China’s leading e-commerce groups Alibaba, which today announced disappointing quarterly results, and JD.com will speed up deliveries across the country through their latest large-scale investments in ‘offline’ retailers.
The groups will separately invest billions in minority stakes in two large retail chains, boosting their ‘online-to-offline’ (O2O) business and creating new opportunities to improve their logistics capabilities and deliver faster to customers.
On Monday (August 10), Alibaba announced the RMB 28.3 billion (US$4.6 billion) acquisition of a 20% stake in Suning, one of the largest consumer electronics retail chains in China with 1,600 physical retail stores in 289 cities.
Alibaba said the strategic collaboration, covering commercial activities and logistics, “marks a milestone that signals the further integration of digital and offline retail”, enabling the two groups to combine online and offline shopping and customer service. Suning will open a flagship store on Alibaba's Tmall.com platform, focusing on consumer electronics, home appliances and baby products.
Jack Ma, Executive Chairman of Alibaba Group, said: "Over the past two decades, e-commerce has become an inextricable part of the lives of Chinese consumers, and this new alliance brings forth a new commerce model that fully integrates online and offline." He added: "This alliance will benefit consumers and merchants by cultivating an open and transparent integrated ecosystem that will be the backbone of the future economy."
In the area of logistics, Suning will become a partner of Cainiao, Alibaba's logistics affiliate, and link up its nationwide network, including eight national distribution centers, 57 regional distribution centers, 353 city forwarding centers and over 1,700 last-mile delivery stations, with that of Cainiao. “With Cainiao's intelligent delivery solutions and Suning's well-developed distribution network, customers can expect to receive their orders in as fast as two hours in the near future,” Alibaba declared.
In its April – June 2015 quarterly results today, Alibaba highlighted the scale and capabilities of the Cainiao nationwide logistics network which is based on strategic partnerships with logistics players in warehousing, transportation, courier services and pick-up stations. “We are increasing our emphasis on service quality and customer satisfaction. Consumers now enjoy next-day delivery services in 41 major cities, including Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou, and this will be extended to 50 cities by the end of this year,” the group announced. Alibaba has also launched same-day delivery of groceries, initially starting with Beijing and Shanghai.
“In addition, we continue to enhance industry logistics standards and capabilities through our strategic investment in YTO Express, one of our major courier delivery partners, and Singapore Post, one of our major cross-border logistics partners,” the group added.
Alibaba Group sold goods worth RMB 673 billion (US$109bn), a 34% rise, in the April – June 2015 quarter, with more than 50% of sales from mobile devices, and increased its overall own revenues by 28% to RMB 20.2 billion (US$3.3bn). China sales grew 25% to RMB 16.7 billion (US$2.7bn) while international commerce grew by 19% to RMB 1.75 billion (US$282m) with demand held back by the weaker Russian and Brazilian economies. However, these revenue growth rates were below market expectations, according to international media, prompting a drop in the company’s share price.
Meanwhile, leading rival JD.com will invest RMB 4.3 billion (US$700m) in a 10% stake in Yonghui Superstores, a leading hypermarket and supermarket operator in China. The two companies have formed a strategic partnership to strengthen their supply chain management capability primarily through joint procurement, and will continue to explore development opportunities in O2O initiatives and other areas of potential strategic cooperation.
Separately, JD.com has launched other initiatives to enhance its logistics capabilities. In early May, as part of its O2O strategy, JD Daojia officially launched a ‘crowdsourced’ delivery platform, which leverages part-time delivery people to provide two-hour grocery delivery service in partnership with offline stores in selected urban areas.
The group also has continued to invest in its fulfilment capabilities. As of June 30, 2015, JD.com operated 166 warehouses in 44 cities and a total of 4,142 delivery stations and pickup stations and its delivery network covered 2,043 counties and districts. JD.com's 211 same-day and next-day delivery program covered 135 and 951 counties and districts, respectively, as of July 31, 2015.
In the April – June second quarter, JD.com sold goods worth RMB114.5 billion (US$18.5 billion), a rise of 82%, and increased its net revenues by 61% to RMB45.9 billion (US$7.4 billion).
Richard Liu, founder and Chief Executive Officer of JD.com, said: "During the quarter, we enhanced our mobile offering, partnered with premium international brands and expanded our JD Worldwide cross-border e-commerce initiative. Looking ahead, we will focus on serving Chinese consumers by investing in innovative business initiatives that leverage JD.com's core expertise in e-commerce and logistics."
