{"id":4348,"date":"2015-12-09T02:51:36","date_gmt":"2015-12-09T07:51:36","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/jd-com-chinas-e-commerce-pioneer\/"},"modified":"2015-12-09T18:06:30","modified_gmt":"2015-12-09T23:06:30","slug":"jd-com-chinas-e-commerce-pioneer","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/jd-com-chinas-e-commerce-pioneer\/","title":{"rendered":"JD.com: China\u2019s E-commerce Pioneer"},"content":{"rendered":"

On May 22nd<\/sup>, 2014, JD.com debuted on the Nasdaq, opening at $21.75, representing a 14.5% pop from its IPO price. In 2014, JD generated $17.9 billion revenue, yet with a net loss of $0.8 billion. As China\u2019s e-commerce pioneer with its self-own massive logistic network, JD has become the largest on-line direct-sales company, and 11th world\u2019s largest public internet companies by market capitalization.<\/p>\n

Brief history<\/strong><\/p>\n

JD.com, or formerly 360buy was originally founded by Liu Qiangdong (Richard) in July 1998 as an off-line business selling magneto-optical in Beijing. The start-up suffered badly in 2003 as a result of the SARS outburst in China.\u00a0In early 2014, Richard started to sell products on-line for the company\u2019s survival. From 2004 to 2008, the business transformed\u00a0to a B2C on-line direct sales platform with focus on 3C products (computer, communication, and consumer electronics), using the domain name 360buy.com. The company received its first round funding in 2007 with $10+ million, followed by another round with $21 million in Jan, 2009 and started its fast expansion in terms of product lines as well as geographic coverage. By end of 2012, the company became a leading on-line retailer with annual sales of $6.6 billion. With its 7th<\/sup> round funding of $700 million in 2013, the company changed its domain name to JD.com and kicked off series of marking campaign as preparation to go public. JD is now expecting $25.2 billion sales for FY2015, representing a 60%+ YoY growth.<\/p>\n

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JD.com English website<\/figcaption><\/figure>\n

Operation model<\/strong><\/p>\n

Direct sales model – <\/strong>By the time Richard began his exploration in e-commerce, Alibaba\u2019s taobao.com had established strong presence in on-line B2C market, especially on consumer goods with relatively small ticket size. Unlike taobao.com as a platform open to individuals and small firms, JD chose to be a direct sales platform\u00a0sourcing from branded suppliers. This matched its product category of 3C, as authenticity was the major concern at that time for e-commerce. Given the relativity high per unit price of 3C product, the guarantee of quality through direct sales model equipped\u00a0JD with an edge to compete with taobao.com as a late-comer.<\/p>\n

Self-own logistic model – <\/strong>Back to 2007, logistics was a big hassle for China\u2019s e-commerce pioneers. There were series of heated debate between Richard and JD’s early investors regarding whether or not to build its own logistic network. Despite the dissenting opinions from investors, as the majority shareholder, Richard was determined to do so. Beginning with\u00a0top tier cities like Beijing, Shanghai, JD quickly established warehouses and logistic centers. By the end of 2007, JD was able to commit same-day delivery for 3C products in major cities, which was unparalleled in the market. In the same year, JD launched the 1st<\/sup> mobile POS system in China e-commence to enable customers pay by credit card upon delivery as a perk of its self-own logistic delivery. This payment method effectively solved the trust issue as customer were able to check the product upon delivery before making the payment.<\/p>\n

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JD.com launched its Asia No. 1 Shanghai warehouse on Oct 20, 2014<\/figcaption><\/figure>\n

Logistic as winning strategy<\/strong><\/p>\n

After 2009, thousands of e-commerce companies emerged and disappeared in China. Hundreds of billions dollars was\u00a0poured into this sector with the bet on China\u2019s consumption growth as well as its transition from off-line to on-line. Throughout years of ruthless competition, JD has been focusing on logistic network expansion with support from its series of funding. From 2009 to 2013, JD invested about $1.5 billion cumulatively in its logistics network along its expansion in product categories and geographic coverage. Currently the company employs over 72,600 people and operates seven fulfillment centers and 143 warehouses in 43 cities, and over 3,500 delivery and pickup stations in 1,961 counties and districts across China. It provides standard same-day delivery in more than 130 counties and districts across China. With an offering of approximately 25.7 million SKUs and fulfillment of 689.0 million orders as of 2013, JD is able to warrant same-day or next day delivery for 90% of customer orders.<\/p>\n

With a strong brand image associated with reliable and timely delivery, JD established a unique competitive advantage in China e-commerce. There is definitely a cost for this strategy, as JD\u2019s profitability has been continuously questioned throughout these years. JD.com has been suffering net loss from 2011 to 2014 mainly due to its massive investment in logistics. However, its self-own logistic network has built up a high entry barrier for its potential competitors as it will take significant capital and time to establish such logistic capability. Meanwhile, as the sales growth continues, the economy of scale begins to help JD\u2019s margin. As of today, JD\u2019s stock price is at $31.89 per share, 68% up from its IPO price. JD.com is expected to turn profit in FY 2016 and its future profitability with such a huge customer base plus its increasing market share is up to people\u2019s imagination.<\/p>\n

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