Walmart's exit raises questions about JD.com's future

FE Team | Published: August 26, 2024 01:06:26

SHANGHAI/Beijing, Aug 25 (Reuters): E-commerce retailer JD.com needs to convince investors of its relevance amid a stagnant Chinese e-commerce market, aggressive price war and now, the departure of Walmart, its biggest shareholder.
Walmart announced this week a full exit from the Beijing-based e-commerce platform, selling off its $3.74 billion stake, which triggered a 10 per cent slump in its share price and raised questions about JD.com's ability to withstand the changed landscape.
A decade ago founder Richard Liu persuaded investors the company could take on Alibaba, its bigger rival with his own business model, raising $1.8 billion, in what was then the biggest IPO by a Chinese firm in the US.
In 2014, Alibaba was a dominant force in China's fledgling e-commerce market with nearly 80 per cent market share.
Operating in the shadow of Alibaba, which largely relies on ad revenues and fees from vendors earned from facilitating sales, JD.com had a different but appealing approach.
Its business model, which involves direct selling to shoppers and heavy investment in supply chains and logistics, allowed the firm to nearly double its market share from 14 per cent a decade ago to 27 per cent in 2023.
JD's early strategy of selling directly to consumers and delivering products via its own extensive logistics network helped engender trust in consumers who were - at the time - new to online shopping, encouraging them to spend significant sums on branded electronics and household appliances, and guaranteed fast delivery people valued.
"Loyal users still prefer to shop on JD.com; reason one is its delivery is fast, and reason two is quality on this platform is more guaranteed," said Liu Xingliang, an internet business analyst at DCCI Data Center.
However, JD.com's bloated cost structure and logistics that served it well are now a drag against its peers.
"Given its higher-end positioning, JD is less likely to deliver strong growth amid the current consumption weakness in China and its lack of diversification away from China vs peers like PDD," said Morningstar analyst Chelsey Tam.
In contrast, the Alibaba Group has a workforce of around 200,000, and PDD Holdings - which has seen its market cap explode to five times that of JD.com's $40 billion - has a comparatively tiny team of just 17,400 employees.
Its overhead costs have also pressured profitability. By the end of 2023, its workforce reached 517,000, including 355,000 delivery personnel.