Logistics give JD.com a leg up in China’s e-commerce battle

Linda J. Dodson

HONG KONG — When Huang Zhou was stuck at home in February due to the Covid-19 outbreak, Chinese e-commerce platform JD.com served a lifeline for her and her family in Guangzhou. Whenever she wanted to restock her cupboard or just have a bit of fruit, she placed an order with the online retailer without even checking anywhere else. Huang, after all, had little choice.

“All the e-commerce platforms in China suspended their delivery service during the lockdown, and JD.com was the only exception,” Huang said. Lured by its ability to move goods around despite disrupted transportation, the 37-year-old shopped on JD.com at least twice a week during the outbreak. Previously, she said, she was a loyal customer of Taobao.com, an online marketplace run by Alibaba Group Holding, and only used JD.com occasionally.

Huang’s experience helps explain why JD.com, China’s second-largest e-commerce platform after Alibaba, has enjoyed a boost at a time when its rivals — large and small — lost steam.

Alibaba, which earns over four-fifths of its total revenue from the commerce segment, saw its slowest growth in four years in January-March, logging 114 billion yuan ($16 billion) in sales for the quarter, according to the New York-listed company’s recent earnings report. Meanwhile, Nasdaq-listed Pinduoduo, China’s third-largest e-commerce player, reported revenue of 6.5 billion yuan, up 44% from a year earlier but still its weakest growth since the company went public in 2018.

JD.com, on the other hand, was “largely unscathed by the pandemic,” said Nomura analysts in their recent research note. The Beijing-based firm generated 146 billion yuan during the first quarter of this year, an increase of nearly 21% from the same period of last year. “JD Retail and logistics outperformed peers amid the COVID-19 pandemic,” the analysts said.

Vey-Sern Ling, an analyst with market research firm Bloomberg Intelligence, attributed the stark difference to the different ways the two companies operate their business.

JD.com, known as China’s answer to Amazon, has its own inventories and warehouses, as well as an in-house logistics network enabling same- or next-day delivery. Alibaba, by contrast, runs its e-commerce business in a way similar to eBay, counting on external vendors to serve customers and relies heavily on third-party logistics services to fulfill orders.

“Given the fact that JD.com has better control over delivery and fulfillments during the outbreak, [its] sales outlook is better than Alibaba,” Ling said at a conference ahead of the earnings result release.

Danny Law, an analyst with Guotai Junan International Holdings Limited in Hong Kong, agreed.

“The self-operated business model helps JD to minimize the negative impacts from COVID-19, at least maintain its normal operations, compared to marketplace-model e-commerce [players] such as Alibaba and Pinduoduo,” Law said. “Thanks to increasing scale, it helps JD to enjoy economies of scale, leading to higher-than-expected margins.”

Apart from the immediate gain, the customer trust JD.com has gained during the lockdown is expected to give it a leg up in market competition even after the pandemic is over, Law said. “We think JD still benefits from the COVID-19 period despite some declines from the peak of the outbreak,” he added.

Still, Law and others say that JD.com may have won a battle but not the entire war. With the country’s logistic services returning to normal in March, rivals like Alibaba and Pinduoduo have already seen a strong comeback. In fact, what was an advantage for JD.com during the pandemic is now working against it — at least in the eyes of Huang, the shopper in Guangzhou.

JD.com’s door-to-door delivery service tends to be more expensive than its rivals’ offerings. While Huang was willing to pay for the convenience during the lockdown, she is no longer so sure. Because her own business — and thus income — took a hit from the pandemic, she went back to Alibaba and started trying out Pinduoduo as soon as their logistic services were up and running again. “It just costs too much to get goods delivered to your doormat from JD.com,” she said.

Source Article

Next Post

Flying to China still a challenge as restrictions extended

Travelers planning summer trips in and out of China may continue experiencing difficulties finding plane tickets as the country extends a March policy limiting the number of international flights in response to the COVID-19 pandemic. Major domestic airlines unveiled June flight schedules showing little increase in international service. Carriers including […]

You May Like