The global economy has been adversely impacted by COVID-19. With social distancing and lockdowns, online ordering has become more popular than ever, along with high demands for logistics and delivery services.
JD Logistics Takes Pitches from Banks for Planned Hong Kong IPO in 2021
● Although JD Logistics did not contribute a lot to JD.com's total revenues, its business is expanding rapidly.
● The surging demand for online delivery and increasing competition among express delivery firms are the main factors increasing JD Express's usage rates.
● The company differs from other players in various aspects, including warehouse control ability and R&D.
● The spinoff's Hong Kong IPO will reinforce the company's comprehensive strategy in the consumer segment of the Chinese market.
In 2020, JD.com and JD Health were listed on the Hong Kong bourse. Following these two IPOs, JD Logistics also submitted its application in February 2021, planning to raise about USD 3 billion. On April 30, it was reported that the company had received a nod from the listing committee.
JD.com was founded by Qiangdong Liu in 1998. The company started as an agent for opto-magnetic products and evolved into an e-commerce giant. It started its logistics operations in 2007 and set up JD Logistics in 2017.
Online retail business is still JD's main income source
JD.com's revenue has presented a rising trend since 2017, with an average increase rate of about 27.33%. The online retail business is the most essential part of JD.com's revenue structure, accounting for around 91.1% in the last four years. As for JD Logistics, it brought merely 3.4% of gains during these years. However, this segment has grown dramatically since its establishment, with an average growth rate of 58.47%.
New demand sources
With the Chinese e-commerce market approaching maturity, the delivery system is also experiencing a qualitative upgrade. For instance, JD.com is now using the point-to-point transportation mode without third-party logistics firms, leveraging its own warehouses and other capabilities.
Moreover, now growing at slower rates, the e-commerce industry has entered into the phase of competition over stock costs. Top players in the field make every effort to innovate and increase their market share. As a result, JD.com is betting heavily on JD Logistics, while its nemesis Alibaba is developing Cainiao.
The appearance of instant delivery is largely due to the integral value of swift delivery and intense competition in the e-commerce industry. Although the size of the instant delivery sector is smaller than that of the traditional express delivery, it shows an upward trend over the last five years, with a user scale of over 480 million people in 2020.
Key features of JD Logistics
Unlike many other express delivery firms in China, JD Logistics owns a warehouse system, along with a variety of transportation tools. In other words, JD Logistics has its self-supporting storage, which helps to connect downstream clients almost directly with upstream merchants, forming solid collaborative relationships. The '211 time-limit's (Chinese: 211限时达) policy could be seen as an example. It guarantees that customers receive their orders within one day. According to JD Logistics' IPO prospectus, it currently has 900 warehouses with a combined area of 2,000 square myriameters.
JD Logistics' also benefits from JD.com's technology prowess. Delivery solutions employing tools, such as unmanned vehicles and unmanned aerial vehicles, are improving the user experience in both urban and rural areas.
JD has a few other cards up its sleeve in the vibrant Chinese O2O market. Dada Nexus, a company operating local instant delivery platforms, is one: after the recent USD 800 million transaction, the e-commerce giant holds 51% of Dada's equity stake.
Industry risks
An important force to consider is the aforementioned Alibaba's logistics arm Cainiao. With a total warehouse area of over 6,645 square myriametres (as of May 2020), it leads over JD Logistics by this figure. Additionally, Cainiao's delivery men are also higher in number than JD Logistics', as the former had 1.6 million by the end of 2020 and the latter merely had 95,000.
Looking forward
With the COVID-19-triggered economic patterns, JD.com is highly likely to keep showing an upward revenue growth trend in the next two years.
In the short term, online retail will still be JD.com's main revenue source, with a particular focus on electronic products and household appliances. The growing demand for these product categories will allow the company to improve its logistics capabilities. Meanwhile, JD Logistics' IPO, if succeeds, will make the company look very attractive, despite the ongoing regulatory shakeups.