Business model and subsidiaries highlights
JD.com group invests in different businesses. However, it’s reasonably easy to spot the main relevant ones.
The B2C online marketplace, which is also the most relevant part of the group, provides Chinese customers with a quick and smooth buying process.
By doing this, JD.com solves several problems: from the fast availability of the products at a reasonable price, to its extended coverage of the entire Greater China.
JD’s e-commerce puts the client at the centre of a series of services that make the process of online buying a go-to solution for many. The partnership with Tencent’s WeChat allows clients to pay for their purchases with their preferred payment method: that’s just one of the examples of an all-round service proposition.
The e-commerce marketplace sees both JD.com and third-party vendors compete for providing clients with the best products. However, the group’s retail sector make the largest part of revenues selling proprietary goods: in the year 2019, the net sales reached $79 billion, with $10.24 billion gained from the marketplace services to third party vendors and logistics services.
Marketplace and advertising services have seen a rapid year on year growth, as the 2015-2019 compound annual growth has gone over 40%.
Distribution is JD’s main strength. In fact, without the impeccable supply chain management and the capillary distribution, the retail marketplace would be simply one of the many that populate Mainland China.
The top 20 Chinese retailers control only 18% of the whole market, while in the US, the same number of companies control 48%.
Although logistics do not play a significant role in JD’s revenues, this business segment’s contribution snowballs: between 2015 and 2019, financial statements have reported a compound annual growth of 77% year on year.
Sources say that the JD Group will offer this part of the group to the market with a Hong Kong Stock Exchange IPO. The goal is raising $3 billion with the offering expected for the first half of 2021.
To exploit even more value from this subsidiary, the group stipulated a joint venture by the name of Dada Group, China’s on-demand logistics and omnichannel e-commerce platform. This venture is yielding already a remarkable growth, but an even more substantial increase in value is foreseeable.
This part of the group enhances the other businesses: it is not yielding revenues, but it is helping the different parts of the group to save cash and implement new strategies for a more efficient supply chain management, technology-based.
Just as an indication of how much data flows through the research centre in Santa Clara, CA, the official website states an information transit of 31 petabytes per day. In “human scale”, it equals to 31,000 terabytes of raw data.
JD.com is, thanks to these technological advancements, the first company in the world to make commercial deliveries by drone.
JD-X is a smart logistics department inside JD Technology and focuses on automated fulfilment capabilities: drones, autonomous delivery vehicles and automated warehouse technologies.
JD-Y is the division that specialises in researching the smartest way to manage complex supply chain solutions, with Artificial Intelligence (AI) employment.
Together with AI, JD research centre also focuses on the security of their large customer base and AR/VR technology, allowing customers to interactively and safely experience the purchase process.
The newborn of the group is still waiting for full exploitation. Launched in March 2020, this section is a bridge between the retail services of pharmaceutical, healthcare products and services offered by JD.com and a series of free online consultation portals.
Amidst the end of the COVID-19 outbreak in China, JD.com launched this platform to help people regain mental health and support the government’s virus-containing efforts. This subsidiary has been financed during August 2020 by Hillhouse Capital with a series of non-redeemable series B preference shares, for a transaction value of over $830 million.
1. Acquisition of smaller marketplaces
Greater China is a florid environment for online marketplaces. The number of small players in the retail market is relevant.
The group could seize this opportunity by consolidating its leading position through a series of acquisitions.
This solution could give JD a tangible competitive further improvement towards other competing marketplaces such as Suning, Sunart, VIP.com.
2. Acquisition of logistic companies
JD.com reached a relative advantage in recent years through the impeccable logistics and distribution services: its status is being improved continuously and emphasised by acquisitions in this sector.
A clear example of this strategy is the recent acquisition (Aug. 2020) of Kuayue-Express Group Co., Ltd, a modern integrated express transportation enterprise specialised in limited-time express services.
Acquisitions in this area could help improve the weak-ish “fulfilled gross margin”, currently 8.7%.
3. Luxury brands introduction
Several brands from “Western” economies are jumping into the offering inside the marketplace. In particular, last quarter saw a rapid increase of products listed in the luxury category, with notorious names such as the Italian Ermenegildo Zegna, French fashion house Balmain, luggage brand Rimowa and others.
These infiltrations could further improve the retail division’s gross margins, as luxury products are notably high-margin goods.
Competitors and possible threats
JD.com is facing the reality of a somewhat fragmented retail market in Greater China. As already stated, this means that the group has excellent possibilities of remaining at the leadership of the market and slowly conquering a large share of the market pie.
However, some competitors might endanger the group’s current position, since a merger between the second and third player could bring them already in reach of more than 50% of the net revenues produced by JD.com.
Alibaba group is trying to slowly slide on JD’s business, investing heavily the profits made in the principal business into developing a logistic network, of a collection of brick and mortar stores and cross-border e-commerce marketplaces.
Baba recently acquired Kaola, a player that fulfils orders independently and uses a proprietary logistic network. Moreover, Alibaba’s interest in Cainiao rose to 63%, making the odds of the worldwide known group becoming a first-party logistics player high.
JD.com, then, in the following months and years will have to face the indirect competition of a player that can operate on larger scales than the mere direct competitors.