JD.com and Alibaba: when we talk about the two Chinese giants in Italy, their identities fade into the vague and omni-comprehensive world of "e-commerce". However, this is not a true representation. Currently, Alibaba has 55% of the Chinese online market compared to their competitor's 25%, but their digital commerce models differ substantially.
Alibaba is primarily a B2B marketplace that focuses on developing exchanges; it does not sell products directly, but is a space on the internet where individuals, shops and businesses do business. JD.com is primarily a B2C online retailer, the largest in China, which is also gaining a great advantage among the highest-end Chinese consumers, who are fuelling the demand for goods that are not available on the domestic market.
JD.com is closer to the Amazon model: it has about 300 million active users who buy an average of 26 items per year, which are delivered within hours. The company has invested heavily in logistics and infrastructure to ensure that authentic, quality goods are delivered the same day if ordered by 11:00am. JD.com delivers 90% of products within 24 hours, while Alibaba processes 70% of orders after 3 days. With its Tmall platform, Alibaba controls half of online transactions between professionals and the public, and dominates the market of person-to-person exchanges with Taobao, a website aimed at buying and selling between individuals that is similar to eBay. However, while in the West eBay is considered a place to buy second-hand or niche products, Taobao is instead a widely used platform for buying cheap products. There are risks, however: for the second consecutive year, the American representation for foreign trade has included it in the blacklist
of online platforms that sell counterfeit goods.
While JD.com and Alibaba are blessed with good fortune and fame, there are however more complex realities that are establishing themselves as testimonials of excellence in Retail as a united business. In fact, physical distribution is a common strategic goal.
Rewind: last summer the media coined the term "New Retail" from an interview with the leader of Alibaba, Jack Ma. "New" in a manner of speaking, because for some time we have been discussing the four aspects that Retail is made up of: online, offline, logistics and integrated data management on a single value chain. Using fewer buzz words we could simply say that, as has already been confirmed in the West, physical distribution remains the most important aspect for the majority of consumers.
Online sales have grown, exceeding a trillion dollars in value for the first time in 2017, but the data provided by the most authoritative sources (such as the Ministry of Commerce and the research firm Fung) assign a share of over 80% of Chinese retail as a whole to the traditional sale of consumer goods. All the most important players on the market are focusing on integration: JD.com and Alibaba, certainly, but they are not alone. The latest deal connecting the two markets is the initiative by a group of investors - led by Tencent
, the holding company that owns WeChat, and JD.com - which will invest 34 billion yuan (about 4.32 billion euros) to acquire 14% of Wanda, a giant in the commercial real estate sector.
The operation is a response to the strong ties between Alibaba Group Holding and some of the country's best-known supermarkets (Bailian Group, Lianhua Supermarkets and lastly the Sun Art Retail group with 460 outlets in the area, half of which are controlled by Auchan). This is of course in addition to the Hema grocery supermarkets that Alibaba launched in 2015.
The breakthrough of 7Fresh
JD.com, already in close collaboration with Walmart (which relies on its distribution network to deliver the products purchased by Chinese consumers in its 400+ stores in the country), has instead made a bang with 7Fresh, a state of the art supermarket for fresh produce. With highly innovative store design, technology enables the integration of the two markets: "magic mirrors", automated shopping trolleys, self-checkout payments thanks to the integrated facial recognition in the brand's app, and the home delivery of shopping within 30 minutes of ordering for customers who reside within five kilometres of the store. Today, JD.com operates the largest cold chain logistics in China, with around two thousand food suppliers, and intends to develop the 7Fresh format with at least one thousand openings in China over the next 3-5 years.
Competition is global, Italian Retail is late
The comparison between the two Retailers characterises the Chinese and world markets. The USA is an example of this. Trump, who flies the flag of protectionism, is tempted by a partnership with Alibaba. This is because there is a large imbalance of imports and exports between China and the United States, a gap of about 350 billion dollars, and through the Alibaba platform small American entrepreneurs could easily reach a huge target market of possible customers without having to deal with intermediaries. JD.com is integrating WeChat into its business flows, providing a significant advantage: according to the Global Ecommerce Leaders Forum, 64% of US marketers plan to implement Tencent technology within the next two years.
We are only at the beginning of a global game, played as much on smartphones as at the cash barrier, whose duration and outcome are unpredictable. Alarmingly, it is even clearer that Italian Retail is falling behind, without clear omni-channel strategies that world competitors have already consolidated.