While Alibaba tends to grab much of the headlines, the second largest ecommerce company in China is also creating some waves and it seems that logistics is indeed an important part of the competition between the two.
The differences between the two companies can be noted in each one’s approach to logistics. Alibaba has created a consortium, Cainiao or China Smart Logistics Network, in which its delivery partners such as SF Express and YTO Express handle the fulfillment and final mile delivery. Meanwhile, JD.com established a logistics subsidiary and offers last mile delivery and fulfillment options itself for not only its own customers but to others as well. According to JD.com, about a third of the 60,000 third party sellers on its websites use the company’s delivery infrastructure. As of Dec. 31, 2014, the company operated 123 warehouses and a total of 3,210 delivery and pickup stations. Its delivery network covered 1,862 counties and districts in China.
However, it seems there are some changes from Alibaba. It has taken an equity stake in Singapore Post and just recently in YTO Express. In Ti’s recent brief, Alibaba and partners look to lead in global express revenues, the company’s International represented only 9% of its total revenue for first quarter 2015 which prompted Alibaba’s CEO, Daniel Zhang to say, “We must absolutely globalize”. Furthermore, YTO’s chairman noted that Alibaba and YTO plan to build a global express delivery service that will offer a variety of products and better last-mile service.
So, how is JD.com responding to these types of changes? It is doing so in a few ways. As seen by Alibaba’s recent announcement, it plans to focus on global. JD.com is also looking into this growing trend and in April of this year, launched JD Worldwide. Currently it has 600 merchants selling. For the service, JD operates a few different models.
• Rented bonded warehouses in a few cities in China.
• Some merchants utilize space in the rented bonded warehouses.
• Dock shipping mostly through third party merchants.
In addition, in a well-publicized announcement, Japan’s Uniqlo became the first international clothing brand to use the company’s warehouse services for same day delivery. The logistics and warehousing pact is part of a broader agreement under which Uniqlo also opened a flagship store on JD’s marketplace platform.
So, for the time being, it seems that China will continue to be at the heart of JD.com’s strategy. And, while first quarter 2015 revenues increased for the company, its fulfillment costs did as well thanks in part to orders fulfilled during the quarter were 227.2 million up from 129.3 million for first quarter 2014.
As a result, the company is looking at ways to reduce such costs and with the formal launch of its wholesale business, it is looking towards crowd-sourcing delivery. It believes this model will enable it to serve more customers. How it manages this type of delivery will be interesting to watch. The company takes special pride in the fact that its delivery employees are trained and easily identified by their uniforms for last-mile deliveries.
Once the Chinese government approves online pharmaceutical sales will be another area of interest to watch. JD recently announced a partnership with one of the country’s largest pharmaceutical companies, Shanghai Pharmaceutical (which also has a logistics arm), to develop its online healthcare business.
In conclusion, much like Amazon, JD.com is evolving from its original concept of a B2C marketplace. This evolution fits with the overall evolution of ecommerce as demand and expectations become more sophisticated. But, at the heart of it remains the customer. As noted by Haoyu Shen, CEO of JD Mall, “Whoever can provide a best customer service always wins.” Perhaps whoever also has the most efficient logistics network within China connecting to its Asian neighbors and globally will be the winners in this race.
P.S. After I posted this article, it was announced that JD.com had invested $70 million in China’s largest fresh produce e-tailer, FruitDay. FruitDay will use JD’s nationwide fulfillment infrastructure. The majority of FruitDay’s produce is imported – smart move by JD.com.