Walmart store Photo Creator: Michael Vi

In the wake of Walmart’s departure as a major stakeholder and a stagnating Chinese e-commerce market, JD.com must persuade investors of its importance.
This week, Walmart announced that it was selling off its $3.74 billion stake in the Beijing-based e-commerce platform. This caused a 10% drop in Walmart’s share price and made people wonder if JD.com could survive the new environment.

Ten years ago, in the largest initial public offering (IPO) by a Chinese company in the United States, creator Richard Liu convinced investors that the company could compete with Alibaba, its larger rival, using his own business model. The deal raised $1.8 billion.
With a roughly 80% market share in 2014, Alibaba dominated China’s budding e-commerce business.
Ads and vendor fees make up the bulk of Alibaba’s earnings, but JD.com had a unique and tempting strategy that allowed it to compete with Alibaba.

From 14% in 2010 to 27% in 2023, the company’s market share more than doubled thanks to its business model, which includes direct sales to consumers and considerable investment in transportation and supply chains.
Customers who were new to online shopping at the time gained confidence in JD’s early strategy of selling directly to them and delivering products via its own vast logistics network. As a result, they spent a lot of money on branded electronics and home appliances, and they valued the guaranteed fast delivery.
According to Liu Xingliang, an online business analyst at DCCI Data Center, “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.”

Nevertheless, JD.com’s once-beneficial logistics and excessive cost structure are now holding it back from competing with its rivals.
“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,” Chelsey Tam of Morningstar said.

On the other hand, there are about 200,000 people working for the Alibaba Group, and just 17,400 people make up PDD Holdings, which has had its market worth increase to $51 billion, five times more than JD.com’s $40 billion.
Additionally, its overhead expenses have hampered profitability. Its total employment, including delivery staff, reached 517,000 by the end of 2023.
In the second quarter, its operating margin was 4%, which was significantly lower than PDD’s 26% and Alibaba’s 15%.
When asked for comment, JD.com remained silent.

Tam noted that in response to the slowing expansion of Chinese e-commerce, JD.com has recruited third-party merchants to enhance its selection of private label and price-competitive products.
It has also optimized its supply chain and logistics even further, taking advantage of economies of scale to offer low costs without compromising quality in response to competition from PDD’s Pinduoduo and Alibaba’s Taobao.
Last week, during an earnings call, JD.com’s CEO Sandy Xu reaffirmed the low-price strategy’s role in the company’s growth after JD.com reported a quarterly profit that exceeded expectations.
Some, however, question the extent to which supply chain optimizations may spur additional revenue development.
“JD.com’s stated strategy is to work with the manufacturers on low-cost versions of premium value goods, which sounds great, but I’m sceptical this will be the biggest driver of growth in the short term,” according to Rui Ma, a tech analyst.
Some have pointed out JD.com’s strategic flaws, such as its incapacity to grow as efficiently as its competitors in foreign markets and its low level of exposure to non-Chinese markets (about 2% of revenue from international firms compared to Alibaba’s about 10%).
Earlier this year, JD.com came close to acquiring Currys  a failing British electronics store, but decided against it. Experts speculated at the time that it might be a way to speed up the global expansion that PDD and Alibaba have spent billions of dollars and years laying the groundwork for.
While he agreed that going global was a smart move, Davy Huang, director of business development at e-commerce consultancy Azoya, cautioned that companies going global should steer clear of the Chinese e-commerce industry’s current downward spiral in prices.
“The current cross-border export environment is quite toxic, focused on low price competition, heavy advertisement, subsidies on orders and profiteering from sellers,” according to him.
“I don’t doubt their capabilities, but… the priority should be China now, to defend their position.”