Jingdong Quickens E-Commerce Pace

By newsdoug on May 13, 2013

Jingdong steps on the gas with fast deliveries

I don’t often write about new products and services in China’s hyperactive e-commerce space, since such initiatives have become commonplace in an overheated sector where everyone is always looking for any competitive advantage. But the latest pilot program by Jingdong, China’s second largest e-commerce firm, looks like a potential game-changer since it could significantly challenge the entire industry by introducing ultra-fast deliveries. At the same time, newly released data is showing China’s e-commerce sales posted a major decline in the first quarter, hinting the sector may be headed for a rapid slowdown after several years of breakneck growth.Let’s start the latest news from Jingdong, which I consider the most hyperactive of China’s e-commerce firms due to its non-stop introduction of new products and services. I personally think many of its initiatives are a bit misguided, as the company has entered a range of businesses like online travel and real estate services, which are unrelated to its core general merchandise retailing business.

But that said, this latest initiative looks quite intriguing, with Jingdong trialing a program in Beijing to reduce delivery times to 3 hours or less for some orders. (English article) The reports don’t contain too much other detail, but imply the Beijing trial program will be expanded soon to other major cities. They add that the bigger goal from Jingdong, previously known as 360Buy, is to reduce delivery times to 100 minutes or less.

Jingdong’s move follows a similar strategy by global e-commerce giant Amazon (Nasdaq: AMZN), which is building a series of major warehouses throughout China, including massive logistics centers in major cities like Beijing, Shanghai and Guangzhou. (previous post) Such mega-centers are a critical piece in the ultra-fast delivery equation, since a company can only deliver merchandise so quickly if the physical product is already near a customer’s home when the order is placed.

This kind of ultra-fast delivery could be a real game changer, since it will eliminate one of the last remaining advantages that traditional retailers have over their e-commerce rivals. Customers can instantly receive their products when they buy them at a brick-and-mortar store, but goods purchased online can take a day or more often days to be delivered. Jingdong’s 3 hour target in many ways would equal about the amount of time a person needs to go to a real-world store, buy a product, and then bring the product home.

Jingdong’s move is also interesting because it will put intense pressure on smaller companies that don’t have the resources to build the necessary infrastructure for such fast deliveries. Another company that could also feel some pressure is e-commerce leader Alibaba, whose de-centralized business model lets thousands of private online merchants throughout China sell on its platforms, and thus isn’t really suitable for such quick-time deliveries.

From Jingdong’s new program, let’s look quickly at the latest broader industry data that show China’s e-commerce sales actually fell 17 percent in this year’s first quarter to 352 billion yuan ($57.4 billion). (English article) I don’t have extensive records readily available, but I suspect this is probably the first quarterly drop in such sales since research firms started tracking the category.

I was surprised by not only the drop, but also the magnitude of the decline in this particular case, for an industry that’s become used to strong double-digit growth in the last few years. An analyst at iRsearch, which released the latest data, blamed the decline on some one-time factors, most notably a series of massive industry-wide promotions last year that resulted in consumer spending fatigue. But I wouldn’t be surprised to see the fatigue continue into the rest of this year, meaning we could see a sharp slowdown in online spending that will put additional pressure on many companies that are already losing big money.

Bottom line: Jingdong’s new ultra-fast delivery program will turn up the pressure in China’s e-commerce market, which is showing signs of slowing growth.