When talking with Richard Liu, founder of JD.com, one of the largest retailers in China, second to Alibaba with 30% market share, Bloomberg asked about his plans to make its US debut.
“Richard Liu’s strategy is simple: sell quality Chinese goods at lower prices than his competitors.”
While the focus was on JD.com entering the US market, and in the future becoming a competitor to Amazon, this Liu’s insight paints a different story. The marketplace they will build will inevitably allow any retailer to join, but JD.com focus is on creating a channel for Chinese goods to US customers.
Customers, and the media talk a big game about manufacturing ethics, and the pressure on local retailers. And then they want a $9.99 t-shirt. Ethical supply chain is good, fast shipping is better, low price is best.
This is why JD.com wants to enter the US market. Demand for low prices is as big as it ever was, and most customers do not care where the products are coming from. Majority of goods are made outside of the US anyway.
However China is also the largest source of counterfeit products. Report released by U.S. Chamber of Commerce Global Intellectual Property Center (GIPC) estimated global counterfeit market at $461 billion in 2016. 86% of all seized counterfeits originate in China and Hong Kong.
Wish was the most downloaded shopping app in the US last year; they built it on having those $9.99 t-shirts for sale. Wish’s founder and CEO Peter Szulczewski recently said “One thing people are overlooking is that we have 600,000 merchants.” The vast majority of businesses that sell on Wish are based in China.
JD.com is rumored to have invested around $50 million into Wish in 2016, though this is yet to be officially confirmed. If true, JD.com making their own move is a confirmation that the demand for goods on Wish is substantial.
Delivery speed on Wish is never the two-day free shipping most Amazon customers are used to, but the price is lower. The company’s key asset is the warehousing, and shipping pipeline they built in China, creating an efficient funnel for customers to buy goods directly from China.
Other major marketplaces have their share of direct-from-China goods too. More than 35% of the top ten thousand sellers offering products on eBay.com are based in China. Even among the top one hundred thousand sellers only half are based in the US - United Kingdom contributes 20%, while China adds 17%.
Amazon marketplace is at least a third from China too. Based on a combined average of Amazon’s 5 European marketplaces (UK, Germany, France, Italy, Spain). Unfortunately this is only possible for the European marketplaces, and the same analysis is not possible for Amazon.com. Nonetheless China sellers share in the US marketplace is even higher.
Marketplaces made worldwide supply chain closer to customers. Services like Fulfillment by Amazon (FBA) are making it even closer still. Direct-to-consumer from the source is the most efficient, but it does mean that the notion of being a retailer is going to change.
Not surprisingly many customers are willing to wait longer to pay less. It’s for the marketplaces to solve the mountain of counterfeits, and decide how they treat the booming worldwide sellers market.
