JD Retail to Explore Lower-tier China; Stock Jumps 3%
JD Retail plans to intensify its rivalry against Pinduoduo and Alibaba in China's small- and medium-sized cities over the next three years.
JD.com Inc. (Nasdaq: JD) announced today expansion plans into small- and medium-sized cities in China, sending its stock more than 3% higher intraday, to $40.40 per American depositary share.
"In the next three years, another JD Retail will be created in lower-tier cities," Lei Xu, the chief executive officer of JD Retail, said at the annual conference on Sunday, as reported by various media.
The Beijing-based e-commerce platform is now set on "accelerated growth with quality," as announced at the conference.
Xu also said that JD Retail hopes to boost transaction volume, revenue, users and profits in 2020.
JD Retail dived deeper into small- and medium-sized cities in China in September by launching a social e-commerce app, Jingxi. The platform rivals group discounter retailers Pinduoduo Inc. (Nasdaq: PDD) and Juhuasuan, backed by Alibaba Group Holding Ltd. (NYSE: BABA). Buyers who share product information on popular social networks and invite friends, family and social contacts to purchase together get rewards and discounts.
JD Retail operates nearly 300 physical stores selling digital products, more than 12,000 home appliance specialty stores and more than 1 million cooperation stores. That segment of JD reported revenue of $18.4 billion for the third quarter, an increase of 27.3% year-over-year, with the operating profit margin of 3.3%.
Lower-tier cities in China are less densely populated and see slower economic growth than first-tier cities. Fueled by favorable government policies, rising population, higher household income and a stronger appetite for spending, lower-tier cities are expected to hold potential for consumption growth.
Morgan Stanley's Chief China Economist, Robin Xing, said in a 2018 analysis that consumption in China's smaller cities could triple by 2030 from $2.3 trillion in 2017 to $6.9 trillion in 2030.
However, as China deals with inflation amid the economic slowdown and ongoing trade tensions, a decline in purchasing power has been noted more recently. The National Bureau of Statistics showed on Thursday that China's consumer prices in December rose 4.5% from a year earlier, adding to the burden.