Even after Beijing Jingdong Century Trading Co., Ltd. (Jingdong Century) moved out of Zhongguancun electronics market, its office is still bustling with activity; couriers come and go, and boxes for IT equipment are piled high.
But unlike its counterparts at the mall, Jingdong Century has no offline shops. In four years, 360buy Jingdong Mall (http://www.360buy.com), has become the largest professional 3C (Computer, Communications and Consumer Electronics) online sales platform in China. Last year, it received a USD10 million cash injection from Capital Today.
Since it began trial online sales in 2003, 360buy Jingdong Mall has been aboard an express train, reporting annual profit growth of 300-400%. Its sales rocketed from RMB10 million (USD1.4 million) in 2006 to RMB360 million (USD52.6 million) in 2007, and are expected to hit RMB1.4 billion (USD204 million) this year.
Since the online retailer began operations, investors have rejoiced and rivals have been green with envy. The company’s success relies, in part, on unique business strategies. For instance, it spends very little on media advertising. Over 85% of its sales come from word of mouth, and its repeat order rate (ROR) accounts for up to 80% of its revenues.
“Our business model is not complicated, but some details or parts can’t be easily copied,” says Liu Qiangdong, CEO of 360buy Jingdong Mall. “For instance, our IT business system has been constructed over a long period and is well aligned with our actual demand. It consists of front end, back end, ERP and other subsystems. We also have four years of experience in product operations, inventory control and logistics. These factors can’t be cloned. They are the keys to our success.”
360buy Jingdong Mall positions itself as a professional retailer. Unlike traditional retailers like Gome and Suning, it bases its entire model on the light-asset Internet. Liu thinks that the value of 360buy Jingdong Mall lies in the continuous optimization of online shopping experience at the front end through IT and the acceleration of inventory turnover at the back office.
Complete Value-chain Platform
At Zhongguancun, as with the throngs of other consumer electronics markets throughout China, there are many online electronics retailers like 360buy Jingdong Mall. They have both offline and online stores to sell digital products, but 360buy Jingdong Mall has managed phenomenal growth.
Liu says the success stems from the fact that the platform service sells a full range of 3C products and controls the complete retail value chain.
Last March, Zhu Jianyue, founder of it3q.com.cn, shut down the website and retreated to traditional retail to prepare for a brand name consumer electronics retail chain. Previously, he had opened several shops at Zhongguancun Hailong Electronics Market and Top Electronics City, which sold 3C products and wholesaled servers to retailers. In early 2007, as China’s online retail sector saw a surge, Zhu decided to try out online retail.
For a while business was good with monthly sales reaching nearly RMB1 million (USD146,325) at one time. Zhu chose to keep a small inventory for some products because of the rapid changes in the prices of digital products. When orders were placed online for some products he would snatch the goods at Zhongguancun stores.
However, when it3q.com.cn expanded, the logistics and supplies hit a bottleneck. Sometimes, when an order was placed for a hard-to-get product, it3q.com.cn failed to find a supplier at Zhongguancun. That led to disappointed customers. And delivery outsourcing is also a frequent headache for Zhu. Because the unit price of digital products was very high, couriers would run away with the products occasionally. In the end, he was forced to shut down the website and concentrate on offline sales.
The story is typical of many such Zhongguancun-based online retailers. They have been incapable of ensuring a smooth logistics and supply process to satisfy customers.
Liu was able to get around this issue by building his own warehouse and logistics team to control the entire value chain from the moment the products are dispatched from the factory to the moment they are delivered to customers, covering purchasing, storage, logistics and delivery.