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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 

 

It’s amazing how this highly upvoted answer (Ron Rule’s answer to What stops Walmart from beating Amazon in online shopping?) is basically proving, without the author realizing it, why Disruption Theory works. The answer takes an exceedingly narrow view of the entire retail industry and labels the pursuit of leadership in an emerging market/channel (ecommerce), which is clearly where the world is heading over the next few decades, as mere “bragging rights”.

“Disruptive innovations tend to be produced by outsiders and entrepreneurs, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition).”

(Source: Disruptive innovation – Wikipedia)

The real answer is, Amazon has already won in online shopping. It is not due to a lack of effort from competitors, which is probably too little too late.

ecommerceIQ

This quote, attributed to Jeff Bezos, sums up why:

Your margin is my opportunity.

Even with Walmart’s massive revenues and profits (compared to Amazon), it cannot compete with the juggernaut that is built by Bezos. Amazon is “not profitable” by choice. All the earnings are put back into the business, either into more capital investments or to sell loss-leading products that lock in customers or drive competitors out of business, vertical by vertical, and market by market.

The investments that Amazon has made over the first two and a half decades of its existence give it momentum such that it is tough if not impossible for any other company to catch up over the coming decades: the technology stack, the deeply integrated logistics/supply chain (they are now getting into competition with FedEx/UPS), the effective third-party seller marketplace, the customer loyalty (through Prime).

Every exponential curve runs below the linear curve in it’s infancy, that is until it suddenly crosses over, goes through the roof and hits the sky. Even though in absolute numbers Walmart is still bigger than Amazon, only one of the lines below is going up and to the right:

ecommerceIQ

On top of all this, in the last couple of years, Amazon is also getting into physical retail, with acquisition of Whole Foods and pilot of Amazon Go. Here’s a great analysis of this: Amazon’s New Customer (I highly recommend Stratechery for tech+strategy topics in general).

At this point it is more likely that Amazon will eventually beat Walmart at physical retail, than Walmart will beat Amazon at online shopping. If Walmart wants to survive till the end of this century and not go the way of Sears, Walmart must come up with a strategy that creates value in a digital, super-connected future where everyone is hooked on to the convenience and choice furnished by online shopping, but in a manner that converts their massive current investments in physical retail from liabilities to assets.

The last thing Walmart should do is to build an Amazon clone. As then, they are playing by Amazon’s rules. And nobody beats Amazon at their own game.

 

Read the original on Quora by Pararth Shah, Software Engineer at Google

In a not-so-shocking move last month, retail giant Target acquired a grocery delivery startup for more than half a billion dollars to better compete with Amazon in the US.

Given the latter’s influence on the state of retail over the last decade, there has been a wave of excitement and fear sweeping the industry on a global scale.

The gradual consumer preference for digital has forced traditional businesses, predominantly in developed markets, to restructure internally or shut down. Case examples include retail leaders Macy’s, Sears, and American Apparel, whose legacies are now read about in bankruptcy stories.

Today’s headlines are revealing retail behemoths getting pushed to a corner by a new breed of entrants shaking up the retail status quo with business models revolving around ecommerce, omni-channel, click and collect. These new companies also tend to execute faster, reach further and understand how to utilize the goldmine that is the internet.

But understanding that “digital disruption” or “retail innovation” is needed within a traditional corporation isn’t merely enough to bring about real change.

The speed at which businesses incorporate digital channels will determine their chances at survival and relevancy to the next generation of consumers.

But by the time they come around to asking, “am I moving fast enough to catch up to my competitors?”

It’s already too late.

Shopping sprees in the West

Companies in the US felt heat from the Amazon Effect much earlier than India or Southeast Asia did, ensuing panic in direct competitors like Walmart, Target and Home Depot and forcing them to act quickly.

In the last two years alone, large corporations like the above invested over $5 billion in acquiring digital companies to beef up their portfolios.

While most of these companies have the capacity to carve out resources to build their own ecommerce operations in house, the pace at which the internet industry moves doesn’t wait for employees to learn “Digital 101”.

Not to mention the additional pain points such as internal resistance, lack of ecommerce talent and channel conflicts. Large corporations in general tend to struggle when venturing outside of their core competencies. The quickest way to patch up your business is to buy what you don’t have.

In regards to Walmart’s total $4 billion acquisition spree,

“Walmart is buying a new consumer base — upper-middle-class people who normally wouldn’t shop at Walmart — and these new relationships would bring higher margins.” — Jim Cusson, president of retail branding agency Theory House

And the “buy what you don’t have” trend is prevalent across the industry as more traditional players gobble up digital startups. In the last eight months alone,

Walmart [retailer]: acquires Bonobos for $310 million in cash and last mile delivery startup Parcel
Sodexo [food management]: acquires majority stake in Paris-based online restaurant and food delivery startup FoodCheri
Home Depot [retailer]: acquires online business of retailer of textiles and home decor products The Company Store
FTD [flower delivery giant]: acquires on-demand flower startup BloomThat
Target [retailer]: acquires same-day delivery startup Shipt
Luxico [luxury home rentals]: acquires US-based text messaging platform for hotels Hello Scout
Albertsons [grocery retailer]: acquires meal kit company Plated
McKesson Canada [healthcare supply chain]: acquires marketplace for natural healthcare and beauty products Well.ca

“Quality exits like this don’t stem from a ‘for sale’ sign tacked to the door.” – Chris Arsenault, board member at Well.ca

Of course, the enormous price tags of these acquisitions could be spent on buffing up the in-store experience but the returns would take a long time to see whereas Target’s own online sales growth from Q1 2015 to Q3 2017 show how successful the company has been able to leverage ecommerce.

Target ecommerce growth from 2015 to 2017. Source: Bloomberg

While an acquisition may seem like a quick, easy solution, there are numerous factors to consider to avoid backlash such as price point adjustments and consistent branding. Without understanding how digital can compliment the current business model, it’s likely the new asset will simmer and die in a couple of years. Simply put, don’t buy ecommerce for ecommerce sake.

Absorbing a digital company on the other hand brings about mountains of data, new customers, a solid brand, fresh talent and a seat at the hippest place where everyone hangs out, the internet.

Movement in the ASEAN region

As with most trends, they eventually infiltrate markets on a global scale and Southeast Asia is no exception. Even a couple of years before Amazon’s lackluster entry in Singapore, a few traditional retailers took the acquisition route to capture digital opportunity early.

Sephora bought online beauty retailer Luxola in 2015, Central Group acquired fashion e-tailer Zalora Thailand in 2016 and last year announced a joint venture with Chinese internet giant JD.com.

What has driven this flurry of activity by corporations across the world?

It is avoiding what Jeff Bezos describes as “Day 2”. An idea explained nicely by Bezos in his letter to stakeholders:

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.” – Jeff Bezos

Which day does your company operate in?

Voice has always been a compelling way to activate certain human behaviors. It can stir women to distrust men based on voice pitch, it can soothe a crying baby, and now it’s being utilized to making shopping easier.

Well, that’s the hope.

Voice commerce is the new trend in online shopping that is piquing the interest of major players such as Google and Walmart. The two giants recently announced a one-month partnership to take on Amazon’s current dominance in the voice-shopping market.

Consumers in the US will be able to purchase any Walmart product through Google’s voice-activated assistant platform.

“For example, if you order Tide Pods or Gatorade, your Google Assistant will let you know which size and type you previously ordered from Walmart, making it easy for you to buy the right product again,” says Sridhar Ramaswamy, senior vice-president of ads & commerce at Google.

Walmart’s Head of Ecommerce Marc Lore shared that the retailer plans to expand the use of voice-activated shopping across its 4,700 stores to “create customer experiences that don’t currently exist within voice shopping anywhere else”.

To understand what currently exists and whether investing in voice-commerce makes sense, one must look to ecommerce giant Amazon and its strategy surrounding AI assistant Alexa.

Leading voice commerce, Amazon, of course

This year’s Prime Day, Amazon’s largest shopping event for its Prime members, happened on July 10 and theEcho Dotwas the best-selling product across any category globally, with customers purchasing seven times more of these devices this year than in 2016.

What are owners using Alexa to do?

Alexa Amazon Commerce

Alexa is typically being used to play music and set alarms/timers. Source: LivePerson

Amazon used Prime Day as a vehicle to increase its foothold in voice and offered premiums to influence a wave of shoppers to purchase these cylinder-shaped units. They included:

  • Voice shoppers had early access to select Prime Day deals a full two hours before the general public beginning
  • More than 100 Alexa exclusive deals were already available
  • First-time voice-shopping customers who purchased with Alexa before Prime Day received a $10 promo code
  • Amazon device owners could sign up for Prime via voice command. New members who signed up for Prime by voice got their first year of membership for $79, a $20 saving

LivePerson, a cloud-based software platform, surveyed over 500 Alexa owners in the US and discovered the following:

  • A significant majority (70.6%) of respondents have made a purchase on Amazon through an Alexa voice command at least once
Alexa Amazon Commerce

Electronics are the most popular category purchased through Alexa. Source: LivePerson

  • 45.8% of Alexa owners are repeat shoppers (meaning that, of consumers who give Alexa shopping a try once, almost two thirds turn into repeat users)
  • 70.6% of Alexa owners have an Amazon Prime account

By 2020, it’s projected that Amazon will sell 41.3 million of Echo units (each one retails for about $44.99). Having a physical presence in the household of many Americans gives Amazon a new channel of power.

Professor Scott Galloway of L2 placed an order for batteries on Alexa and discovered that the assistant would only recommend Amazon label products. Without the visual cue of product discovery, Alexa can strongly influence consumer buying decisions.

The voice trend has become so irresistible that even General Electric plans to soon sell a LED lamp with Alexa built in so consumers without an Echo can ask questions for information. Some food for thought.

Here’s what you should know:

1. Indonesia is the largest Instagram users in APAC

Instagram claims it records more than 45 million active users every month in Indonesia and a user growth of more than 100% since last year, from 22 million in early 2016 to 45 million as of July 2017.

Instagram has 700 million active users globally and Indonesia is one of its most exciting markets with the most active users for ‘Instagram story’ feature, using it twice more frequently than the average user. The company also has the largest Instagram community in Asia Pasific.

 However, Facebook remains the most favored social media platform for Indonesians, where it is also the biggest Facebook users in Southeast Asia.

Read the full story here.

2. Walmart and JD.com launch an omni-channel shopping festival

Walmart and JD.com aim to intensify integration of bricks-and-mortar stores with ecommerce platforms through their launch of a new omni-channel shopping festival on August 8 in Mainland China.

The event will be supported by their expanded cooperation to combine domestic supply chains, operating platforms and customer resources.

The JD-Walmart 8.8 shopping festival is expected to help Walmart extend its reach to the 99% of the country’s population covered by JD.com’s delivery network.

With their combined resources, the two firms could “define the future of retail in China”, said Carol Fung, the president for fast moving consumer goods at JD.com

Read the full story here

3. Malaysia Digital Economy Corporation will launch ecommerce academy

Malaysia Digital Economy Corporation (MDEC) chief executive officer Datuk Yasmin Mahmood said an ecommerce academy tailored to the industry would be launched later this year.

The initiative is important as Malaysian retail industry is the largest segment within the small and medium enterprises’ (SMEs) market. She was heartened by the growth of Malaysian SMEs’ online presence to 26% last year from 7% in 2014.

The Internet is also disrupting business models that rely on the ownership and control of physical infrastructure.

“Digital innovation is an opportunity first and foremost, but also a threat if not embraced,” she added.

Read the full story here

Here’s what you should know today.

1. Amazon introduces Prime Day to Chinese shoppers

Originally begun three years ago to celebrate Amazon’s 20th anniversary, Prime Day, which is on July 11 this year, is an annual one-day shopping event that offers Prime members special deals on purchases.

While Chinese customers could have accessed Prime Day in the past, this will be the first time that they can participate in the festival by directly ordering from Amazon’s Chinese language site.

Amazon is offering consumers a discounted annual rate of $28 if they sign up by November 2017. Chinese subscribers will get free shipping from Amazon stores both domestically and anywhere else in the world.

For Amazon, it’s a big step towards localizing their offerings in China and strengthening its market presence in a region dominated by domestic giants Alibaba and JD.com. In 2015, it even launched a flagship store on Alibaba’s Tmall in order to remain relevant and reach out to more Chinese consumers.

Read the rest of the story here.

 

2. Alibaba has an Echo-style smart speaker in the works

Alibaba could reveal a voice-activated “smart speaker” to compete with Amazon Echo and Google Home as early as next week.

The device could allow Chinese consumers to buy goods from Alibaba’s shopping sites using a voice-activated virtual assistant, just as Americans can use the Alexa virtual assistant on the Echo to order things on Amazon.

What makes Alibaba competitive—and potentially controversial—is the sheer amount and breadth of data it is capable of gathering.

The product, which understands voice commands in Chinese, is targeted solely at domestic consumers who are already familiar with Alibaba’s online services.

The new device is the latest step in Alibaba’s efforts to deepen its understanding of the behaviors of hundreds of millions of Chinese who already use its online services.

Read the rest of the story here.

 

3. Walmart seeks new products amid battle with Amazon

The 500 businesses selected to take part in Walmart’s fourth annual “Open Call” Wednesday have already been offered spots on the company’s online portals, as it battles Amazon for billions of dollars in revenue.

“It’s a high-stakes game,” Scott Hilton, Walmart’s executive chief revenue officer for ecommerce, said as the meeting opened.

“You may not receive a deal, but you have a chance to spend 30 minutes with a Fortune 1 buyer,” Walmart spokesman Scott Markley said ahead of the daylong meeting intended to increase jobs at American companies. “They know more about the market for the product than you do.”

Read the rest of the story here.