So the other category of e-commerce companies (e.g. JD.com) or the original Amazon model – is to hold inventories and to profit from the differences between retail and wholesale prices.
The goods will appear both in top-line revenues and in COGS – where as the marketplace model doesn’t include any value of goods sold on its platform.
For 2016, 2017 and 2018, over 90% of JD’s revenue comes from online direct sales or net product revenues.
Because the fees are usually based on total value of goods (commissions), the services revenues are also related to GMV.
After deducting the direct sales figures, we could see the revenue take-rate for pure services are 2.9% 3.2% 3.6%
Since founding our company, we have focused on developing our online direct sales business as well as building our own fulfillment infrastructure, including last mile delivery capability, all based on our proprietary technology platform to support our operations. As our online direct sales business grew substantially in size, we launched our online marketplace to complement it and expand our product offerings, leverage our established fulfillment infrastructure and technology platform and ensure a superior customer experience. The combination of our online direct sales and online marketplace, and our own nationwide fulfillment infrastructure and technology platform, make us a uniquely strong player in China’s online retail industry in terms of providing superior customer experience.
Leveraging the significant scale of our business, cutting-edge technologies, and our well-established retail infrastructure, we have also begun to offer comprehensive services that complement our core business and create significant value for a wide range of business partners. Ultimately this will boost business development and the overall customer experience.
Online Direct Sales
In our online direct sales business, we acquire products from suppliers and sell them directly to customers. We started selling computer products online in 2004 and introduced mobile handsets, consumer electronics products and auto parts and accessories by 2007. We significantly expanded our product offerings in 2008 with home appliances and a wide array of general merchandise product categories, and have been continually adding new products and categories since then. As we now offer a wide range of categories through our online direct sales business model, net revenues from electronics products, which include computers, mobile handsets and other mobile digital products, and home appliances, have declined as a percentage of our total net revenues.
Retail Infrastructure
Online Marketplace. In our online marketplace business, third-party sellers offer products to customers on our online marketplace and pay us commissions on their sales. We launched our online marketplace in October 2010, and have been adding new products and services since then. As of December 31, 2018, there were more than 210,000 third-party sellers on our online marketplace. We provide transaction processing and billing services on all orders placed on our online marketplace and require third-party sellers to meet our strict standards for authenticity and reliability. We tag certain top stores on our platform as “JD Haodian ( 京东好店 ),” based on third-party merchants’ quality of service during the entire purchase process. Such certification can help our top merchants improve their sales volumes on the platform. Furthermore, it sets a benchmark to encourage other merchants to improve their quality of service. We aim to offer customers the same high-quality customer experience regardless of the source of the products they choose.
Marketing Services. Leveraging our AI capabilities and the comprehensive dataset accumulated from a wide range of business scenarios along the entire value chain, we provide a variety of marketing services to suppliers, merchants and other partners in the ecosystem through our proprietary advertisement technology platform.
In 2017, we started to offer our suppliers and merchants a new fully-automated marketing platform that can make targeted product recommendations to users on www.jd.com and our mobile apps, and across our content partnership network, driving new customers and repeat purchases for advertisers automatically. Powered by AI, the platform only requires advertisers to input total budget, unit bid price and optimization goals to market to their targeted audiences, which enables advertisers to lower their operating costs and increase their returns.
In order to provide our partners with better targeted marketing and broader access to advertisement resources, in addition to our successful partnership with Tencent, Baidu and ByteDance, we also formed strategic partnerships with other leading mobile internet companies such as Qutoutiao and iQIYI, with an aim to leverage these companies’ powerful big data resources, massive user bases and AI-driven technologies to strengthen collaboration in precision marketing, user access points and content-driven marketing.
JD Logistics Services. In April 2017, leveraging our advanced technology and logistics expertise, we established JD Logistics, a business group under JD.com, to provide logistics services to businesses across a wide range of industries including those beyond e-commerce. We have opened up our technology-driven fulfillment infrastructure by offering comprehensive supply chain solutions to third-party sellers on our marketplace and to merchants that do not sell products on our online marketplace, including warehousing management, transportation, delivery, after-sale services, and logistics technology solutions, including cloud-based service and data analytics, or a combination of these services. Our logistics services to third parties have experienced rapid growth and have been well received by major clients such as Nestle, NetEase, Gree, and others. We are dedicated to developing an effective, environmental-friendly, innovative and smart “green logistics system” through developing and promoting the use of innovative and environmental-friendly materials and a series of technological innovations.
In the second quarter of 2018, to reduce product-to-customer distance and provide customers with innovative delivery options, JD Logistics launched the “Flash Delivery” initiative, offering delivery times ranging from several minutes to about one hour for selected merchandise in certain areas through optimally allocating merchandise across its distribution network, including front-line metropolitan distribution centers, delivery stations and partners’ offline stores, based on its analysis of customer demands. Moreover, in October 2018, JD Logistics opened up its leading logistics network to consumers, offering parcel delivery service to users in certain regions. Leveraging JD Logistics’s extensive delivery network, users in these areas can conveniently send items intra-city and throughout most of mainland China with JD Logistics’s same fast and reliable delivery service.
JD Property Management Group. In 2018, we established our property management group, JDPM, which owns, develops and manages our logistics facilities and other real estate properties, to support JD Logistics and third parties. JDPM has unique advantages to secure scarce land resources as we continue to help boost economies across China through creating employment opportunities and contributing tax, among others. JDPM aims to develop its logistics assets portfolios while maintaining strong capital discipline. With the expansion of asset portfolios, we will adopt a capital recycling strategy through our fund management platform and other partnerships, such as our partnership with GIC, Singapore’s sovereign wealth fund. See “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources.” We believe this strategy will help further expand our asset portfolios, minimize our related future capital expenditures and enhance our returns.
Omni-channel Initiatives. To achieve our “Boundaryless Retail” vision, we are exploring a variety of omni-channel integration opportunities and innovative business models. Leveraging our well-established retail infrastructure, we believe we are well-positioned to create an enhanced shopping experience for consumers and improve efficiency for our business partners.
We believe we are well-positioned to provide omni-channel solutions to customers and offline retailers in select locations in China by capitalizing on our strong online presence and leveraging Dada’s crowdsourced delivery system. Dada is one of our equity investees and its online-to-offline supermarket platform JD Daojia, which was JD’s asset before our transaction with Dada in April 2016, leverages the expanded delivery network, focuses on the location-based mobile commerce sector and collaborates with offline supermarkets, convenience stores and other local businesses to provide consumers with a speedy premium shopping experience. As of December 31, 2018, our joint venture, Dada-JD Daojia, had partnered with more than 100,000 stores from leading supermarket brands, including Walmart, Yonghui, Carrefour and CR Vanguard, by leveraging Dada’s crowd-sourcing delivery network. Dada-JD Daojia is China’s leading on-demand logistics and omni-channel e-commerce platform.
In June 2016, we entered into a series of agreements in relation to our strategic alliance with Walmart. We have collaborated with Walmart on e-commerce, including launching a Sam’s Club Flagship Store and Walmart China Flagship Store on JD.com, Sam’s Club Global Flagship Store, Walmart Global Flagship Store, and ASDA Flagship Store on JD Worldwide, and a one-hour delivery service from Walmart Stores in select cities through the JD Daojia app, as well as leveraging each other’s supply chain to enhance product selection for customers across China. We also experimented on other omni-channel opportunities, aiming at offering shoppers across China faster and more convenient access to high-quality products through multiple channels.
To provide customers with a more dynamic and interactive integrated omni-channel shopping experience, we have enabled some of our offline partners with a variety of the latest technologies such as facial recognition, product recognition, tracking system for customers’ in-store activities to name just a few. We have established a closed loop to accumulate a large volume of offline shopping data, and through further analysis of the integrated online and offline dataset, we can offer differentiated products in each offline franchise store that best suit potential customer demands. For instance, in August 2018, we launched a cooperation with China-based home furnishing retailer Qumei. Leveraging our extensive product selection, Qumei expanded its offering from furniture to a wide range of home products. Our ability to use big data to build accurate customer profiles has enabled Qumei to more effectively match its product selection with consumer demand. With the help of our cutting-edge technologies such as AI-based facial recognition and AR features, the cooperation enables Qumei to deliver a fully-interactive shopping experience in its traditional offline stores.
7FRESH, our offline fresh food market brand, is an example of a real-world trial of our “Boundaryless Retail” vision, the idea of enabling consumers to buy whatever they want, wherever and whenever they want it. In December 2017, we opened our first 7FRESH store in Beijing’s Yizhuang suburban area. Integrating advanced supply chain management know-how and cutting-edge storage technologies, our 7FRESH store is able to deliver a unique shopping experience by offering many fresh products (including fruit, flowers, vegetables and quality fresh seafood), providing food preparation and catering services, and making available a 30-minute delivery service for customers within three kilometers of the store. As of March 31, 2019, we opened 13 7FRESH stores in 8 cities.
We believe our 7FRESH business model will continue to evolve as we strive to pursue an enhanced shopping experience for our consumers and partners by exploring a variety of omni-channel opportunities, integrating quality products with superior services and providing fresh produce supply chain solutions to our partners.
