The Drum Awards for Marketing - Extended Deadline

-d -h -min -sec

Jd.com China Ecommerce

Can JD.com become one of China’s top internet companies?

Author

By Danielle Long, Acting APAC Editor

July 12, 2017 | 9 min read

JD.com, China’s second-largest ecommerce company, is on a roll. The retail giant has experienced strong revenue growth, record sales for its recent 6.18 shopping festival and signed a major partnership deal with luxury fashion site Farfetch. All of which is setting the company up for a strong 2017.

So strong, in fact, that analysts are predicting JD.com will soon overtake Baidu in terms of market capitalisation in a move that will see the ecommerce company take a seat among China’s internet giants Alibaba and Tencent.

While JD.com still has some way to go before it can match the vast fortunes of China's tech giants, it is certainly a company on the rise.

In the first quarter of 2017, JD.com posted its first profitable quarter after previously operating at a net loss. The company followed this up with a record-breaking $17.6bn in sales during its annual 6.18 shopping festival, which represented a 50% increase in transaction volumes for the 18-day shopping event.

The leap in total sales put the event just behind rival Alibaba’s annual ecommerce extravaganza 11.11 or Singles Day, which last year also broke records to collect $17.8bn in sales.

JD.com is also gaining ground in market share. While Alibaba's Tmall controls nearly half (48.5%) of China’s B2C ecommerce market, JD.com now controls 33.8% market share, according to figures from iResearch China.

The growth is significant and it is being driven by a number of factors, including JD.com’s reputation for quality products, its same-day delivery services and its new focus on apparel and fashion.

“JD.com's business model is competitive due to a combination of brand recognition and reputation, product quality and selection, pricing, fulfillment capabilities, and customer service, ”said Jason Lee, a senior analyst at market research company CMR.

“New sectors are growing fast,“ continued Lee. “GMV from electronics and home appliance products grew 37% during the first quarter, led by the home appliances category. Top brands from apparel and footwear grew over 70% as they improved traffic towards high-quality merchants - this seems like an area that is poised to grow even further with their partnership with Farfetch.”

JD.com says it has also seen an increase in female customers using the site, which had previously skewed to male consumers. In line with this, JD.com has moved to focus on areas such as fashion and apparel as well as categories such as maternity and baby products, all of which has led to strong sales growth.

However, it is China’s maturing ecommerce market that has been a key driver behind JD.com’s success, according to the company's vice president of international corporate affairs Josh Gartner.

“Traditionally in the China market, the ecommerce competition has been fought in terms of price primarily, with service second and quality of product is third. We are now seeing a reversal of that so that quality and authenticity of products is now number one, service is number two, and price is number three. That is really playing to our strengths at JD.com,” said Gartner.

“We always believed that as the consumer became wealthier and more aware of the types of products out there, that our model was going to be more successful and we are seeing that in terms of market share.”

JD.com has also invested heavily in educating brands and consumers about the quality of its products and services and this consistency in message is also paying off, said Gartner.

“From day one, we have been focused on the authenticity of our products. Our belief has always been that while in the short term you can make a lot of money selling counterfeits, but in the long run, you are going to lose consumer confidence. As China gets wealthier and more focused on quality that is not the way to win the market or the trust of brands.”

While JD.com remains a clear number two behind its much larger rival in terms of market share, the company's commitment to authentic products and consistent anti-counterfeit positioning is giving JD a significant edge over Alibaba.

This was evident in the recent partnership deal between JD.com and global luxury fashion site, Farfetch, which sees the two ecommerce businesses partner on marketing, logistics and tech solutions.

While the partnership provides JD.com’s luxury fashion credentials with a significant boost, it also gives Farfetch access to the world’s second-largest luxury market.

The deal reinforced JD.com’s reputation for authentic and high-quality goods, an issue that continues to plague Alibaba, despite its recent efforts to control the quality of goods and use data to find and expose counterfeit goods and vendors.

However, despite Alibaba’s efforts and significant investment, its reputation continues to be impacted, and this is where JD.com is winning significant ground.

Commenting on the deal with JD.com, Farfetch founder, co-chairman and CEO, José Neves, said: "We are delighted to have such a respected partner, known for its strict protection of IP, with whom to address Chinese luxury consumers. This partnership addresses the market's challenges by combining the Farfetch brand and curation with the scale and influence of the foremost Chinese ecommerce giant.”

In a statement, certain to ruffle feathers at Alibaba, Neves also referred to JD.com Chairman and CEO Richard Liu as “one of the Internet's most legendary entrepreneurs” calling him “China's premier ecommerce guru”.

The Farfetch deal signifies a significant step in JD.com’s fashion strategy, which has recently appointed fashion retail expert Xia Deng as president of its fashion business. JD.com has also launched a number of key brands on the site including Armani, Swarkovski and Zenith.

“Fashion is a major area of focus for us,” said Gartner. “This year we broke off JD Fashion into its own business unit within the company. We did that in order to give it a greater focus and attention. The combination of this as well as building out new partnerships, like this one with Farfetch, all of this puts us on the right trajectory."

“It’s important to remember that five or six years ago, apparel and fashion were not very big areas for us, but through our focus on quality and customer experience, we’ve been able to make extremely fast progress in the category. We are confident that we can offer consumers the authenticity of products along with an excellent customer experience,” said Gartner.

The deal also enables JD.com to showcase its new premium delivery service, JD Luxury Express, a white glove high-end delivery service that aims to match the quality of the goods being purchased.

“Farfetch is a world leading luxury site and our partnership with them is really important in helping other brands understand that we are very serious about the high-end luxury business. Which will help other high-end luxury brands to trust us and partner with us,” said Gartner.

The Farfetch deal is a huge stamp of credibility to JD.com's positioning as a trustworthy ecommerce site and it provides a huge opportunity for further growth as more brands look to come on board.

“The partnership leverages JD's unparalleled logistics, Internet finance and technology capabilities and social media resources, including its WeChat partnership, with Farfetch's leadership in global luxury, to create a frictionless and seamless brand experience,” said Lee.

“[The Farfetch deal] seems to be a significant step into meeting consumer demand for more premium products at decent prices. JD.com GMV from top apparel and footwear brands grew 70%, and with Farfetch providing its vast selection of high-end apparel to JD.com consumers, this probably sets the stage for JD.com to enjoy further growth in this area.”

Oscar Orozco, a senior forecasting analyst at eMarketer, said: “As we are seeing with Alibaba in China and Amazon in the US, JD appears to be focused on diversifying its products by expanding into the luxury market.”

“[JD.com is doing] a lot of reinvestment of profits, with the goal of continued strong and differentiated growth,” said Orozco.

However, the deal also opens JD.com up to a new audience of high-spending millennial consumers, according to Louis Houdart, founder and global director of branding agency Creative Capital, which works with a number of luxury brands.

“All the big players are looking at cross-border as they want direct channels to international brands, but they also want direct channels to interesting brands."

"A few years ago, consumers were interested in the big name brands - Louis Vuitton, Prada, Chanel - and there is, of course, a huge market for this. But there is also a very fast-growing market for interesting brands or more niche brands. Chinese consumers want to express their individuality by buying niche brands that are new to China and seem more exclusive."

“So, it makes a lot of sense for JD.com to partner with a company like Farfetch to tap into this audience,” said Houdart.

JD.com is hoping this new strategy will help the company increase its share of China’s ecommerce market, which is the most developed and sophisticated market in the world. It might also give it a seat at the table among the country's biggest movers and shakers.

Jd.com China Ecommerce

More from Jd.com

View all

Trending

Industry insights

View all
Add your own content +