JD.com takes a serious swipe at Alibaba. Here’s what’s happening

The battle for supremacy in China’s e-commerce space is heating up as key players continue to take a shot at Alibaba Group Holding Ltd’ s dominance. JD.Com Inc. has emerged as a fierce competitor to the e-commerce giant, its popularity having soared to record highs. The Beijing company growth rate has also outpaced the overall e-commerce market thanks to a shift of focus to expanding the current product line and targeting affluent online shoppers as well as women customers.

 

China’s e-commerce growth shows signs of slowing down

China’s e-commerce market is no longer burgeoning at rates it used to in the past. According to McKinsey & Co., China’s e-commerce market will only grow by 19% this year down from highs of 74% registered in 2011. The trend is not expected to improve especially with the emergence of a number of platforms all gunning for market share in the highly lucrative business.

China’s online retail sales hit $370 billion in the first five months of the year and is expected to be worth $840 billion by 2021 compared to $421 for the U.S market.

A slowdown in the expansion of China’s e-commerce landscape has not in any way affected JD.com growth rate. In fact, the company is currently growing at an impressive rate, revenue in Q4 2017 having registered a 47% year on year growth.

“JD’s growing strength as China’s largest retailer continues to position us to capture new and expanding market opportunities,” said Richard Liu, Chairman and CEO of JD.com

 

JD’s big bets

JD.com is one of the key players that appears to have found a way to take on Alibaba in the race for market share in the business.

In recent years, the company has expanded its product line to include other categories such as books, media, baby and maternity among other general merchandise products. In contrast, the company generated most of its revenues in the past from the sale of electronics ranging from computers, TVS and smartphones.

“As we broaden our range of offerings, including a rapidly growing roster of top international brands, our customer base continues to expand, with female shoppers becoming an increasingly active user base,” said Mr. Liu.

The online retailer has also started to widen its appeal to women most of whom are known to spend huge chunks of money on the latest fashion trends. French Luxury hair care brand Rene Furterer has already opened a flagship store in the e-commerce giant marketplace in addition to leading global fashion brands Petit Bateau, Chiara Ferragni, and McQ.

The company has also started to target affluent customers most of whom are less price-sensitive and always on the look-out for all the latest items, particularly in the electronics, food items or fashion segments.

 

Growing Gross Merchandise Volume

Source: Shutterstock

A further testament of JD.com impressive growth rate compared to the overall industry in China is the fact that it reported a 46% increase in gross merchandise volume in the second quarter.

The growth helped the company post revenues of $13.7 billion. Net loss in the quarter shrunk to US$42.3 million from US$217.6 million reported last year. Operating cash flow increased from CNY26.6 billion from CNY4.1 billion

The company attributes the second quarter net loss to fulfilment and marketing costs. Spending more on marketing and logistics underscores how ready and willing the company is to enhance its competitive edge in the industry. Increased costs on this front does not come as a surprise given that the company is engaged in a fierce battle with Alibaba for customers and loyalty in the business.

 

Apparel Business Push

The acquisition of U.K based luxury e-commerce platform Farfetch for $400 million has helped expand JD.Com’s footprint into the apparel business, further strengthening its gross merchandise volume.

Expansion into the apparel business has also helped grow the company’s customer base to highs of 227 million mostly made of women. However, a push for growth on Apparel sales puts JD.com in a collision course with Alibaba which is the retail king in the business.

“If you want to become a successful retailer online or offline, you must capture women’s hearts,” said Ding Xia, president of JD’s fashion unit.

JD.com still has a long way to go if it is to rival Alibaba in the apparel business. The e-commerce giant boasts of 454 million active buyers in its Taobao and Tmall platform who it says spend more than $527 billion annually.

Price wars could come into play should Alibaba feel threatened by JD.Com Inc. (ADR) (NASDAQ:JD) growth rate, which has already surpassed the overall industry. Aggressive discounts could allow the company to retain customers allowing it to build long lasting relationships.

 

Building a robust delivery system

Source: Shutterstock

JD.com has invested a lot of money in warehouses logistics centers as well as IT systems and last-mile delivery capability as it seeks to meet customer demands. The investments are already paying off as consumers turn to platforms able to make home deliveries within the shortest time.

“We remain committed to investing in technology and customer service to drive long-term sustainable growth across our established and emerging business areas,” said Sidney Huang, JD.com’s chief financial officer.

A robust delivery system should help JD.Com enhance scale as it bids to drive down delivery prices in the race for customers. In the fierce e-commerce business, it is the company with scale across a fragmented delivery system that stands a better chance to win consumers loyalty.

Expansion of coverage into lower tier cities such as Lanzhou, which has a population of 3.7 million people, has also had an impact on JD.com growth rate. The strategic move has helped the company capture potential new customers.

Last year the company acquired last-mile delivery startup, Dada, for $200 million as it sought to strengthen its logistics capabilities. The acquisition has helped the company offer one-hour delivery services for customers who are ready to pay top dollars for the service.

 

Investment in logistics, women customers, and affluent customers should help JD.Com continue closing the gap on Alibaba as it growth rate continues to outpace the overall industry. However, the company faces an uphill task to overthrow the e-commerce giant as the race for market share heats up.

 

(By Neha Gupta)

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