Why Luxury Brands Won’t Mind JD.com’s Earnings Dip

The first quarter earnings of Chinese e-commerce giant JD.com didn’t meet investors’ expectations when they were announced yesterday. While net revenues were up 33.1 percent to 100.1 billion RMB (16 billion), and the number of annual active users rose 27.6 percent to 301.8 million, reported adjusted earnings per share were just 11 cents, down from 15 cents last year. Shares fell 4.6 percent on May 8, the day of the announcement, but there’s a reason why luxury brands should be heartened by the results. The dip in profits is in large part attributable to rising investment in the company’s logistics network and technology. Having their own best-in-class delivery network gives JD.com greater ability to deliver the speed, accuracy, and level of service that luxury brands demand. That’s a major point of differentiation from rival Alibaba, which prefers to let third-party delivery companies handle shipping. JD.com is investing heavily in JD logistics, which it spun off in April last year. According to Reuters, the affiliate “is developing drones, automation, and robotics.” JD.com’s package distribution centers have become so elaborate and intriguing (and e-commerce so central to 21st-century life in China) that Chinese artist Cao Fei utilized them for her film installation for the “One Hand Clapping” exhibition, currently on show at the Guggenheim. Richard Liu, Chairman and CEO of JD.com, said, "We will continue to focus on building our technology capabilities to further enhance our customer experience and deepen the strength of our infrastructure.” The company has long led the way in shipping times in China, and they’re only getting better. In Q1, they expanded their Expedited Delivery service, which gets small and medium-sized packages to customers in just two hours, and large items to them in three hours. It now covers more than 50 major cities and approximately 1,000 counties and districts in China. JD Logistics has also paired the China Railway Corporation’s high-speed rail network with its Luxury Express last mile delivery service to ensure same-day delivery of high-end items from across the country. It’s not just about efficiency, however. Last year, JD.com also announced a “white glove” delivery service to cater to affluent consumers buying high-end brands. Suited, white-gloved couriers deliver items in electric cars, adding an element of prestige absent from the typical kuaidi (delivery) guys in China, who pile boxes precariously on the back of their scooters. Since its launch in 2017, JD.com’s luxury platform Toplife has signed up international luxury brands including Saint Laurent, Alexander McQueen, Derek Lam, and Rimowa. Of course, Alibaba is also investing heavily in myriad aspects of online and offline retail as the two e-commerce titans seek to assert even greater dominance in the market. But as Morningstar analyst Chelsey Tam told Reuters, JD.com “management is squarely focused on gaining market share instead of profitability at this point.”

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Why Luxury Brands Won’t Mind JD.com’s Earnings Dip