BEIJING, Nov 27 (Reuters) - Courier Chen Honglei packs boxes of clothing, appliances and utensils into his electric three-wheeler to deliver to customers in northwestern Beijing, helping China’s second largest e-commerce company Jingdong maintain its logistics edge in a cut-throat market.
The Beijing-based firm, also known as JD.com, operates its own network of couriers and warehouses, a factor it says ensures timely and efficient delivery. Larger rivals Tmall and Taobao, the online marketplaces run by mega-firm Alibaba Group Holding Ltd, still depend on merchants and external courier firms for their logistics.
“We work until everything is delivered,” said Chen, working with a team to move the packages from a canal-side warehouse in northwest Beijing.
Chen is one of a 10,000-strong fleet of couriers that Jingdong uses to deliver packages to major locations across China within 24 hours. The company also has 1,400 warehouses nationwide to supply a customer base that accounts for over a sixth of China’s 591 million registered Internet users.
“Jingdong is doing what Amazon did in the U.S., and is going to change the market,” said Bryan Wang, a Beijing-based vice president with Forrester Research. The world’s largest online retailer Amazon.com Inc runs its own logistics network in the United States and China.
“For higher value purchases, customers are going to Jingdong rather than Taobao or Tmall. Why? Because Jingdong will take responsibility,” said Wang, referring to Jingdong’s purchase-to-delivery model.
Alibaba has said it plans to partner up with delivery service firms and invest $16 billion in logistics and support by 2020.
“E-commerce is logistics,” said Frank Lavin, CEO of Export Now, which supports international brands selling online in China through Alibaba’s Tmall.
“When we’re buying online it’s not just about the ease and fun experience of the front end, but it’s also the back end - the national logistics capabilities of the delivery system.”
China is expected to overtake the United States this year to become the world’s biggest online retail market, boding well for JD.com and other web-based retailers.
These firms, however, operate in the sizeable shadow of Alibaba, which controls nearly 80 percent of China’s Internet shopping market. The growth prospects, however, are too attractive to ignore.
JD.com has managed in the past six years to secure $2.23 billion from foreign investors including the Ontario Teachers’ Pension Plan and Saudi billionaire Prince Alwaleed bin Talal’s Kingdom Holding Co, using these funds to expand its logistics network and employ aggressive pricing tactics.
This Nov. 11, JD.com saw $1.6 billion worth of sales on its website as Chinese shoppers flocked online for Singles’ Day, the biggest shopping day of the year. JD.com’s sales were less than Alibaba’s $5.7 billion, but still outpaced the $1.46 billion spent by all U.S. consumers on Cyber Monday last year.
Jingdong’s logistics prowess is a factor expected to help boost the company’s turnover by more than two-thirds to break 100 billion yuan ($16.41 billion) this year, a figure equivalent to nearly 20 percent of China’s business-to-consumer market (B2C).
The company, which started out life as niche electronics purveyor 360buy Jingdong Mall in 2004, declined to discuss its profitability.
Jingdong’s pricing also helps to undermine its competitors. “Market share is definitely taking priority over profit and margins,” said Shen Haoyu, JD.com’s chief operating officer. “We are not focusing on profitability right now.”
Analysts, however, warned JD.com could become locked in a price war with Alibaba, which has sheer size on its side.
“They’re having a squeeze on margins that is very problematic for them,” said Boaz Rottenberg, Beijing-based managing director of market researcher Maverick China.
$1 = 6.0936 Chinese yuan Reporting by Paul Carsten in Beijing and Adam Jourdan in Shanghai; Editing by Matthew Miller and Miral Fahmy