Chinese retailer JD.com plans to aggressively expand its brick and mortar reach – aiming for a network of 5 million physical stores over the next three years – as China’s e-commerce companies intensify their competition for consumers in smaller Chinese cities.
Xu Lei, general manager of JD Retail, said the company is “aware that China’s retail market is huge”. But he added that JD’s business model can have limitations and that he would like to “build offline stores himself and work with existing players”.
The company’s online model “can only serve a certain number of consumers. We want to apply our years of experience, including logistics, merchandising and technology, to a much broader context,” Xu told CNBC Arjun Kharpal. “That’s why we decided last year to position JD as an all-channel retail platform.”
“In addition to our centralized online app, we also have many decentralized offline platforms. The offline market is very important to us,” said Xu at the annual East Tech West conference that is currently taking place with CNBC both this year held remotely as well as in Guangzhou, China.
As part of a strategy to expand its retail presence, JD opened its largest physical store, JD E-Space, on Singles Day in Chongqing last November. However, the company has no plans to build 5 million stores of its own.
“It is more important to make good use of our partner businesses,” said Xu. “So far we have connected to over two and a half million branches, including our own branches. In three years we are planning a network that will connect up to five million branches.”
This year, JD backed device store operator Gome Retail Holding – one of the largest device chains in China – with $ 100 million. The joint venture will allow customers to examine items in Gome’s 2,600 or so stores and then purchase the products through JD.com.
JD’s moves underscore the fierce competition among China’s leading e-commerce retailers to attract more consumers in the country’s smaller cities. Alibaba – JD’s biggest rival – recently acquired a 19.9% stake in Suning.comwith the intention of increasing its market share in China’s smaller cities.
Small towns are important not only to internet-based retailers, but also to traditional retailers across China, the world’s second largest economy.
“What happens to consumers in fourth to sixth grade cities when they want to buy some branded products, they either find the products are not available locally or they are sold at a much higher price than the top-tier cities” said Xu. “JD provides consumers in submarkets with equal access to products and prices through our nationwide logistics network.”
In the future, the company intends to work with well-known brands to tailor products from region to region.
“Many brands have recognized the huge size of the Chinese market and are adapting products for lower-ranking cities using JD’s data and our supply chain capabilities,” he said. “They have had great results. We have seen customer orders from submarkets have grown over 100% so far this year.”
– CNBC’s Arjun Kharpal contributed to this report.