The battle for market share in China’s ecommerce arena is over. Alibaba (NYSE:BABA) won. There’s no reason for JD.Com (NASDAQ:JD) shareholders decide to dump their JD stock, though. Alibaba isn’t as well-positioned to dominate the next chapter of eastern Asia’s maturing online-shopping industry; JD.com is the name to own on that front.
The next chapter is distinctly different from the previous one. Alibaba was largely in the right place at the right time, stealing a few pages from the Amazon (NASDAQ:AMZN) playbook at a time when China’s outlying areas were first accessing broadband, and smartphones were becoming the norm. JD arrived a little too late to that party.
With the country’s ecommerce market now relatively well saturated, the next chapter is one that will sell omnichannel and brick-and-mortar retailing support as a service in and of itself. That’s something JD has been doing for a while.
Logistics and JD Stock
It was laying the groundwork for the marketable service long before logistics became a revenue-bearing product.
As far back as 2014, JD had already established more than 80 warehouses, more than 1,600 delivery stations and more than 200 pickup sites in almost 500 Chinese cities. Same-day delivery was readily possible in most locales, and where it wasn’t easy, the nascent ecommerce outfit partnered with local convenience stores.
It was a network that would serve as the framework for something much bigger, however.
In early 2017, with deliveries and online-selling mostly mastered, JD partnered with Zebra to address the inevitable future of retail. The creation of the IoT + E-commerce Logistics Lab set the stage for higher-level things like data gathering and machine vision that would further obscure any seams between the steps taken between a consumer’s purchase and final delivery.
The logistics-as-a-service unit had become so well gelled, in fact, that in early 2017 JD.com spun it off as a stand-alone entity, though it didn’t stop development there. By last year, JD opened up its logistics network to third-party consumers and businesses, handling goods that weren’t directly sold to buyers out of JD’s inventory.
Although it’s a separate entity, there’s no disguising that JD Logistics largely exists to support JD.Com. The ecommerce site still owns more than 80% of JD Logistics, which just raised more than $200 million to invest in other logistics companies and related technologies.
JD is offering solutions to China’s consumer-oriented companies — and small players in particular — that Alibaba isn’t at a time when e-commerce spending (and offline spending) growth is slowing down.
The Alibaba Threat and JD Stock
That’s not to suggest Alibaba isn’t developing marketable solutions of its own as the market’s e-commerce industry marches toward its peak.
Case in point: In late 2017, Alibaba began work that would allow China’s six million small stores to plug into the power of cloud computing.
The platform, called Retail Integrated, was designed to help mom-and-pop shops streamline inventory purchasing and improve sales. The service was free, as long as users let Alibaba use those stores as shipping dropoff and delivery points, and store owners were willing to share valuable customer data.
By 2018, the e-commerce behemoth was using much of that technology to make its own grocery store chain, Hema, a state-of-the-art experience. The use of QR codes on a product’s label not only serves as a means of providing more information, but it’s also how consumers can select and pay for goods while they shop using nothing but their smartphones.
The technology even allows Hema stores to map out the typical path shoppers take through the aisles, identifying less-visited and more visited areas.
Alibaba’s retail tech has its fans and users to be sure, but adoption has been modest. The solution is for a problem most of China’s small shops aren’t convinced they have. What they really need is logistics solutions and foot traffic coming into their stores to begin with.
That’s what JD.Com and JD Logistics are offering.
Looking Ahead for JD Stock
Investors should absolutely keep things in perspective.
JD stock may have an edge right now with a much better-developed and more thoughtful logistics solutions, but Alibaba is still Alibaba. It can buy what it’s not yet developed. To that end, in March it invested nearly $700 million in China’s delivery and logistics outfit STO Express. It’s not done anything to alter STO’s operation, but there’s a reason it wants a seat at the table.
JD isn’t merely coasting on its past developments though. JD Logistics continues to work in a way that maintains its lead on the logistics front. That, at least indirectly, supports JD.com’s ecommerce ambitions.
It’s also a huge, even if overlooked, undertow that could let JD stock outperform most other names on China’s e-commerce landscape for the long haul.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.
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