JD.com: Vertical Integration and New Growth Drivers

Administrateur
2 days ago
4 min read

A Fully Integrated End-to-End Retailer

Founded in 1998 by Liu Qiangdong and listed on the Nasdaq since 2014, JD.com has become China’s largest retailer by revenue, posting RMB 1.158 trillion (USD 158.8 billion) in 2024. Unlike Alibaba or PDD Holdings, JD.com relies primarily on a first-party model: it purchases inventory, operates 1,600 robot-enabled warehouses, and controls last-mile delivery nationwide. This proprietary supply chain delivers 24-hour shipping for 95 % of orders, ensuring quality and reliability but requiring heavy investment that compresses margins.

Five Pillars Driving Diversification

Since 2023 JD.com has organised its business around five segments:

JD Retail – first-party sales and marketplace (71 % of 2024 revenue).
JD Logistics (JDL) – supply-chain services for JD and 300,000 external clients.
JD Health – online pharmacy and telemedicine, the market leader in a tightly regulated sector.
JD Industrials & JD Property – B2B sourcing platform and logistics-asset management.
Innovation & Services – cloud, generative AI and payments.

The strategy is to monetise JD’s logistics and tech capabilities, cutting reliance on low-margin physical product sales.

A Champion Still Highly Domestic

Despite launching a “Global Sales” offer in late 2024 (United States, Japan, Singapore, Malaysia) and building 100-plus overseas warehouses, international operations still account for only 5 % of revenue. JD aims to double its offshore logistics capacity by 2026 and reach 10 % of sales outside China by 2027. A potential bid for UK retailer Currys would support that goal, yet Amazon’s dominance and geopolitics pose major hurdles.

Governance: Refocus After Walmart’s Exit

Ownership is fragmented. Liu Qiangdong holds roughly 11 % of shares but retains majority voting power via a dual-class structure. Tencent still owns just over 2 %, while Walmart fully exited in 2024 to refocus on its own China operations. Large institutions (Vanguard, BlackRock, Capital Group) make up the free float. Walmart’s departure removes a potentially competing strategic shareholder and enhances the founder’s influence.

JD vs Alibaba and PDD: Three Models, Three Margins

Business model – JD sells inventory and charges marketplace fees; Alibaba and PDD are asset-light marketplaces with no inventory or logistics costs.
Price & segments – PDD leads ultra-discount in lower-tier cities; Alibaba offers a broad premium catalogue plus cloud; JD differentiates through service quality, 24-hour delivery and sensitive categories such as electronics and fresh food.
Margins – JD’s vertical integration produced a 3.8 % operating margin in 2024, versus 14 % for Alibaba and over 28 % for PDD. Fulfilment costs (5.8 % of Q4-24 revenue) explain the gap but also create barriers to entry and optimisation levers.

New Growth Avenues

Local retail & on-demand (JD NOW) – nine-minute delivery from 500,000 partner stores, building an omnichannel ecosystem similar to Meituan.
7FRESH and Ochama – hybrid supermarkets and automated stores in Europe testing click-and-collect.
JD Cloud & generative AI – proprietary LLMs that refine demand forecasting and customer support.
JD Industrials – a spare-parts marketplace offering next-day delivery to industrial SMEs.
Financial services – JD Technology provides consumer credit and compliant SaaS solutions.

These capital-light verticals lifted service revenue from 18 % in 2022 to 24 % in 2024 and should top 30 % by 2027, nudging group operating margin toward 5 %.

Why Are JD’s Margins Still Below PDD’s?

Revenue mix – 76 % still comes from product sales at 14 % gross margin, whereas PDD earns most of its revenue from ads and commissions at 80 %+ gross margin.
Logistics burden – JD bears wages (620,000 employees), property and fuel; PDD outsources delivery and returns.
Pricing strategy – since 2023 JD has subsidised certain categories to defend market share, compressing retail spreads.
Capex & R&D – drones, AGVs, automated sorting and AI are capitalised but weigh on near-term earnings.

As services scale and the network is optimised, JD targets ~5 % operating margin by 2027, bringing it closer to Alibaba (ex-cloud) while preserving its quality edge.

JD Logistics: Profitability at Last

Partially spun off in 2021, JD Logistics initially served the core business. Today, over half of its volumes come from 300,000 third-party clients. Network density, 3D sorting, mobile robots and route pooling delivered a positive operating margin in 2024. Further contracts in pharma, luxury and auto-parts, plus cross-border expansion, should consolidate profitability.

Outlook 2025-2027

Domestic market – Chinese consumption is rebounding (+15.8 % Q1-25). JD guides for 8-12 % annual growth despite price competition.
Service revenue – expected to gain six percentage points by 2027, driven by Logistics, Health and Industrials.
International – priority on Southeast Asia and Europe via asset-light partnerships; 10 % overseas revenue goal for 2027.
Catalysts – execution of “lowest everyday price”, a possible JD Industrials IPO and rollout of the “ChatJD” LLM.
Risks – prolonged price wars, antitrust regulation, geopolitical tension and ESG scrutiny on network carbon footprint.

Conclusion

With unrivalled vertical integration and a reputation for reliability, JD.com remains a cornerstone of Chinese e-commerce. Its challenge is to balance growth, profitability and global expansion. If service businesses scale and the international strategy succeeds without diluting its premium promise, JD could turn its logistics advantage into a comprehensive platform capable of competing with Alibaba while defending share against PDD’s ultra-light model.