JD.com leaps to O2O market

China's e-commerce is testing the online-to-offline (O2O) water, as online retailer JD.com, Inc. prepares to exploit the convenience store market.

On Monday JD.com, Inc., one of China's three leading business-to-customer (B2C) retailers, plans to integrate online sales with 11,000 physical convenience stores. The company intends to make more use of its established logistics systems by joining with 15 partner companies, including chain stores and enterprise resource planners (ERP) with nationwide networks, according to Shen Haoyu, JD.com, Inc.'s chief operating officer.

O2O POTENTIAL

Convenience stores have the fastest-growing sales volume, said Mo Daiqing, an analyst with China e-Commerce Research Center. Partner stores will help JD.com, Inc. accumulate customers in all cities with convenience store distribution networks.

Partner stores can set up online stores on JD.com, the company's e-commerce platform. Customers can then collect whatever they order online from stores in cities around the country.

The new business model offers traditional retailers more sales platforms and channels. It is a way for both sides to spread investment risk, said Mo.

JD.com, Inc. is expected to offer free delivery within the hour, and top speed delivery (within 15 minutes) at a cost. After-sales services for online goods will be dealt with in the physical partner stores. Delivery costs have not yet been determined and the final rate will be tailored to each city's consumption.

JD.com, Inc., has three logistics systems, including a real time point-to-point system tailored to the O2O strategy with strict time requirements. It has also set new standards for its value-added logistics system. Customers will be able to return faulty or unwanted goods to the store.

JD.com, Inc. moved into the digital realm in 2004, selling consumer electronics, computers and books. It now has 25 million registered users and 6,000 suppliers nationwide. By the end of 2013, JD.com, Inc. had 82 warehouses in 34 cities, almost 1,500 delivery terminals in 460 cities, and 209 locations for customers to pick up their orders. It became China's first e-commerce company to obtain an express delivery license in 2012.

CHALLENGES AHEAD

JD.com, Inc. is leading a trend for the integration of e-commerce and traditional retail businesses. China's online retail market has entered into a more rational stage with companies strengthening their internal operations, said Mao Ajing, an e-commerce analyst. In 2014, online retailers are forecast to increase as conventional retailers and brands seek opportunities online, she said.

Last year, the online retail market expanded to over 1.8 trillion yuan (293 billion U.S. dollars), a year-on-year increase of 42.8 percent, according to the China e-Commerce Research Center.

JD.com, Inc.'s partners in the O2O strategy include ERP software service providers, said Lu Zhenwang, chief executive officer with Wangqing Consulting. It shows Jingdong's clear objective of creating a multiple retailer ERP system, he said.

There are no unified standards for convenience stores. JD.com, Inc. is facing the difficulty of integrating an informatization platform with such diverse stores, he added.