JD.com Joins Hands With Convenience Stores
I wasn’t historically a big fan of JD.com, China’s second largest e-commerce firm, largely because it often seemed more interested in hype than actually doing good business. But the company’s recent tie-up with Internet giant Tencent (HKEx: 700), and now the latest word of a new partnership with more than 10,000 convenience stores, have me thinking that perhaps JD has finally matured a bit in the run-up to a planned New York IPO to raise up to $1.5 billion. This latest convenience store tie-up looks quite shrewd for a number of reasons, most notably because it takes aim at one of the biggest weaknesses of its chief rival, leading e-commerce firm Alibaba.
According to the latest reports, JD’s newest tie-up will see it join hands with a number of convenience store operators with a combined total of 10,000 stores in 15 cities, as part of a bid to provide faster and more convenient product delivery. (English article) The list of partners includes mostly local names like Liangyou Group and Miyijia, and I’ll admit I was slightly disappointed that some of the big global names like FamilyMart and 7-Eleven weren’t mentioned in the report I saw. Still, the broader strategy of teaming up with real-world brick-and-mortar stores looks like a smart one for JD, whose own shops are all virtual.
The tie-up will provide JD’s customers with a new option for picking up their online orders, allowing them to get their purchases at a convenience store near their homes. That could be a good option for people who frequently aren’t at home, and who don’t have a doorman or security guard at their building who can take deliveries. Such deliveries would also be more efficient for JD, which could use bigger, faster vans to bring packages to participating convenience stores several times each day.
Word of this latest tie-up comes just a week after JD announced a much bigger strategic tie-up with Tencent, China’s largest Internet company. That deal saw Tencent hand over its e-commerce operations to JD.com and purchase a strategic stake in the company, in a pooling of resources to create a strong second-largest B2C e-commerce firm behind only Alibaba. (previous post)
Both JD and Tencent, as well as others like Amazon (Nasdaq: AMZN) China, have been taking aim at Alibaba’s biggest weakness by building up networks that can deliver products within hours after an order is placed. As part of that effort, those companies have set up massive warehouses near downtown areas of big cities like Shanghai, Beijing and Guangzhou. Those warehouses then act as supply points for super-fast delivery services.
By comparison, Alibaba has much more difficulty providing such fast deliveries due to its decentralized nature. Whereas JD.com, Tencent and Amazon all operate their own online stores, allowing them to directly control the movement of merchandise, Alibaba simply operates online shopping malls where thousands of independent merchants rent out virtual shops. Those smaller merchants are then individually responsible for shipping out merchandise, making it much more difficult to centralize operations and executive speedy deliveries.
Of course I realize the timing of these big new announcements by JD is no coincidence, since the company last month made its first public filing for a New York IPO to raise more than $1 billion. (previous post) Still, I find it quite refreshing that JD is letting its actions create the excitement these days. That’s a sharp difference from the past, when founder Liu Qiangdong would talk non-stop about his big plans and overeager investors would regularly leak inflated valuations for the company. If JD continues to use this newer strategy of rolling out well-conceived new initiatives without too much hype, it could easily attract lots of attention to its big growth story and get a very solid reception for its IPO.
Bottom line: JD.com’s new delivery tie-up with 10,000 convenience stores takes aim at Alibaba’s biggest weakness in logistics, and could help build excitement in the run-up to its IPO.
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