Home Commentaries Macroeconomics Market Reviews Research Reports Company reports About me Resources & References Search Bill Guo Bill Guo’s Linkedin The Curious Analyst from the East 2016 January Alibaba Series 2: A case study on Tmall and JD.com Alibaba Series 2: A case study on Tmall and JD.com billgore January 10, 2016 0 Company Background (JD.com) JD.com Inc. (Chinese: Ղӳࠟउ, hereinafter as JD), formerly 360buy, is a Chinese electronic commerce company. It is one of the largest B2C online retailers in China by ୩ӳ) inڝ :transaction volume. The company was founded by Richard Liu (Chinese 1998. Its B2C platform went online in 2004. JD started as an online magneto-optical store, but soon diversiOed by selling electronics, mobile phones and computers. With its headQuarters stationed in Beijing, JD also operates subsidiaries in Shanghai, Guangzhou, Chengdu and Wuhan, located in East, South, West and Mid China. JD is a pure internet retailer, with a self-operated online business. The company ranks second in value terms in China’s online retailing (Euromonitor, 2014), combined with running a third-party platform for other merchants. JD continually seeks to diversify its products to appeal to its target customers. As of 2014, there were over 60,000 third- party sellers on JD’s online marketplaces; but the sales revenue from those third-party merchants accounts for a small proportion of the total sales (JD.com, Inc., 2015). JD runs a nationwide logistics network, operated by its own staff instead of a third- party logistics Orm, to achieve same-day and next-day delivery services for customers in different areas, with a real-time package tracking service and reliable service stan- dards. The national fulOlment infrastructure consisted of a network of 124 warehous- es, with an aggregated gross \oor area of approximately 2.2 million sQ. meters in 40 cities and 3,201 delivery stations and pick-up stations in 1,862 districts and counties across China as of December 2014 (JD.com, Inc., 2015). Company Background (Tmall.com) Tmall.com (Chinese: ॠሞ, literally translated “sky cat,” hereinafter as Tmall), a sub- sidiary of China’s largest online retailer Alibaba Group, focuses on business-to-con- sumer (B2C) online retail. Tmall was Orst introduced by Alibaba in April 2008 as Taobao Mall, a dedicated B2C platform within Alibaba’s consumer e-commerce web- site. In 2010, Alibaba launched an independent web domain, Tmall.com, to differenti- ate listings by its merchants, who are either brand owners or authorized distributors, from Alibaba’s consumer-to-consumer (C2C) merchants. In 2014, Alibaba launched Tmall Global, a platform for international brands which of- fers products directly to consumers in China. Tmall Global allows Chinese consumers access to branded products sourced and fulOlled directly from overseas. In addition, consumers may directly settle payments with the international merchant in Renminbi through Alipay, Alibaba’s international settlement service, which is the Chinese eQuiva- lent of PayPal. Tmall ranked number one among all Chinese B2C retailers in 2014 in terms of transac- tion volume, with a gross merchandise volume of 30 billion yuan – about four times the amount facilitated by JD, its closest competitor. Tmall accounts for a 61.4% share of the B2C online retail market in China, followed by JD’s 18.6% and 3.2% of Suning (iResearch, 2015). International brands that set up online stores on Tmall Global beneOt from the expo- sure to the hundreds of millions of visitors on Tmall and Taobao Marketplace (Aliba- ba’s C2C website), enabling them to establish their brand awareness in China without the need for a physical presence in China. International merchants can register, set up an online store through Tmall Global, and be able to use registered trademarks from jurisdictions of their home countries. Foreign brands on Tmall Global consist of brands from the whole world, including Costco from the U.S., Countdown from New Zealand, Lottemart and e-Mart from South Korea, RT-Mart from Taiwan, Fresta from Japan, and King Power from Thailand. Financials JD was listed in 2014 in NASDAQ. From 2010 to 2014, its revenue increased from 8,583 million yuan to 108,549 million yuan ($17,495 million) with an annul growth rate of 88.68%. During the same period, even though the net loss widened from 412 million yuan to 4,996 million yuan ($793 million), the net-loss-revenue ratio remained stable: 4.8% in 2010 and 4.6% in 2014. It is common in the e-commerce industry for start-ups to lose money for a couple of years when they Orst attempt expanding their customer bases. For example, Amazon was founded in 1994 and Orst traded publicly in 1997, but it didn’t turn a proOt until 2001. Tie back into your discussion of JD here (one summa- rizing sentence). Established in 1999, Alibaba Group turned a proOt in 2005. During the past Ove years, its revenue increased from the 2011’s 7,665 million yuan to 2015’s 62,937 million yuan ($10,153 million) with an annual growth rate of 69%. More remarkably, the net proOt increased by 15 folds to 2015’s 24,320 million yuan ($2,923 million) during this same period. Since Alibaba never disclosed the revenue earned from Tmall, Tmall’s revenue and proOt can only be estimated based on the share of its gross merchandise value (GMV) in the whole Alibaba group. Based on Alibaba’s 2014 annual report, Tmall’s rev- enue and net proOt are around 15,143 million yuan ($2,403 million) and 7,852 million yuan ($1,246 million) respectively. Products & Customers JD sells a large variety of products with 15 categories, from the common merchandise most online retailers provide, such as home appliances and books, to products and services most American online retailers don’t sell, such as insurance Quotes, fund, lot- tery tickets, fresh fruits and travel plans. JD targets young and middle-age customers who are accustomed to shopping through mobile platforms and computers. Unlike America’s established retail market, China’s modern retail market formed as late as the 1990s; as a result, there are no established retail brands like Wal-Mart, Macy’s and Nordstrom in the market. Due to the short his- tory of Chinese retail markets, Chinese customers easily embraced online shopping when e-commerce emerged in the 2000s. If comparing the penetration rate and the transaction value of online shopping between China and the United States, China’s on- line shopping market is larger and more advanced. Give example (JD). Tmall caters to online and mobile consumers looking for branded products and a pre- mium shopping experience. It is a trusted platform for consumers to buy both home- grown and international branded products unavailable from traditional retail outlets. Brands and retailers operate their own stores on Tmall’s platform with uniQue identi- ties, enabling sellers to control their own branding and merchandising. As of March 2015, there were over 140,000 brands on Tmall (Alibaba, 2015). Because of the large number of global brands and the stringent reQuirements for merchants to operate on Tmall, an online store on Tmall has become a validation of Quality, allowing merchants to take advantage of Tmall’s signiOcant trafOc to build brand awareness. Operation & Marketing Unlike Tmall, JD focuses on a self-operated online retailing business although it pro- vides an online platform for third-party merchants. By comparison, the revenue from its self-operated sector accounts for over 90% of its total revenue; although the rev- enue from the third-party merchants is increasing at an accelerated rate, it only ac- counts for less than 10% of its total revenue (JD.com, Inc., 2015). JD takes the lead in China’s Internet retailing in terms of advanced logistics system built up and operated by its own staff members; this is Quite different from Tmall, which mainly relies on third-party logistics companies. To remain competitive, JD has been improving its fulOlment infrastructure and technology platform, enriching its product offering and enhancing customer satisfaction so that it can attract new cus- tomers and new orders from existing customers. The company boasts the largest warehousing system among all Internet retailers, running seven large-scale logistics centers and 124 regional warehouses across China, with a total area of 2.2 million sQuare meters as of December 2014 (JD.com, Inc., 2015). In 2009, Tmall pioneered November 11th, known as “Singles Day” in China, as an annu- al promotional shopping day. Singles Day was established as an annual promotional event on Tmall to reward consumers through discounts. On November 11, 2014, Tmall and Alibaba’s other retail marketplaces generated a Gross Merchandise Volume (GMV) of 57 billion yuan ($9 billion) via Alipay within 24 hours. 43% of the total GMV settled through Alipay that day was attributable to mobile platforms. Sellers on Tmall and Tmall Global pay commissions based on a pre-determined per- centage of GMV for Alipay transactions that vary by product category and typically range from 0.3% to 5%. Tmall sellers also pay an annual upfront service fee—up to 100% of which may be refunded, depending on sales volume achieved by the seller within each year. Sellers also pay a security deposit to back-stop potential claims un- der Tmall’s consumer protection programs (Alibaba Group, 2015). Resources Tmall’s most important resource is its brand loyalty which is associated with Alibaba Group, China’s largest online retailer and one of the top ten global Internet enterprises. Backed by Alibaba’s aura, Tmall has rapidly increased brand awareness and won a re- markable market share.