62 | FORBES ASIA NOVEMBER 2016
platform—claimed
the majority of online
sales last year for the
first time. Ryan Hart,
a Singapore-based
analyst for consult-
ing firm Forrester,
says improvements
in customer experi-
ence improve revenue:
“The companies that
are doing well are the
ones that are reliable.”
Liu believes that
these trends play to
JD’s strengths. Nearly all of the goods
that JD sells directly to consumers
come from a network of 234 warehous-
es. (The rest is sold by the brands, their
distributors or other formally registered
businesses.) JD controls its deliver-
ies as well. Around 60% of its 114,000
employees are engaged full-time in de-
livering packages. These deliverymen,
attired in red and often zipping about
on three-wheeled electric motorbikes,
are a staple of big-city streets in China.
By managing the entire supply
chain, Liu believes that he can ensure
the authenticity of what he sells and
ofer better service. When residents
of major Chinese cities place an order
before 11 a.m., JD promises that their
package will arrive the same day. Online
shopping in China “has fundamentally
changed,” explains Liu. “Today custom-
ers use e-commerce first for quality,
second for service and third for price.
Chinese consumers are demanding
more and more quality products.”
Providing such assurances, though,
has been expensive. Due to the large
sums necessary to construct warehous-
es, pay tens of thousands of delivery-
men and invest in new businesses, such
as finance, JD has not turned a profit
since its 2014 IPO. Last year it lost $1.4
billion. By contrast, Alibaba, which has
traditionally relied on outside parties
to sell and ship goods sold on its plat-
forms, has minted money. It recorded a
net profit of $11.1 billion on revenue ofChina to a father engaged in cargo ship-
ping, and he started out in retail with
no more than a market stall. Today he
is worth $6.8 billion, making him the
16th-wealthiest person in China.
Liu can thank a rapidly changing
Chinese consumer. In the early years of
e-commerce in China consumers were
primarily attracted by bargains and the
convenience of shopping from home.
Nowadays, Chinese are becoming more
educated and health-conscious, and
that’s driving a transformation in what
they expect from an Internet retailer.
“Users have gotten a lot more sophisti-
cated,” says Chi Tsang, head of Asia In-
ternet research at HSBC in Hong Kong.
“They’ve gotten richer, and they expect
higher-quality products, better delivery
and better customer service.”
That is reordering the competi-
tive landscape. The dominant player
has been Alibaba’s Taobao platform, a
marketplace where regular folk set up
online shops and peddle everything
from T-shirts to mobile phones. But
Taobao has also earned a reputation as
a buyer-beware free-for-all, on which
the unscrupulous hawk counterfeit
Gucci handbags, fake cosmetics and
other illicit goods. Increasingly, shop-
pers are logging on to sites on which
the companies and brands themselves
sell their products directly. According
to iResearch, a Chinese data provider,
these “business-to-consumer” sites—
which include JD and Alibaba’s Tmall
$15.7 billion in its last fiscal year.
Liu, convinced of the superiority
of his business model, says eventually
JD will climb out of the red. “We are
edging closer and closer to profitabil-
ity,” he says. JD is forecast to narrow its
losses to $507 million this year and $183
million next year, according to Bloom-
berg. But the red ink may be hurting the
company’s stock—it’s down nearly 20%
this year, knocking $1 billion of his net
worth from a year ago.
Liu’s strategy has its roots in the
company’s earliest days. After study-
ing sociology at China’s prestigious
Renmin University, he opened a stall
called Jingdong Duo Meiti in 1998 at a
Beijing electronics market, from which
he sold CD burners and computer
gear. (Jingdong, later shortened to JD,
is a combination of part of Liu’s given
name, Qiangdong, and—rumor has it—
the name of his girlfriend at the time.)
At first the business struggled. Insis-
tent on selling authentic products and
resistant to haggling, he had trouble
competing in the cutthroat environ-
ment. Greater success came when he
altered his business model. Realizing
that other sellers didn’t care to stock a
lot of inventory, he figured out that he
could become a supplier to the other
stalls if he kept the right merchandise
on hand. Liu rented storage space,
and when customers asked salesmen
throughout the marketplace for gadgets
they didn’t have, they bought from Liu.
Despite its immense size, JD today
retains some of the characteristics of an
innovative small shop. JD executives say
Liu maintains an intimate knowledge of
all aspects of the business, from invento-
ries to marketing campaigns. He wears
his billionaire status lightly, too. Liu is
dressed in a light-blue button-down shirt
and brown slacks for the interview, with
a company ID slung around his neck, just
like any headquarters employee. “Rich-
ard is really a rare type of entrepreneur,
who is very strategic and bold on one
side, and on the other side is grounded,
very down to earth,” says Chen Zhang,
JD’s chief technology oicer.FORBES ASIA
CHINA’S 100 RICHEST — RICHARD LIU
DIFFERENT MODELS
JD.COM GENERATES MUCH HIGHER REVENUE THAN
ALIBABA, BUT ITS HIGHER COSTS PUT IT IN THE RED.ALIBABA
JD.COM GROUP HOLDING
FOUNDED 1998 1999
FOUNDER RICHARD LIU JACK MA
REVENUE^1 $28 BIL $15.7 BIL
NET INCOME^1 –$1.4 BIL $11.1 BIL
MARKET CAP $38.3 BIL $258.4 BIL
ACTIVE BUYERS^2 188 MIL 434 MIL
NUMBER OF EMPLOYEES^2 113,679 46,228
BUSINESS-TO-CONSUMER 23 58
E-COMMERCE MKT SHARE (CHINA)^1(^1) FIGURES ARE FOR 2015 FOR JD.COM AND THE YEAR ENDED MAR. 31 FOR ALIBABA. (^2) AS OF JUNE.
SOURCES: BLOOMBERG; STATISTA; COMPANIES.