Hillhouse, Sequoia join $2.5b round for JD.com's logistics unit

Other participants in the round include China Merchants Group, Tencent Holdings, China Life Insurance, a fund-of-funds managed by China Development Bank Capital, China Structural Reform Fund, and ICBC International, among others. JD.com will remain the majority shareholder with an 81.4% stake.

The company, which claims to be China’s largest retailer by revenue as well as its number one e-commerce player, has operated its own logistics system since 2007. The business was restructured as a separate unit – known as JD Logistics – last year. In addition to transporting standard items, it has dedicated channels for cold chain, business-to-business customers, and cross-border shipments. There are third-party clients as well as JD.com itself.

JD Logistics is also the holding entity for New Dada, a crowdsourced delivery business formed in 2016 through the merger of JD Daojia and Dada Nexus, an independent crowdsourced platform that previously received backing from the likes of Sequoia and DST Global. Walmart made a strategic investment in New Dada later in 2016.

When JD.com went public in 2014 it detailed plans to invest up to $1 billion over a three-year period in supply chain improvements. This was driven by a recognition that China’s warehousing and last-mile delivery services were insufficient to meet the needs of online retailers that want to reach more consumers without sacrificing on service quality.

“Our decision early on to build out our own logistics network has paved the way for JD Logistics to become the industry leader it is today. The shift throughout global e-commerce towards our model is vindication of the path we chose,” said Richard Liu, chairman and CEO of JD.com, in a statement. He added that the new capital would go towards the development of automation, drones, and robotics.

In building a fulfillment system, JD.com’s approach to the problem has differed to that of Alibaba Group. Alibaba – which unlike JD.com operates e-commerce platforms that serve primarily as marketplaces – created an information system known as Cainiao Network Technology that coordinates partners such as express delivery companies and real estate developers. The third parties own the physical infrastructure.

As of December 2016, JD.com operated 256 warehouses across 54 cities, and 6,906 delivery stations and pick-up stations. It employed 65,968 delivery personnel, 17,544 warehouse staff and 11,699 customer service personnel. Same-day and next-day delivery was possible in 1,410 counties and districts across China. The company fulfilled approximately 1.6 billion orders in 2016, generating revenue of $37.5 billion and a net loss of $492 million.

JD.com has already spun out JD Finance, which offers payment services and other financial services. Last year, the company agreed to sell its entire 68.6% stake to investors including Sequoia. It will receive 40% of JD Finance’s pre-tax profits once the business achieves positive pre-tax income and has the option to swap that right for a 40% equity stake. Liu retained a majority voting right in the business.

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• Topics
• Greater China
• Expansion
• Support services
• Technology
• China
• TMT
• Logistics
• JD.com
• Hillhouse Capital Management
• Sequoia Capital
• Tencent
• China Life