JD.com Inc. (Nasdaq: JD) announced Sunday that the e-commerce giant’s strategy in the new year is to dive into small and medium sized cities.
“In the next three years, another JD Retail will be created in lower-tier cities,” Lei Xu, the chief executive officer of JD Retail said in an annual conference of its retail arm last Sunday.
The Beijing-based e-commerce platform set the tone of ‘accelerated growth with quality’ for JD.com's retail unit on the same day. Xu highlighted that the company wants to improve transaction volume, revenue, users, and profits in 2020.
JD Retail penetrated into small and medium-sized cities in China in September by launching its social e-commerce platform Jingxi to offer goods at lower prices. The company said in its earnings report that 75% of Jingxi’s new users came from lower-tier cities and 55% of users are female during the Singles Day promotion, or China’s Black Friday.
Jingxi rivaled Pinduoduo Inc. (Nasdaq: PDD) and Juhuasuan backed by Alibaba Group Holding Ltd. (NYSE: BABA) through similar model like providing discounts on team purchases. Buyers who share product information on popular social networks and invite friends, family and social contacts to purchase together get rewards and discounts.
JD Retail operates nearly 300 physical stores to sell digital products, more than 12,000 home appliance specialty stores, and more than one million cooperation stores. Xu said the logistics and consumer financial arms in JD.com will also support the retail department.
JD Retail segment had net revenues of $18.4 billion in the third quarter, an increase of 27.3% year-over-year with the operating profit margin of 3.3% during the quarter.
Lower-tier cities refers to less densely populated urban metropolises, different from the most developed areas like Beijing, Shanghai, Guangzhou and Shenzhen. Fueled by favorable government policies, a population boom, higher household income and a stronger appetite to spend, those cities are marked with increased consumption potential.
Consumption in China's smaller cities could triple by 2030 from $2.3 trillion in 2017 to $6.9 trillion in 2030, Morgan Stanley’s Chief China Economist Robin Xing, claimed in his analysis in 2018.
Despite the market potential in small cities, the country saw the declining purchasing power as inflation decreased the amount of goods or services consumers would be able to purchase. National Bureau of Statistics data showed last Thursday that China’s consumer prices in December rose 4.5% from a year earlier, adding burden on the consumption.
Shares in JD.com were trading at $40.42 intraday Monday, up 3.34% on the scheduled signing of a phase one U.S.-China trade deal.