Back in July, yours truly applauded Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) for smartly stealing a page from the Amazon.com, Inc. (NASDAQ:AMZN) playbook. That is, Alibaba CEO Jack Ma is not just getting into brick-and-mortar retailing, he’s having Alibaba cultivate the science of brick-and-mortar retailing for organizations that want to foster retailing success. Now other companies, such as JD.Com Inc (ADR) (NASDAQ:JD), are borrowing from this idea.
Alibaba recently announced its plans to build a five-story mall in Hangzhou. But Alibaba isn’t the only Chinese e-commerce player getting serious about physical retailing. Second-place rival JD.com is also stepping up its brick-and-mortar game, aiming to establish a wider physical net than Ma’s got in mind. All told, JD CEO Liu Qiangdong is aiming to build one million stores (convenience-type venues) to further meld online and offline sales over the course of the next five years.
Here’s what current and would-be owners of JD stock need to know about the company’s new direction.
It’s All About the Data
Let’s do a quick review for any investors not familiar with where Alibaba is going on the brick-and-mortar front, and where JD.com is following it.
The Hangzhou mall isn’t Ma’s first and only foray into real retailing. Alibaba has also built a handful of Hema grocery stores, with more on the way. The stores aren’t the interesting part of the story though. The company has also developed technologies that essentially gather information about consumers as they browse aisles and make their selections. In the modern era of commerce, such information is marketing gold, and like the mall itself (which will physically feature the T-Mall website’s vendors), it further blurs the line between e-commerce and brick-and mortar-shopping.
JD.com, in second-place fashion, is essentially borrowing from the idea and putting its own unique spin on it.
Plans to build a network of one million convenience stores (which is a misleading characterization) were announced to JD stock holders in April. Details are still forthcoming though, with a large batch of them only materializing within the past week.
The most important detail emerging is Ling Chenkai’s idea of empowering other retailers, describing the aim here as “retail as a service.” He explains:
“For offline retail in China, efficiency is still very low. It’s not like in overseas markets, where corporations like Walmart [dominate]… Ultimately, we want to improve the efficiency of retail with technology. With that comes lower cost … and everyone benefits, be it consumers or merchants.”
Make no mistake, though. The end goal here is data gathering, which becomes remarkably easier when consumers combine their offline and online shopping. The idea here is to, among other things, allow shoppers to buy an item online and pick it up shortly thereafter in one of the stores. Chenkai goes on to say, “Ultimately, we want to improve the efficiency of retail with technology. With that comes lower cost… Online and offline players are not enemies. To be the most efficient, they need to cooperate and be interdependent, engage in data sharing.”
Data sharing are the key words here.
At the same time, JD is also building retail “experience” shops that exclusively feature electronics. The company has already built more than 90 of these stores, with 300 planned before the end of this year. These units will presumably be just as tech-savvy as the rest of the companies’ convenience stores and pickup stations, leveraging information by using tools already developed by the company.
Looking Ahead for JD Stock
At stake is a piece of China’s nearly $5-trillion worth of annual retail sales, most of which, amazingly enough, aren’t yet done online.
About 85% of retail consumption in China is done offline. Though that proportion is quickly changing in favor of e-commerce, there’s still a long way to go before it reaches the United States’ approximately 50/50 threshold. Experts believe $1.1 trillion worth of China’s shopping will be done online this year, with that figure projected to grow 41% by 2021.
In the meantime, there’s plenty of opportunity to ride the growth train. Organizations that are finding ways to be at the cutting edge of this movement stand to benefit. Alibaba is indeed one of those companies, but there’s room for more than one, so JD certainly has its own opportunity in this space.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
