JD.com’s big bet for growth: 5,000 traditional retail franchisees
JD.com, the online retail giant that is second only to Alibaba in its domestic market of China, is making a bold new play for growth. What is that play? Opening thousands of traditional retail stores across the country to complement its ecommerce business. Observers may wonder why such a successful internet business is moving into the brick-and-mortar space, given the way Chinese consumers are going… but the answer is simple. In urban areas, online retail has captured as much market share as it is possible to get. Hence, further growth has to come from smaller cities and rural areas, where an offline presence remains a major asset.
JD.com’s share price has appreciated by 23% year to date
Source: Yahoo Finance
Another reason for the move offline comes down to particular products. As the Chinese market for appliance sales continues to steam ahead, JD.com is looking to capitalise. Online, it’s the clear market leader, holding almost 40% of the market (Alibaba’s Tmall, in second place, has almost 25%). But offline, it barely exists. That’s something JD is looking to change.
To create its offline empire, JD.com is opening thousands of stores to be run by franchisees with an eye to shifting JD appliances. The company has also said it will take a 46% stake in established brick-and-mortar chain Jiangsu Five Star Appliance, which has around 300 outlets around the country.
Strategically, JD is not, necessarily, looking to create a thriving world of traditional retail sales (although the company acknowledges that older shoppers, or those in rural spaces where internet is sketchy, might be happier to go into store than online). Rather, the company thinks there are important “real-world” lessons to be learnt in the brick-and-mortar world that will help it to stay relevant in the appliance-selling world. It’s also hoping to bridge the offline-online divide, moving into multi-channel operations. That means, in practise, enabling a range of new consumer behaviours, such as browsing in-store, then purchasing online (or vice-versa: buying online and collecting offline).
Dominion holds JD.com in its Global Trends Ecommerce Fund.
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