an intermediary between buyers and sellers. Approximately 92% of its business comes from direct sales, whereas for Amazon this figure hovers around 50%.

JD stocks its own inventory in its vast proprietary network of nearly 500 warehouses across China, each of which is situated strategically close to consumers to ensure fast delivery. JD also employs an in-house delivery force of over 65,000 warehousing and delivery workers. During the 618 festival this year, JD was able to deliver 90% of its goods within two days.

This dedication to customer service requires a significant amount of capital to sustain, but JD has been able to stand out from its competitors.

JD claws its way up to a 33% market share in an industry where Alibaba was previously thought to be unbeatable.

Richard Liu, CEO of JD.com delivering goods during their ‘618’ Mid Year Sales Source: Internet

The Borderless Retail Alliance

To compete with Alibaba, JD has enlisted the help of numerous partners. In China, this includes internet giants Tencent and Baidu, in addition to its partnerships with the likes of vertical-focused ecommerce platforms Vipshop and Meili Inc. Tencent owns 18% of JD’s shares and partnered with JD to invest $864 million in China’s third largest ecommerce platform Vipshop this past December. JD made its claim to fame by selling electronics to a predominantly male user base, and such partnerships with Vipshop and Meili, both of which sell a combination of apparel and cosmetics, help the company appeal to a broader female base.

America’s largest retailer Wal-Mart owns 10% of JD’s shares and has been a strategic partner since 2016 when it first sold its ecommerce division Yihaodian to JD Google, despite having a limited presence in the China market, announced a $550 million investment in JD this past June. Both of these strategic partnerships will be key as JD prepares to expand its business overseas.

Google’s Data Will Help JD Catch Up Overseas

Ecommerce platforms such as JD spend an enormous amount of money on search ads every year, to ensure that their products show up in search results. As they grow bigger, however, internet users can go directly to ecommerce platforms to search for products, which presents a threat to Baidu’s and Google’s search ads business. Partnering with JD allows Google to hedge against this problem.

Google’s extensive ecommerce data can give JD better insights into the buying behavior of users, and JD will have a better idea of how to target users via Google’s broad ads network. This will be a significant asset as it attempts to catch up with local competitors in Southeast Asia, Europe, and the US.

Wal-Mart and JD Make the Perfect Couple

US retail giant Wal-Mart has been partners with JD since 2016 when it sold its online business Yihaodian to JD in exchange for a 5% equity stake worth $1.5 billion. That stake has since grown to 10%. In China, Wal-Mart leverages JD’s marketplace and users to sell directly to Chinese consumers online, complementing its offline business in the country. For JD, Wal-Mart is a key supplier for the JD Daojia platform, which is an on-demand delivery service that delivers groceries to customers within a one-hour time frame.

JD also sells its goods offline in Wal-Mart stores and uses them as distribution centers from which last-mile delivery can be carried out. Since JD is an online retailer without many offline retail stores, the addition of Wal-Mart’s physical locations across China is a considerable asset as it looks to expand its user base via omnichannel marketing strategies. JD is planning to expand to the US market by the end of this year, and the potential expansion of this partnership model means that JD may have a chance to catch up with Amazon, especially since the two can leverage economies of scale and source goods in bulk.

JD Dao Jia partnered with Wal-Mart on sales promotion Source: Internet

JD Goes Global

With an impressive set of partnerships under its belt, JD has the capability to challenge Alibaba and, potentially Amazon, on the global stage. JD has already set up international ecommerce site Joybuy in Spain this year and is looking to expand to Germany. JD has also launched local websites in Thailand and Indonesia under the JD brand. JD has publicly announced its intention to enter the US market by the end of 2018, with a beachhead office located in Los Angeles. The company plans to undercut its competitors and also help Chinese brands like Xiaomi expand to the US.

While it is still early stages, what is certain is that JD’s global expansion will be very interesting to watch going forward.

Written by Don Zhao, Co-founder and Executive Director of Azoya 

 

As the fastest growing industry in one of the world’s fastest growing markets, the evolution of Southeast Asia’s ecommerce landscape means new players and a lot of consolidation since last year’s first ECOMScape series by ecommerceIQ.

This year’s new edition of the ECOMScapes kicks off with Indonesia.

Expected to capture the biggest chunk of the $200 billion ecommerce opportunity in Southeast Asia, it’s easy to see why Chinese giants like Alibaba, JD, and Tencent have rigorously left their home-market to tackle Indonesia. What has happened over a span of only one year?

1. Chinese Companies are Hungry

Out of the total $3 billion investment put into Indonesia startups in the first eight months of 2017, 94% of the funding came from Chinese investors.

News regarding Alibaba leading a $1.1 billion investment in Tokopedia created excitement in the industry, especially because JD was rumored to also make a bid for the popular local marketplace.

Indonesia startups investment

Although that opportunity passed, it hasn’t stopped JD from participating in the funding round of Indonesia’s two other unicorns, ride-hailing app Go-Jek and online travel booking platform Traveloka. Chinese giant Tencent also joined the round for Go-Jek.

2. Natural Selection: A Race to the Bottom

As the market in Indonesia saturates, in both players and investment, it’s only a matter of time before natural selection weeds out the weaker companies (especially those with shallow pockets).

The past year has seen several ecommerce companies in Indonesia either shutting down or pivoting business models, and investors pulling out before stakes become worthless. And don’t think it’s only happening to the small fish.

Some cases? Alfacart and Elevenia.

Earlier this year, Indonesian convenience store chain Alfacart announced its decision to ditch the marketplace model after a continual lag behind e-marketplaces like Lazada and MatahariMall.

Launched in 2013, Elevenia is the joint venture of telco companies XL Axiata and Korea’s SK Planet. Despite claims that Elevenia has seen positive growth over the years, it’s a telling sign when both companies pull out and sell their stake to Indonesia’s conglomerate group Salim.

Even the ecommerce arm of large telco company Indosat, Cipika, shut down in June citing unprofitable business model and high cash burn rate as reasons.

Indonesia ecommerce landscape

With JD and Alibaba investing directly in local companies, it’s not a stretch to expect fewer names on the ECOMScape next year.

3. Marketplace Competition Heats Up

If this time last year Tokopedia was focused on growing its core C2C business, the Indonesian marketplace has long since been strong arming its shift to B2C as signaled by Unilever’s official store opening on the platform.

The move is already serious competition to Lazada, especially as the two ecommerce companies interchangeably grab the top spot in web traffic in Indonesia (which is probably why Alibaba invested in both companies).

Indonesia’s top C2C players have been moving into the B2C space i.e. Tokopedia. Traffic of ecommerce websites compiled by ecommerceIQ. Find more here.

Sea’s backed Shopee has also opened its platform for brands as it launched Shopee Mall that claimed to offer over 500 brands.

The shift from C2C to B2C is a natural progression as companies attempt to increase revenue and leverage their already large customer bases.

4. Having Fintech is for “Cool Kids” But the Nerds Will Win

While payments still remain a pain point in Indonesia ecommerce even though multiple companies released their own e-wallets last year, the country and the region potentially, might finally have a real solution.

Both Kudo and Kioson are arming micro-entrepreneurs and business owners such as mom-and-pop shops in rural areas with their digital platform to empower them to act as the bridge between ecommerce companies and rural citizens.

The O2O (online-to-offline) concept clearly has some merit, as both companies attracted investor attention and made headlines in 2017. Kudo was acquired by Grab and Kioson raised $3.3 million as the first tech company to IPO on the Indonesia Stock Exchange (IDX).

Kioson during its IPO in October 5, raising $3.3 million. Source: Kioson.

Indonesian startup darling Go-Jek is also leveraging its millions of users by launching its own mobile wallet, GoPay, which has real potential to become the WeChat of Indonesia.

GoPay’s usability has improved from payment for rides to also allowing peer-to-peer (P2P) transfers and making the order of food, groceries, tickets, and beauty treatments extremely easy in one app.


Are we missing any key players? Let us know via Linkedin | Facebook | Twitter

Download ECOMScape Indonesia 2017 here.

Featured image credit: Martha Suherman

Garena, a Singapore-based internet company, recently made splashes in the news as the tech unicorn, one of the few in Southeast Asia, raised US $550 million in funding. The fresh batch of investors include Cathay Financial and GDP Venture, who are supporting Garena’s aggressive push into Indonesia. The company also announced plans to change its name to ‘Sea’ Ltd., an acronym for Southeast Asia.

If the new name is anything to go by, it seems Garena is making big plays within the region this year – namely with its mobile-first ecommerce platform, Shopee.

The mobile shopping app reported more than 5 million downloads in Thailand since its official launch two years ago, and 25 million downloads in total across seven markets; Thailand, Singapore, Indonesia, Vietnam, Malaysia, the Philippines and Taiwan.

In an email interview, representatives from Shopee Thailand shared exclusively with eIQ that the platform achieved 43% MoM growth across Asia last year and reported over 3 billion in annualized GMV to date.

The company’s healthy growth can be attributed to the rise of mobile adoption in the region. Bain estimates 85% and 79% of online shopping happens on mobile outside of major metro areas in Thailand and Indonesia, respectively.

But with other strong mobile-first contenders and e-marketplaces in the field, notably Singapore’s Carousell, the company needed to innovate.

A shift towards B2C

Blackmores’ official brand store on Shopee TH

A glance at Shopee’s homepage indicates that the marketplace is onboarding brands such as phone maker Vivo and Blackmores, in addition to facilitating its normal C2C transactions. This move places the C2C-B2C platform in the same playing field with marketplace heavyweights such as Lazada and Korea’s 11Street that made its Thailand debut at the end of 2016.

“Shopee Thailand is currently focused on the expansion of our market segments, including having more corporate brands on the platform in order to strengthen our portfolio,” says Terence Pang, COO at Shopee.

With an already strong consumer base in Thailand, Shopee is heading down a path naturally explored by other C2C players:

  • Indonesia’s Tokopedia initially started as a C2C platform, but recently integrated official brand shops from P&G onto its platform.
  • Alibaba’s Taobao marketplace is a C2C platform but sprung out Tmall as a B2C subsidiary of the marketplace.

One reason that may explain the C2C-B2C pivot is financial change. Ironically, as C2C marketplaces grow in membership and transactions, the model essentially hits a dead end.

An example can be made from European car sharing platform, BlaBlaCar. As a C2C business, it relied on customer interactions to drive revenue but pivoted to B2C in 2015 after the founder realized that by facilitating transactions between customers, it essentially demoted the platform into a lesser role.

“We [now] manage not only the interaction but also the transaction,” said Nicolas Brusson, founder of BlaBlaCar.

Does this mean that C2C models are all essentially poised to adopt the B2C model?

Well, why not? An already existing user base can only grow with more product variety and marketing dollars provided by the brands while the marketplace itself is poised to earn commission.

But what companies should watch out for is having two stark businesses coexist on the same platform. Some marketplaces can be at risk of alienating businesses and established brands due to the fear of being placed next to hastily taken images of home appliances from an inexperienced merchant but Shopee has successfully separated the two.

 Characteristics of a strong C2C-B2C hybrid

“We are working to bring more personalization for Shopee users through product recommendations based on browsing history and also optimizing our chat feature so consumers have direct contact with sellers,” says Terence.

Shopee’s efforts to optimize its product features does not come as a surprise as Thai consumers highly enjoy chatting on social platforms and also connecting with sellers.

A study conducted by Forrester revealed that 44% of consumers surveyed said that having questions answered live while in the middle of an online purchase is one of the most important features of a website.

A communications platform also eases concerns about fraud and heightens trust during online transactions.

Personalized suggestions can benefit the marketplace itself because it provides a solution to the long-tail problem; more exposure to obscure items that are not very popular and do not drive revenue.

Recommending long-tail items to shoppers can provide higher return on investment for slower moving inventory.

By showing customers what they may enjoy, but might not necessarily discover on their own, marketplaces are able to heighten the entire shopping experience.

These tactics are already being used across the globe by tech titans such as Amazon and Netflix and it all seems to be working for Shopee Thailand as the company is experiencing over 1 million orders a month.

What does the future look like for Garena (Sea)/Shopee?

Sea is doubling down on the region and has publicly expressed intention to seize a larger chunk of the Indonesian market. Recent reports suggest the company is already performing in the top leagues.

The region’s largest market makes up 40-50% of Shopee’s transaction volume and the country experiences 200,000 daily transactions for physical goods, according to CEO Chris Feng.

As the region continues to thrive as an attractive retail ecosystem, Shopee’s expansion to a C2C/B2C marketplace will help it withstand the incoming tech titans and compete with the existing e-players for the attention of 650 million Southeast Asians.

Shopee Thailand team with Shopee University attendees, a workshop to help SMEs sell more efficiently on the platform.

Thailand’s COL, a subsidiary under Central Group held a shareholders meeting Wednesday and made significant announcements regarding the future of its online business. The group is planning to sell its B2C online businesses to its parent company to focus on growing online B2B operations.

COL has three key businesses:

  1. B2S books and stationery stores
  2. OfficeMate stationery stores
  3. Online platforms Central.co.th, Robinson.co.th and Zalora.co.th.

According to an attendee of COL shareholder meeting, originally posted on LongTunMan blog, the following took place:

The most significant moment of the meeting came after a reflection of last year’s performance. Management explained why they were “taking a step back from online business”. The main reasons being:

  • Market leader and new competition within the ecommerce landscape
  • Unlikely to be profitable in the near future (subsidies too high)
  • The online business requires more monetary investments at a large scale

Source: COL business plan presentation at the Annual shareholders meeting

“Currently, ecommerce in Thailand is a cash-burning race. The top performing player, LAZADA, is losing billions of baht. Central is not ready to experience losses of that scale in order to participate in the online race. All B2C online businesses under COL will be sold to Central Group, which has significantly more resources to fight the competitors,” wrote the attendee of the meeting.

COL business plan* shows that in 2016 the net loss of its digital & online business was 330 million THB (9.5 million USD).

That is almost double the net loss of 185 million THB (5.3 million USD) in 2015. Stepping out of online business will significantly improve COL profits.

Source: COL business plan presentation at the Annual shareholders meeting

The attendee of the shareholder meeting noted that as soon as the management made their announcement, shares went up 22% to 39.5 baht. What do shareholders think about this?

“Some may be disappointed that COL is pulling out. However, shareholders prioritize a company’s profitability. If we were to study performance results from 2016, it becomes clear that by removing its online businesses, the company will gain 86% in profit,” says the LongTunMan post.

Next steps for COL

In its business plan, COL has defined that one of the key strategies to continue sustainable growth is to develop a new online B2B platform that matches vendors and potential customers in various industries.

By focusing on B2B operations, it will serve as a quicker win for COL. The company already has a strong consumer base in that area.

Source: COL business plan presentation at the Annual shareholders meeting

According to LongTunMan, “management has announced that COL will now be an abbreviation for “Central Omni Logistics”, as the company will shift its focus to B2B.

This is where the company’s expertise lies, and remains a market leader. COL currently claims 80% of market share for office supplies.

“This decision shows that in some cases, it is better to take a step back in order to move forward and focus on where your business’s strength lies. Simply put, it is not worth it for COL to put all of its resources into fighting with other players, who have more resources to burn,” says the LongTunMan’s blog post.

In addition to moving to B2B online operations, COL also wants to step up its logistics game and in the future sell third party logistics and fulfillment services to other market players.

Source: COL business plan presentation at the Annual shareholders meeting

These changes in COL are aimed to turn the company into “the region’s leading business solution center”. The company is moving away from loss making activities to focus its efforts in the B2B area in hopes of a more profitable business model and where it has significant strengths.

Source: COL business plan presentation at the Annual shareholders meeting

Find the COL business plan presentation from the annual shareholders meeting in English here.

The original version of COL shareholders meeting attendee was published in Thai, and can be found on LongTunMan’s blog here.

* NOTE: The original version of presentation from the COL shareholders meeting, accessed by ecommerceIQ on April 7, included the slide which detailed how big company’s net profit would be without its Digital & Online business. This slide, however, is missing from the latest version of its business plan’s presentation available on their website.

BY: NIKI CHATIKAVANIJ AND AIJA KRUTAINE

Indonesia is projected to capture 52% of Southeast Asia’s total ecommerce value by 2025.

Total revenue from ecommerce in Indonesia only this year is predicted to reach $6.96 billion, and projected to rise to $14.47 billion by 2021, meaning that total revenue will double in four years.

Statista data shows us what businesses looking at the Indonesian market should keep in mind for the next few years.

Fashion is a leading vertical in ecommerce

Fashion consistently dominates as the country’s top selling vertical in online retail and is predicted to increase in revenue every year until 2021.

Fashion 2016: $1.99 billion total revenue

Fashion 2017: $2.47 billion total revenue

Fashion 2021: $5.32 billion total revenue

Current key players in fashion ecommerce:

Matahari Department Store, Salestock, Zalora, Lyke, Berrybenka, muslim fashion store Hijup, and Kuki

Source: eIQ ECOMScape Indonesia

Food and personal care to experience slow growth

The total revenue for online food and personal care in 2016 was $0.49 billion, and predicted to reach $0.71 billion by 2018. By 2021, food and personal care online revenues are projected to reach $1.07 billion, trailing behind verticals such as electronics, fashion and furniture but still expected to double.

Furniture and appliances to experience steady rise

The graph suggests that more Indonesians will be jumping online to buy couches and chairs. A few first movers in the furniture industry such as Fabelio will be a part of the market that is expected to bring in a total revenue of $1.18 billion and  predicted to rise to $2.39 billion by 2021.

Looking ahead

Indonesia’s ecommerce market as a whole is  set to grow.All verticals ranging from fashion to toys are all poised to experience 2X growth by 2021 as internet penetration is going to jump from 13% to 21% by 2021.

Here’s what you should know.

1. Thailand Stock Exchange to launch blockchain based marketplace

SET’s senior vice president Santi Kiranand said, the marketplace was not a trading board as there was no regulator to verify their business quality like the SET and the Market for Alternative Investment (MAI).

Startups that want to mobilise funds from this board are required to register with the authorities, run business with transparency and have a single financial account.

Due to high risks on investment, only institutional, high net-worth investors and venture capital funds are allowed to invest on this board.

The norms for the marketplace would be finalised next month.

Read the rest of the story here.

 

2. JD.com spins out its financial services business

JD Finance, the financial services business belonging to Alibaba competitor JD.com, is going independent.

JD.com is divesting its entire 68.6% stake for 14.3 billion RMB, or around $2.1 billion. The deal will see the ecommerce firm take 40% of JD Finance’s pre-taxi profits once its business once it has positive pre-tax income.

The move to independence hedges any risk that JD.com investors may feel around JD Finance, which was valued at $7.1 billion at the time of last year’s financing.

Read the rest of the story here.

 

3. eMarketer: Lazada dominates Southeast Asia – for now

For now, much of the ecommerce activity and web traffic in Southeast Asia is dominated by one large ecommerce retailer—Lazada Group.

SimilarWeb’s figures for Thailand showed that Lazada claimed almost 41 million monthly page views during December. That was more than 16 times the number garnered by JIB.co.th, the second-place finisher.

With Amazon poised to enter Southeast Asia sometime this year, and the incoming buzz of Korean e-marketplace 11street, Southeast Asia’s B2C landscape could very well look different by the end of 2017.

Read the rest of the story here.