E-commerce giant JD.com had in recent years been mainly focused on eating the lunch of brick-and-mortar retailers. But now the Chinese firm is switching its strategy by turning some of its old enemies into allies.
In other words, JD is admitting that the huge offline market still holds the key in China despite growing online shopping volumes. The firm has realized that the most efficient way to serve customers and win the e-commerce war is through integration of offline retail networks onto its online platform.
A new retail model has been unveiled by JD.com that involves collaboration with more than 10,000 convenience stores in 15 cities and provinces across China.
Under the plan, the focus is on integration of online and offline retail chains. The brick-and-mortar partners will be able to set up an online presence on JD’s e-platform and open up an additional sales channel to reach more customers.
At the same time, they can help deliver the online purchases done through JD. Essentially, these convenience stores will become the offline outlets serving JD.com users, who can pick up their orders and make payments at the neighborhood facilities.
Franchise owners such as the Shanghai-based Liangyou Group and Dongguan-based Miyijia in Guangdong province have joined JD in its new online-to-offline (O2O) strategy. The JD.com alliance can help boost the economies of scale for convenience stores in product procurement. If the tie-up brings in more sales and there is enhanced efficiency in product sourcing, it will help the retailers offer better prices and compete better in the market.
Customer experience will also improve. By leveraging JD.com’s logistics and warehouse network, and integrating the convenience store coverage, product delivery times can be cut short significantly.
The JD O2O ecosystem will focus more on inner cities and serve the daily needs of local communities. That makes it different from rival offerings from Alibaba and Tencent, which target big retailers – such as well-known department stores – to divert online traffic to offline. JD’s service will prompt more people in inner cities to opt for online orders, with the support of convenience store network for last mile delivery.
With JD.com stepping into the traditional offline retail market, it may trigger another battle with supermarket giants, including big names such as Walmart. The traditional retailers could use their market power to try to force suppliers not to supply to the JD.com consortium.
While that could be the major risk factor for the JD.com network, it will not however halt the trend for O2O integration. A JD.com executive said the new strategy is cooperation rather than competition as online businesses and offline businesses complement each other. Offline retailers such as shopping malls and supermarkets need to cooperate with online platforms for new customers, while online platforms also need offline retailers to boost their business scale. The new retail model should create a win-win situation for both.
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