JD Logistics IPO: $3.4B Funding for China's Amazon Competitor

JD Logistics Prepares for Hong Kong IPO After Years of Losses

Following a 14-year period of financial deficits, JD.com’s logistics division is preparing to launch an initial public offering in Hong Kong. JD Logistics is anticipating a share price ranging from HK$39.36 to HK$43.36 per share.

This offering has the potential to generate approximately HK$26.4 billion, equivalent to $3.4 billion, as detailed in their recent filing.

Building an Independent Logistics Network

JD.com, a major competitor to Alibaba in the Chinese e-commerce market, initiated the development of its own logistics and transportation infrastructure in 2007.

The logistics unit was subsequently established as a separate entity in 2017. This mirrored a trend within JD.com, where significant business segments gained independence, including its health and fintech divisions.

Currently, JD.com maintains the position of largest shareholder in JD Logistics, holding a substantial 79% stake.

A Different Approach to Logistics

Unlike Alibaba, which primarily utilizes a network of third-party delivery services, JD.com has adopted a capital-intensive strategy akin to Amazon.

This involves constructing extensive warehouse facilities and directly employing a large workforce of delivery personnel.

By 2020, JD Logistics had a workforce exceeding 246,800 employees involved in delivery, warehousing, and various customer support functions. Total employee numbers reached 258,700 by the end of last year.

Expanding Beyond JD.com

A key strategic move for JD Logistics after its independence was to extend its technological capabilities to external clients. This allowed businesses, such as Skechers, to enhance their logistics operations.

Consequently, revenue generated from external customers increased from 29.9% in 2018 to 38.4% in 2019, and further to 43.4% during the nine months concluding in September 2020.

The Trend Towards Outsourcing

The company stated in its prospectus that its growth strategy is predicated on the continued expansion of outsourced supply chain services.

“We and other third-party service providers are typically able to deliver these services with greater efficiency than internal operations,” the firm explained. “This is largely due to our specialized knowledge, advanced technology, and a more adaptable employee cost structure.”

However, the company also acknowledged the possibility of retailers reverting to in-house supply chain management if they perceive risks associated with relying on external providers.

Speed and Efficiency as Key Differentiators

A primary advantage offered by JD Logistics is its commitment to same- or next-day delivery. This is facilitated by strategically located warehouses positioned near consumers.

In 2020, approximately 90% of all orders processed by the company were delivered either on the same day or the following day.

Financial Performance and Improvements

Delivering this level of service comes with significant costs, although losses are diminishing. JD Logistics reported net losses of 2.8 billion yuan in 2018, 2.2 billion yuan in 2019, and a modest 11.7 million yuan loss for the nine months ending September 30, 2020.

The firm’s gross profit margin saw improvement, rising from 8.5% during the nine months ended September 30, 2019, to 10.9% for the corresponding period in 2020.

This improvement was driven by economies of scale, enhanced operational efficiency, and government support, including reductions in employer social security contributions and toll waivers during the COVID-19 pandemic.

Partnerships and Instant Delivery

JD Logistics has expanded into the realm of instant delivery through a partnership with Dada, a Chinese last-mile delivery service. This collaboration resulted in the creation of JDDJ, known as “JD Arrives Home” in Chinese.

Since 2016, JDDJ has served as Walmart’s on-demand delivery service provider within China.