Since its inception in 2003 people have been trying to put JD.com into a box, but founder and chief executive officer Richard Liu has consistently defied limiting definitions of his business. Even just this year great efforts have been made to further keep JD.com a diversified organization with the supply chain branch of the company JD Logistics and the healthcare arm JD Health both making their debut as separate entities on the Hong Kong Stock Exchange. In the quarterly earnings call for the second quarter of 2021 this narrative has continued to come forward, with JD Retail chief executive officer Lei Xu saying that JD.com is a new type of enterprise based on the real economy with digital technologies and abilities, differentiating them from the more trendy platform economy model that has been popular as of late.
This is because for Liu, the main driver for the organization has always been adding value to society. One year ago in the second quarter of 2020 when the world was facing an uncertain and sometimes frightening future, Liu announced his vision for JD.com’s place in it. He officially updated the company’s strategic positioning to better reflect their role in society: from that of an e-commerce business to a supply chain-based technology and service company. In tandem with this new positioning also came a new mission statement: “powered by technology for a more productive and sustainable world.” This was not the first time JD.com has outgrown its prior positioning, and it certainly won’t be the last.
The only constant is change
It was less than 25 years ago that Liu started “Jingdong,” as a tiny stall in an electronics bazaar. At the time counterfeit and poor quality products were commonplace amongst the many booths, and haggling was considered the norm for both shoppers and those selling their wares. However, for Liu this represented a useless cycle of mistrust between the customer and seller, inevitably leaving both dissatisfied at the end of the transaction. He became the first person in the market to put price tags on all of his items, declining to haggle over price but in exchange guaranteeing the quality and authenticity of the product they were interested in purchasing.
Although initially wary, this commitment to creating value by providing quality products to his customers proved to elevate Liu’s business above those around him and he was soon able to move into a full-scale store and broaden his electronics offerings. Just five short years after his first day alone in a 4-square-meter booth, Liu had built his business into a successful chain of electronics stores with twelve locations across three major cities. However, during the 2003 SARS epidemic in China Liu turned to the internet to move his product while his stores were temporarily closed, and a year later made the radical decision to close all of his brick-and-mortar stores in favor of operating exclusively online. Although his business was functioning perfectly well as a retail chain, Liu looked forward and saw before many the potential e-commerce had to improve society for the better.
As an e-commerce company, Liu was able to extend the arms of the business further than ever would have been possible within the physical retail space. They began to offer more than just electronics, strategically moving into new markets while remaining committed to providing customers with the same positive experience they received in his electronics stall. It was this commitment that saw him decide in 2007 to move his entire logistical network for the website in-house, allowing the company to have the most control over everything from warehousing to delivery routes to customer service.
Although a lofty goal, this strategy has proven to once again prevent Liu or JD.com from being boxed into any one category, allowing them to build a massive infrastructure that has also given them the freedom to explore other areas of consumer goods and eventually expand past it entirely to sectors such as groceries and pharmaceuticals. JD.com soon became China’s largest retailer, and has built out their logistical network to such a resounding success that JD Logistics has been able to offer their logistical expertise to other businesses, helping merchants maximize efficiency by utilizing big data to make accurate inventory prediction and optimize warehouse layouts. Within JD Health, they have reconstructed the medical supply chain to better support daily needs, and also created an app that provided millions of people with access to telehealth during the coronavirus pandemic. Finally, by transferring its cloud computing and artificial intelligence operations as well as assets from JD.com to their subsidiary JD Technology, Liu has ensured that they are able to have the broadest reach possible in the applications of their continuing technological developments.
Q2 builds further on this path
The 2021 Q2 earnings call for JD.com signaled that they are on the right track to continue down their path of driving growth while adding value to society. Due to the company’s strategy of opening up its resources to merchants and other parties beyond JD.com itself, net service revenues saw an increase of 49.2 percent year-over-year from the second quarter of 2020 to $5.2 billion. Their third party marketplace business model also increased, with growth in the area exceeding that of its first party direct sales business during their annual 618 Grand Promotion, generally known as the biggest sales promotion of the year. This development played a key role in the overall business growth in Q2, and further showed the possibilities that opening up their services to third parties could bring in the future. Lei Xu also brought up in the earnings call the importance of omni-channel expansion, which he believes will be particularly effective for them in the future due to JD.com’s unique business model that has focused on supply chain capabilities for nearly two decades.
JD Logistics saw its revenue increase by 53.7 percent from $4.87 billion for the first half of 2020 to $7.51 billion in that same period of 2021. In addition to this, revenue from external customers of JD Logistics in the first half of 2021 was $4.1 billion, accounting for 54.7 percent of the total revenue of the logistical arm of JD.com. This indicates that more and more partners are increasingly turning to JD logistics to help improve their operational efficiency.
JD Health also saw monthly user growth rate double for their Family Doctor services provided through the telehealth app. The first official anniversary of Family Doctor occurred on August 18th, and achievements within the past year include active users accounting for 87 percent of the total number of service users and an average monthly user growth rate of 220 percent. To celebrate, JD Health partnered with the national charity organization the China Aging Development Foundation to introduce a public welfare program that will help Alzheimer patients.
As Liu has made clear since the company’s inception, JD.com’s long-term priorities are putting consumers’ needs at the core, treating employees with respect and ensuring every action they take is adding value to their communities and the world. In the second quarter of 2021 they remained committed to these social responsibilities, providing much-needed support to the Henan province when it experienced severe flooding through the donation of emergency supplies and opening up a free 24-hour hotline for medical consultations. It also published its sustainability report, highlighting its commitment to ensuring JD.com is a low-carbon enterprise. For Liu and the entirety of JD.com, doing business the right way is what has allowed them to not only achieve consistent growth, but ensure that they are adding value to society while doing it.