When a Shenzhen-based logistics company signed a Hong Kong-born martial arts actor as its brand spokesman in 2015, it probably didn’t realise just how good a deal it had struck. The actor in question, Wu Jing, was only just becoming a household name thanks to his role in Wolf Warrior, a record-breaking action film released in the same year.
Wu has gone on to become one of China’s most bankable movie stars, topping the Forbes China Celebrity 100 List last year. Kuayue Express (KYE), the logistics firm he endorses, made it into a prominent ranking too. Hurun Report, a publishing firm, included the Shenzhen firm in its China Unicorn Index in 2018, assigning it a Rmb20 billion ($2.89 billion) valuation.
However, KYE was swallowed up by JD.com’s logistics arm earlier this month for just Rmb3 billion.
Hurun has a track record for sizing up Chinese tycoons’ individual net worth. However, it has clearly over-estimated the value of KYE in the wake of brutal competition in the courier industry which, according to TMT Post, is fast turning into a duopoly, between JD.com and Alibaba’s Cainiao Network.
China still has multiple delivery companies and many of them are listed on bourses. But the reality is that JD.com and Alibaba are locking individual couriers into their respective orbits by taking controlling or strategic stakes.
Alibaba has 20 such investments. It’s the largest shareholder in New York-listed BEST Inc and the second largest in ZTO Express. Rumours abound that it’s about to increase its stake in Shenzhen-listed Yunda.
JD.com has invested in 10 couriers too, although where Alibaba has always relied on third-party providers, JD.com has taken the Amazon route of building its own logistics network from scratch.
The growth of that network shows just how much China’s e-commerce sector has expanded since JD.com first listed on Nasdaq in 2014. Back then it had 123 warehouses. Today, it has 750 with a gross floor area (GFA) of 18 million square metres.
There’s been a particularly strong growth spurt since the end of 2018 when it had 550 warehouses with 12 million square metre in GFA. This rapid expansion spurred JD.com to hive it off into a separate business in 2016 which it is now preparing to list sometime next year.
JD Logistics is right at the heart of the transition the group says it is making from e-commerce giant to supply chain based technology and services provider.
When it released its interim results in mid-August, it said there would be more investments in both areas during the second half.
In late July, for example, it purchased an undisclosed stake in Hong Kong retail supply chain group Li & Fung for $100 million.
Consolidating and expanding its network has helped JD.com to reduce the huge costs of fulfilling customer orders at ever-quicker speeds. Its fulfilment expenses as a percentage of revenues stood at 8.3% in 2015. This June, the ratio had narrowed to 5.9%, a 0.7 percentage point drop compared to a year ago.
The latest twist in its competition with Cainiao is delivery within the hour (Instant Delivery), launched in April. It is also growing the total of its massive logistics parks to 28 this year, opening new ones in the provinces of Shandong, Henan and Hebei.
Then there is its R&D arm, JD-Y, which aims to keep the company at the forefront of global logistics trends. This unit has already spawned the world’s first 5G-powered Smart logistics park (which opened in Beijing last October); robotic delivery to Wuhan residents when they were under lockdown earlier this year; and support for bricks and mortar shops to survive the pandemic by arranging for its couriers to pick up their goods and deliver to nearby customers.
Domestic media wonders whether Alibaba and JD.com have the market completely sewn up. Yet as we wrote in WiC494, there is one firm that hopes to shake things up: Jitu, which translates as ‘Extreme Rabbit’ in English. The Southeast Asian group has Chinese owners and strong links with the OPPO telecoms group – backed by powerful tycoon Duan Yongping. If it is successful, it will become the main delivery firm for Alibaba and JD.com’s biggest challenger, Pinduoduo, which also owns a stake in Jitu.
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