JD.com Could Be Returning to Russia
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JD.com, the second largest e-commerce player in China, could be returning to Russia soon according to a recent Kommersant report. JD previously entered the Russian market in 2015, but retreated a year later after struggling with cross-border logistics issues, merchant partnerships, and high marketing expenses.
JD’s previous effort featured partnerships with payment providers Qiwi and Yandex’s Yandex Money, logistics provider SPSR-Express, and online retailer Ulmart. This time around, JD.com could partner with AlfaGroup’s X5 Retail Group, which owns a nationwide network of Pyaterochka discount stores, Perekrestok supermarkets, and Carousel hypermarkets.
JD will let Russian customers purchase products online, and those goods will be delivered to Pyaterochka, Perekrestok, and Carousel stores for pickup. The partnership seems like a win-win deal for both companies — JD can piggyback its online operations off X5’s network of stores instead of launching new logistics services, and X5 adds more non-food products to its stores.
The deal should also lower marketing costs for JD with co-marketing campaigns: Ads for JD’s products are appearing in Pyaterochka stores, and will likely appear in Perekrestok and Carousel stores in the near future. The partnership could also revive JD’s previous relationships with Yandex and Qiwi, which both hold partnerships with X5.
Why does JD.com need the Russian market?
JD and its bigger rival Alibaba have been looking for growth opportunities beyond the Chinese market. The two companies are already clashing across Southeast Asia, where JD’s marketplace faces stiff competition from Alibaba-backed Lazada.
Both companies are also targeting Western markets. JD recently announced its plans to expand into Western Europe, and a new partnership with Alphabet’s Google will help it sell products to American shoppers. JD also lets Chinese shoppers buy overseas products from various countries through its cross-border e-commerce platform, JD Worldwide.
“JD will let Russian customers purchase products online, and those goods will be delivered to Pyaterochka, Perekrestok, and Carousel stores for pickup.”
Alibaba’s AliExpress platform, which lets Chinese sellers reach overseas buyers, is popular in Russia and Eastern Europe. 14% of European shoppers (including 69% of Russian shoppers) bought goods on AliExpress last year. That makes it the second biggest e-commerce platform in Europe after Amazon, which controlled a quarter of the market. Alibaba also recently launched a dedicated version of Tmall for Russian shoppers.
Alibaba’s popularity in Russia is troubling for JD, which seemingly surrendered the market to its rival with its premature exit. It’s also bad news for JD’s top investor, Tencent, which also reaches some Russian users with WeChat, the top mobile messaging app in China. In China, JD relies heavily on its integration with WeChat — which has over a billion monthly active users — to display ads, sell products, and accumulate shopper data.
The Russian market is trickier. Its mobile messaging market is dominated by apps like VK, WhatsApp, Skype, and Viber, which don’t have comparable relationships with JD.
Russia has a relatively high internet penetration rate of 71%, and about half of Russians shop online. Yet e-commerce transactions could only account for 3% of the country’s retail market this year, which suggests that many shoppers still rely on brick-and-mortar retailers.
Those numbers suggest that the Russian market is still ripe for a major e-commerce disruption. Alibaba will be a tough competitor for JD, but partnering with X5 Retail is a smart move since Russian shoppers still rely on brick-and-mortar stores. If JD can attract more partnerships, its second attempt could prove more fruitful than its first.
Questions & Answers
Q.What issues did JD.com face during its previous attempt to enter the Russian market?
What issues did JD.com face during its previous attempt to enter the Russian market?
JD.com struggled with cross-border logistics issues, difficulties forming merchant partnerships, and high marketing expenses when it first entered the Russian market.
Q.How will JD.com's new strategy in Russia differ from its previous approach to logistics and marketing?
How will JD.com's new strategy in Russia differ from its previous approach to logistics and marketing?
This time, JD.com plans to partner with X5 Retail Group to use their stores for product pickup, reducing the need for new logistics. Co-marketing campaigns with X5 are also expected to lower marketing costs.
Q.Why is the Russian market considered important for JD.com despite its previous difficulties?
Why is the Russian market considered important for JD.com despite its previous difficulties?
JD.com is seeking growth opportunities outside China, and the Russian market presents a chance for e-commerce disruption, especially given Alibaba's strong presence there.
Q.What is Alibaba's current market position in Russia that makes it a challenge for JD.com?
What is Alibaba's current market position in Russia that makes it a challenge for JD.com?
Alibaba's AliExpress is very popular in Russia, with 69% of Russian shoppers using it last year. Alibaba also recently launched a dedicated Tmall version for Russian customers.
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