Richard Liu’s JD.com: First Quarter Poises Company for Growth Across Multiple Sectors

After a year in which the markets were rocked internationally thanks to the coronavirus pandemic, JD.com has not only successfully weathered the storm, but continued to show solid growth as well as make good on their commitment to transforming from one of the largest e-commerce companies in the world to a leading supply chain-based technology and service provider. Founded by CEO and chairman Richard Liu, this year will be the company’s eighteenth in business, and it has surmounted the many obstacles it’s faced over the course of nearly two decades by sticking to Liu’s core principle of doing the right thing and operating under a unique business model that focuses on providing a superior customer experience, cost optimization, and operational efficiency. Thanks to this, JD.com has been able to maintain a trustful relationship with both its users and partners, creating stability that has seen them remain resilient through many economic cycles and weather all risks. 2021 promises to be another monumental year for JD.com, with the first quarter bringing growth and big changes in both their retail and logistics sectors.

 

JD.com has a history of transformation: although the birthday for the company’s e-commerce business is 2004, its foundations lie in traditional retail. In 1998 Richard Liu took all of his savings and used them to rent a 4-square-meter booth in one of the technological bazaars of Zhongguancun. Known as the city’s “electronics avenue,” Liu had a deep desire to build his business based on trust, a novel concept at the time in China. Consumers were used to haggling on the busy stretch of stalls, and expected to have to weed through countless counterfeit and poor quality products in order to find what they were looking for. However, Liu decided to take a different approach, becoming the first vendor to put price stickers on his magneto-optical drives – the only item he was selling at the time – but in exchange for the firm price model he guaranteed the peace of mind that any item purchased was of the highest quality and authentic.

Liu’s business model saw him build a loyal consumer base which allowed him to quickly move on to a full-size retail location, and within five years had built a chain of brick-and-mortar electronics stores across Beijing, Shanghai, and Shenyang. The three cities housed 12 locations in total, and Liu had expanded the company to include everything in the fast-growing category of electronics. The year was 2003, and although Liu’s business was thriving the SARS epidemic soon saw the entire country of China come to a halt. In a scene all too reminiscent of this past year, businesses across the country were forced to close as consumers refused to leave their homes for fear of catching the virus, and Liu’s company was no exception. Left without a way to generate income, Liu made the decision to begin posting his goods to online bulletin boards, and although the Chinese consumer was still wary of purchasing items online at the time the combination of extenuating circumstances and Liu’s reputation as a trustworthy businessman saw him able to keep his business afloat.

After the epidemic ended, Liu reopened all of his retail locations but decided to keep one employee full-time as an online sales representative, continuing to list and sell their products online. After a year, it became clear to him that while the epidemic had subsided the e-commerce market had continued to grow, and he began to transition his business exclusively online. Thus, 2004 became the year that Liu’s website officially launched, although it would go through several name iterations before it became the JD.com it is known as today. Liu had successfully operated his electronics chain for over five years, but this was almost like starting from scratch, and he began sleeping in his office to save money on rent, and wrote the code for the initial website himself. In order to learn everything he could about this new online customer Liu acted as the sole customer service representative for a good while, setting an alarm clock that would go off every two hours during the night so that he could ensure that every question and need was being handled promptly. He even handled most of the deliveries himself.

For Liu, the first-most important aspect of his business was to operate with integrity, but almost equally as important was his business model of a superior customer experience, cost optimization, and operational efficiency. This often means bucking trends within his sector and taking the road less traveled, but doing so has resulted in the company growing to become the largest retailer in China. One of the defining aspects of his was his decision in 2007 to move the company’s entire logistical network for the website in-house. Many criticized the decision at the time, saying that the benefits would never outweigh the capital it required, but it has been a key element to the company’s meteoric rise, allowing complete control over customer experience while also opening up previously untapped markets such as third and fourth-tier cities whose consumers previously had to travel miles in order to purchase the goods they needed. By 2013, the company officially became JD.com and was carrying everything from dishwashers to apparel. Liu’s focus on a logistical network meant that the company was able to achieve same or next-day deliveries for 90 percent of its orders. This success within the retail world allowed Liu the freedom to explore other opportunities for revenue, and since then the company has expanded to services outside of consumer goods such as groceries on demand and internet hospitals. The business has also begun to invest heavily in drone and information technology such as artificial intelligence and big data, finding new ways for the technology to be implemented into their ecommerce business from customer service to automated warehouses and drone deliveries.

All of these developments have been building to 2021, and below we take a look at how the first quarter of the year has positioned JD.com to continue down that path.

JD Retail

As JD.com seeks to become a supply chain-based technology and service company, they also continue to expand the scope of their retail business. The company’s luxury brand partnerships continue to expand, and in the first quarter have begun to work with John Lobb, the luxury shoes and boots brand under Hermès Group and the Italian brand Marni, both of which launched flagship stores on the website. Marni additionally went one step further, adopting a customized one-stop solution provided by JD.com which covered their marketing, technology and supply chain management efforts, allowing customers to purchase directly from Marni’s inventory while benefiting from the superior quality of delivery by JD Logistics.

Another way in which JD Retail and JD Logistics collaborated was during the Spring Festival, where they worked to provide non-stop delivery for the ninth year in a row in addition to launching a series of initiatives for the JD New Year Shopping Festival. In-tandem with cooperation from well-known chain retailers, JD.com was able to provide residents in more than 1,400 countries, districts and cities across China with an unprecedented one-hour delivery service. They also upgraded their third-party platform, enhancing their hassle-free shopping experience further through offerings such as delivery times, price guarantees, free pickup for returns and flash refunds.

JD Logistics

The first quarter of 2021 also saw the making of big plans for JD Logistics which will play out in much of the second quarter. As of the end of the first quarter, the branch operated over 1,000 warehouses, covering over 20 million square meters, including warehouse space of cloud warehouses managed under the JD Logistics Open Warehouse Platform.

In April JD Logistics and Tencent Smart Retail jointly announced the launch of JD-Tencent Cloud Warehouse. The new addition provides integrated solutions including business leads, branding and marketing as well as logistics services to merchants and warehousing companies. It will integrate with JD Logistics’ cloud warehouse technologies, logistics platform and supply chain capabilities as well as Tencent Smart Retail’s smart retailing analysis technology, and serves as a further push by the company to provide their superior logistical network services to third parties.

Finally, JD Logistics worked through the first quarter to prepare for its prospectus, published in Hong Kong on May 17th, 2021, and is expected to list on the Hong Kong Stock Exchange later in the month. In order to help investors better understand the different growth trajectories of JD.com’s expanding business lines, the company restructured their segment reporting to present JD Logistics as a stand-alone segment, with its revenues including revenues generated from both JD Retail and external customers from JD Group’s perspective. They will now report from three main segments: JD Retail, JD Logistics, and new businesses. In the second quarter of 2020, Richard Liu announced a new strategic positioning for JD.com, seeking to move it from solely an e-commerce business to that of a supply chain-based technology and service company. Over the course of nearly twenty years JD.com has had many iterations, and as the first quarter of 2021 has reflected is moving closer to its mission statement: powered by technology for a more productive and sustainable world.