JD Deep Dive

What could you do with 4 square meters of retail space?

Try creating over $100 billion dollars of market value with one of the world’s largest retailers.

The path would not be easy though, and would require risking it all – multiple times.

With just a 4sqm stall in an offbeat Chinese market, after 5 grueling years of battling against purveyors of cheap, faked goods, Richard Liu was able to build a chain of 12 electronics stores. His niche? 1) Never sell inauthentic goods and provide receipts to signal legitimacy. 2) Put price labels on everything so customers know they are getting the same prices as everyone else vs other sellers who endlessly haggled with customers to get their last penny.

With his budding retail chain solidly profitable, he had plans to grow their footprint to over 200 locations…But the world had something else in store for him.

SARS hit China in 2003.

Richard had to close all of their physical locations. Out of desperation to avoid mass layoffs, he took an employee’s suggestion to list some items of various ecommerce websites. His years of honest business practices paid off when internet customers recognized his store’s name as the seller.

Richard decided they should build their own website and ran it in parallel to their retail chain. However, in one of the boldest decisions in business history, Richard thought they could only do one thing well…In order to create a lasting company that could not just survive, but thrive against the larger big box retailers, he “anted” his entire company. They closed every single one of their physical stores, which immediately reduced sales by 50%.

But his intuition was right. The online sales channel allowed better inventory control, quicker price change responses, and wider distribution. Though this brought about a new issue: customers complained about shipping half the time.

They were far from the only online ecommerce seller, with not just Alibaba towering over them, but also Newegg, Dangdang, Amazon, Gome, and Suning all jockeying for market share.

At this critical juncture, Richard parted again from safety.

In 2007, they hatched plans to launch their own delivery network. They estimated they needed at least $1 billion to get started. They had only raised ~$20mn to date…and the financial crisis was just starting to reverberate through China.

Narrowly avoiding bankruptcy as sales slowed, with employees within just days of not getting paid, they clinched funding at the last minute. And when the economy started recovering, they started to grow rapidly again.

Electronics was too limited and infrequent of an offering to rationalize a delivery network, so they increased their product selection to virtually everything. Today, they have over 9mn 1P SKUs with millions of 3rd party merchants selling alongside them.

Their delivery network, powered by >250k personnel, delivered >90% of packages within 1 day. Their shipping capabilities not only spans speed, but also size: you can even order a washing machine from them. During the pandemic, they rolled out delivery via autonomous robots.

With over 550mn customers, almost RMB 1 trillion in sales, and possibly the best brand in China…

This is the story of JD.com.

A company built on the back of a literal peasant who could only afford to eat meat once a year to become one of China’s wealthiest, only to then risk it all time and time again. JD is one of the rare e-retailers that has reached sustainable profitability. 

But that’s not to say JD is taking their chips off the table: new bets include their ambitious international expansion, a pioneering retail plan to have over 5mn stores, and attacking a segment of the market they have always avoided: money-for-value. 

Learn how JD.com was built and how to analyze their company from a business and investor perspective with our latest >50-page deep dive! 

This report includes ample qualitative analysis on JD, but also plenty of excel work to learn how to financially examine and value a leading ecommerce company. (You also get all our other reports!). (Table of Contents below.)

You can find the following (and more) in this report:

  1. Founding History.
  2. Background History.
  3. Business.
    • Revenue Segment Definitions.
    • Shopping Experience.
    • Partnerships.
    • Store Formats (Omnichannel Strategy).
  4. Other Businesses (Carve-out Strategy).
    • Jingxi.
    • International.
    • JD Logistics.
    • JD Property.
    • JD Technology.
    • JD Health.
    • JD Industrial Technologies (MRO).
    • JD Auto.
  5. Operating Segments.
    • JD Retail.
    • JD Logistics.
    • New Businesses.
  6. GMV and Revenue Accounting.
  7. Market Dynamics and Value Proposition.
  8. Framework: The Consumer’s Hierarchy of Preferences.
  9. 10 Ecommerce Variables of Consumer Value and Competition.
  10. Thesis.
  11. Revenue Build and Valuation.
  12. Risks.
  13. Summary Model.
  14. Conclusion.

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