Alibaba, JD.Com Could Clash in US
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Two Chinese behemoths in online retailing that have battled at home may now take their rivalry to the U.S.—and challenge Amazon. Alibaba Group Holding has reportedly held talks with grocer Kroger (KR) to form a U.S. partnership to better compete with Amazon.com (AMZN).
Alibaba’s competitor, JD.Com (JD), is also looking to plant a flag here. Richard Liu, JD’s chief executive, has said he plans to expand his e-commerce platform to the U.S. later this year, with a distribution presence starting in Los Angeles. He could partner with Walmart (WMT), a major JD shareholder and retail partner in China.
To call Alibaba and JD the Amazons of China is an understatement. China mostly skipped the big-box store era that dominated U.S. retail before e-commerce took off, which means few powerful players stand in the way of Alibaba and JD. The two battle each other—sometimes bitterly.
Late last year, after about 100 domestic clothing brands left JD ahead of the Nov. 11, 2017, Singles Day shopping rush, the company blamed “coercive tactics from our competition, which if proven true would be illegal.” Alibaba denied any wrongdoing.
JD management recently told analysts that a few of the companies had come back, and that others said they didn’t receive enough traffic from Alibaba during Singles Day to make up for lost JD business. JD posts fourth-quarter results on Friday.
Last fall, Barron’s said investors should prefer JD shares. Since then, JD has gained 23%, versus 6% for Alibaba and 8% for the Standard & Poor’s 500 index.
The two companies differ in significant ways. Alibaba is larger and more prosperous. JD’s profits are held down by its spending to build its own end-to-end logistics network. That’s an important competitive advantage; JD does better in high-trust items like baby products and scores higher on customer-satisfaction surveys.
“coercive tactics from our competition, which if proven true would be illegal.”
One concern for JD is that it will stretch too far, too fast. It is expanding in Southeast Asia. It is building a distribution network in France, and says it wants to make a European push as soon as next year. JD recently opened a brick-and-mortar store in Beijing selling high-end food. For financing, the company last year created a subsidiary called JD Logistics, in which it’s sold an 18.6% stake.
Profits are slim today. Looking out to 2020, estimates for JD earnings range from $1 to $2.30 a share. That’s adjusted for “extraordinary items,” which, for a company in such fast motion, can become all too ordinary.
Assume the high end of earnings forecasts, factor in remaining growth, and consider low interest rates, then squint and perhaps have a belt of whiskey, and the $47 share price might look reasonable, maybe even cheap. It’s becoming difficult to tell.
But one thing we liked about JD is that its stock gain lagged behind Alibaba’s last year for no good reason.
It has since caught up. Time to sell.
Questions & Answers
Q.Which US retailer is Alibaba reportedly in talks with for a partnership?
Which US retailer is Alibaba reportedly in talks with for a partnership?
Alibaba Group Holding has reportedly held talks with the grocer Kroger. This potential partnership aims to help Alibaba better compete with Amazon.com in the U.S. Market.
Q.Which US company might JD.Com partner with for its expansion?
Which US company might JD.Com partner with for its expansion?
JD.Com might partner with Walmart, which is a major shareholder in JD and also a retail partner in China. JD.Com plans to expand its e-commerce platform to the U.S. Later this year.
Q.What is a key difference between Alibaba and JD.Com's business models mentioned in the article?
What is a key difference between Alibaba and JD.Com's business models mentioned in the article?
Alibaba is larger and more prosperous. JD.Com, however, invests heavily in building its own end-to-end logistics network, which gives it a competitive advantage in customer satisfaction and high-trust items.
Q.What accusation did JD make against its competition regarding domestic clothing brands?
What accusation did JD make against its competition regarding domestic clothing brands?
JD blamed “coercive tactics” from its competition after about 100 domestic clothing brands left its platform late last year. This happened ahead of the Singles Day shopping rush.