JD.com, China’s second-largest online retailer, is expanding its footprint in the traditional retail sector, despite the fact that Chinese buyers are turning to the Internet.
Household appliance sales in China in 2018 rose 1.9% to 810.4 billion yuan (117.2 billion US dollars), and are expected to increase to 829.1 billion yuan this year. Physical stores experienced an increase of about 6% in last year’s sales and this number is down, while online stores have moved in the opposite direction.
One reason JD.com has its eye on the walk-in market is necessity.
One of the reasons why JD.com has the eye turned to the walk-in market is the need. According to an industry observer, China’s online market has attracted as many consumers as possible to urban areas. The key to growth will be to exploit small towns and rural areas.
Another reason is that JD.com is already the first online seller of devices in China. In 2018, it accounted for 38.9% of online device sales in China. Suning.com comes next with 30.1%, followed by Temall (24.9%) and 3.5% by Gome Electronics (Alemaba Group Holding), according to data from the China Household Appliances Research Institute and other organizations. .
But the retailer is at the bottom of the Chinese planet. Suning.com is the largest offline vendor of devices in China, accounting for 17.5% of total sales. Gome Electronics is next with 9%, followed by the Jiangsu Five Star Appliance with 2%. The presence of JD.com in this segment is negligible.
So, JD.com takes two steps in traditional sales. In one, it opens up thousands of small shops, each with about 100 square meters of floor space. In a rural shop about an hour’s drive from central Dalian, in northeastern Liaoning Province, the registration says “JD.com Exclusive Distributor”.
Air conditioners, TVs and rice cookers, most of them with Chinese brands such as Haier, are scattered inside the Sun Shop.
One salesgirl stated that the store had fewer products than those available online, but was visited by older customers who had difficulty using the Internet.
The store opened two years ago and is operated by a local merchant, not by JD.com, under a duty-free contract.
JD.com franchisees cover the costs of redevelopment and opening.
The store manager outside Dalian said the initial costs were not a problem and the investment was paying off.
A JD.com representative said the company plans to increase the number of these small stores to 15,000 by the end of the year, an increase of 5,000 from the 2018 total. The company did not reveal the number of sales made by these stores, a leader told the Chinese media that JD.com hoped to ask them 100 billion yuan in 2021.
The other half of JD.com’s offline strategy concerns department stores. The company is expected to open a 50,000-square-meter store in Chongqing later this year and plans to follow by opening sales outlets in all major Chinese cities, said a company representative.
It’s also buying in an established chain. In mid-April, JD.com announced the acquisition of 46% stake in Jiangsu Five Star Appliance Group for 1.27 billion yuan to Jiayuan Chuangsheng Holding Group. JD.com will be the second largest shareholder of Jiangsu Five Star after the finalization of the transaction, which should take place in a few months.
Five Star Appliance has approximately 300 directly managed stores, located mainly in the central and southern parts of China, including the provinces of Jiangsu and Zhejiang. Its annual sales are around 18 billion yuan.
JD.com’s expectations for real-world stores include allowing buyers to review products in person before buying them online. You also want to use the data that you have accumulated online to help determine the product lines in your physical stores.
Another reason why JD.com is moving into the traditional realm is that it believes that retail experience in the real world will be crucial to survival as an appliance retailer. Suning.com and Gome Electronics are also trying to merge internet and retail sales without an appointment.
JD.com has grown rapidly since it was founded in 1998. Its sales, about 90% of which come from online shopping, increased by 20.9% in the year to 121 billion yuan in the January-March quarter. .
At the end of March, JD.com had approximately 310 million online users, 3% more than the previous 12 months, but a growth rate that has slowed from the period of 2015 to 2017, when the number of users I was expanding to 30-70. % clip.
Although JD.com is rushing to open traditional stores, including supermarkets, the openings have been delayed. And skepticism already exists that the company’s strategy can be profitable as more buyers connect.