22 January 2019

Will’s logistics bet pay off as it takes on Alibaba? Inc, the Chinese e-commerce major which filed for a US initial public offering (IPO) last week, has been a front-runner in the online shopping market in the mainland in the past five years as it sold various consumer electronics goods through its portal. Now the company is seeking to take on rival Alibaba Group’s business-to-consumer (B2C) business, offered through Tmall, by luring more third parties to sell their products on the JD platform.

To draw in more third-party vendors, the e-commerce giant is beefing up its logistics network in inner cities, investing heavily on its own distribution infrastructure. Will this expensive transformation pay off? That is the question that potential IPO investors should ask.

Claiming to be the largest online direct sales company in China in terms of transaction volume,, formerly known as, plans to raise up to US$1.5 billion from its IPO. Proceeds will be used to strengthen sales fulfillment infrastructure, through initiatives such as acquisition of land use rights, building new warehouses and establishing more delivery stations; as well as to fund potential investments in and acquisitions of complementary businesses and technologies.

Unlike Alibaba’s TMall which is solely a B2C platform, or a virtual department store, primarily operates its own online shops selling products directly to consumers.

According to a regulatory filing, achieved revenue of 49 billion yuan for the first nine months in 2013, of which 97 percent was from “online direct sales” of electronics products and home appliances. The remainder was the service fees and commission generated from its marketplace business, where third-party vendors sell their products to JD users.

In fact, selling third-party products is a higher margin business for JD, as the company does not need to purchase goods and bear related costs. The firm’s gross margin reached 9.8 percent for the nine months to September last year, compared with 5.5 percent in 2011. The improvement can be mainly attributed to the increasing portion of this better margin marketplace business.

However, it is worth noting that as is pushing into marketplace business, it will be competing head on with the much bigger Alibaba. And it will have a tough time convincing consumers to change their online shopping preference.’s total gross merchandise volume (total dollar sales going through the website) reached 86.4 billion yuan in the first nine months last year, compared with 73.3 billion yuan in the full-year 2012. Breaking down the nine-month number, about 66 billion yuan was from online direct sales while about 20 billion yuan was from the marketplace business.

On the ‘Double 11′ shopping festival on November 11, Alibaba sold 35 billion yuan of goods through its platforms on that single day. That shows that still has a long way to go before it can really pose a serious challenge to Alibaba in the B2C marketplace. is keen on building up its own logistics facilities across the nation and offer same-day delivery in more regions in a bid to catch up with Alibaba. The company is especially looking to dig deeper into inner cities where Alibaba enjoys higher brand awareness than

It said approximately 41.3 percent of the orders delivered in 2013 were delivered the same day. With a nationwide network, can fulfill the order delivery itself without relying on third-party courier service providers.

Currently, operates 82 warehouses with aggregate gross floor area of over 1.3 million square meters in 34 cities. It also has 1,453 delivery stations and 209 pickup stations in 460 cities across China, staffed by 18,005 delivery personnel, 8,283 warehouse staff and 4,842 customer service personnel.

A net cash position of 8.8 billion yuan is far from enough for to realize its logistics ambition. Alibaba chairman Jack Ma, it should be noted, has said that his group’s Cainiao venture will invest as much as 300 billion yuan on a nationwide logistics network. The challenge facing is whether it can scale up its business swiftly, with corresponding expansion in the distribution infrastructure.

– Contact the reporter at [email protected]


EJ Insight writer

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