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.
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 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.