Drapers visits Chinese ecommerce giant JD.com’s headquarters to find out how developments in its fulfilment capabilities could benefit UK brands.
The glass exterior of Chinese ecommerce giant JD.com’s headquarters gleams against the distant, hazy skyline of Beijing. Inside, the pristine office spaces and state-of-the-art data room, in which live sales figures are displayed on a fast-moving ticker, would not be out of place in Silicon Valley. Instead, it can be found an hour east of Beijing’s centre, in the city’s new business district.
As China’s largest retailer, JD.com’s influence in the UK fashion industry is growing. In February 2018 it committed to selling £2bn of British goods to its customers over the following three years, and it has also partnered with the British Fashion Council to help UK talent engage with the Chinese market – both established luxury labels and new names. Its high-tech logistics network and awareness of changing customer habits in the country make it a strong prospective partner for UK brands hoping to enter what can be an overwhelmingly demanding market.
The company was founded as Jingdong Century Trading Co in 1998 by Chinese entrepreneur Liu Qiangdong, and launched its ecommerce platform, then known as jdlaser.com, in 2004. With 320 million active customers, and a partnership with China’s primary lifestyle app WeChat, which boasts more than 1 billion users, JD.com has a generous exposure to China’s 1.4 billion-strong population.
The company reported net revenues of RMB462bn (£53bn) for the year to 31 December 2018, up 27.5% on the previous year. Kevin Jiang, president of international business at JD Fashion and Lifestyle, attributes this growth to the fashion and luxury categories. When Drapers arrives to meet Jiang, the office is abuzz with excitement at his success in securing Prada as a partner last month.
“The whole fashion and lifestyle business is, and will continue to be, one of the growth engines for JD.com,” he tells Drapers.
On the first day of JD.com’s annual 18-day 6:18 shopping festival, held on and named after the company’s anniversary, 18 June, sales of luxury products spiked by 75% year on year.
“More than 10 brands, including Emporio Armani, Hugo Boss and Tod’s achieved over 200% like-for-like sales growth,” Jiang reveals. He adds that Paul Smith was one of the top 20 brands, despite only having partnered with JD.com since May for its first authorised online flagship store in China.
JD.com has observed this increased demand for luxury in geographical as well as financial terms. Chinese cities are popularly ranked in several “tiers”, reflecting population size, income levels, consumer behaviour and so on. Jiang says customers in lower-tier cities are increasingly “trading up” in their product choices, and making the switch to luxury goods more traditionally purchased by high-tier city residents.
“We have been constantly monitoring the growth of the luxury business in the different tiers of cities and have noticed very fast growth in tiers three to six,” explains Jiang. “Consumer power from those lower-tier cities has grown very quickly in the past few years and so it is becoming one of the focuses for both the overall and luxury business, because a lot of brands don’t have a presence there.”
Consumer power from lower-tier cities has grown very quickly in the past few years
Kevin Jiang, JD Fashion and Lifestyle
Arthur Cheung, general manager for Greater China at ecommerce consultancy Practicology, points out that this is the first year JD.com has able to deliver to certain smaller lower-tier cities, thanks to the adoption of new technology in its logistics business.
Hidden down a rabbit warren of dust tracks, off a motorway on the outskirts of Beijing, sits one of JD’s 23 semi-automated Asia No 1 warehouses. Inside the gargantuan building, away from the sweltering heat, 270 automated guided vehicle (AGV) robots work seamlessly alongside the 800-strong human workforce to increase efficiency and reduce errors.
The flat, disc-shaped devices navigate their way across the warehouse using QR codes pasted on the floor. Although barely 20cm in height, the robots can carry towers of product weighing up to 500kg and swiftly deliver them to an automated sorting machine known as the “Sky Wolf”.
This machine plays a pivotal role in JD’s rapid delivery promise, by reducing the time it would traditionally take for humans to pick product on foot. With 19 levels that interconnect both vertically and horizontally, seeing the Sky Wolf’s sorting process is similar to watching a skilled Rubik’s Cube solver at work.
Once an order has been packaged by a human team member, it is automatically sorted for delivery into appropriate postal regions, and delivered via conveyor belt to the designated loading bay. For the most remote villages that JD services, the last-mile delivery is completed via drone.
We are able to fulfil 90% of our orders within 24 hours, which is actually very important for Chinese consumers
Kevin Jiang, JD Fashion and Lifestyle
JD.com is able to process an order for delivery within an hour of payment, and Jiang explains: “We are able to fulfil 90% of our orders within 24 hours, which is actually very important for Chinese consumers.”
He adds that this high-tech logistics network is just part of JD.com’s offer to brands, which also includes an engaged customer base, digital support and marketing advice for the new territory.
In September 2018, Ruyi Group, which owns UK menswear brands Kent & Curwen and Gieves & Hawkes, signed a joint venture deal with JD.com to develop “boundaryless retail” technology. This includes smart logistics, supply-chain solutions, big data-enabled inventory management and partnership in building fashion and lifestyle concept stores in Beijing and Shanghai to demonstrate JD’s smart technology.
Ray Clacher, outgoing executive vice-president of Kent & Curwen and Gieves & Hawkes, believes JD.com will “leapfrog [Chinese rivals] Alibaba and TMall in terms of market-leading, honest retail online,” and adds that “The WeChat database must be a great barometer for what to sell in the ecommerce space [as well as JD.com being the shopping page that pops up on the app, the partnership involves data sharing].”
We are looking for two things in UK brands: traditional luxury alongside emerging British names
Kevin Jiang, JD Fashion and Lifestyle
UK businesses can launch with JD.com in two ways: either as a part of the domestic trade model, which requires them to have an office and inventory already in China, or as part of the cross-border approach, which allows newer or smaller brands to sell directly from the UK.
“We are looking for two things in UK brands: traditional luxury alongside emerging British names, which is why we are working so closely with British Fashion Council,” explains Jiang.
JD.com is leading the ecommerce sector in both its domestic and the international market, with its effective implementation of technology that UK brands and retailers are still grappling with. As Drapers leaves the headquarters after spending three days with the team, it is clear that the etailer is sharply focused on its goal of becoming the primary global destination for fashion.
Jiang’s advice for entering the Chinese market
- The Chinese market is huge and Chinese consumers follow global trends. If a brand is doing well in the UK market. it should do well in China.
- It is important to find the balance between your original brand story and Chinese culture. Chinese consumers want respect from foreign brands. Consider localised partnerships and crossovers to help Chinese consumers better understand your story.
- You must have a forward-looking mindset. In China, the retail landscape evolves quickly.
- There are no quick wins in the market. so brands need to have a comprehensive strategy behind their Chinese market entry.