JD.com is having a bumper ‘618’ as Chinese shoppers stay online

June is always a big month for Chinese e-commerce company JD.com. This year it could be huge.

JD.com’s most important annual sales campaign — “618” — ends Thursday. The three-week shopping event started back in 2004 typically brings in tens of billions of dollars in sales.

This year’s campaign, though, is unlike any other in the company’s history. The event — which has grown to include JD.com’s big Chinese rivals, Alibaba and Pinduoduo — is one of the most significant barometers yet of how much Chinese consumers are spending as the world’s second largest economy slowly recovers from the coronavirus pandemic.

It’s a big opportunity for JD to prove its role in China’s economic recovery and demonstrate that it has moved on from a 2018 scandal involving its CEO. The company is China’s second biggest e-commerce company with 20% market share, though it lags far behind Alibaba’s 60%. Pinduoduo is third with 10%.

“This moment is pretty important,” Ling Chenkai, vice president of JD Retail, told CNN Business in an interview earlier this week. “This is the first nationwide sales event during the recovery of the virus.”

So far, Ling said the company has seen “pretty good momentum,” nothing that electronic goods, smartphones and beauty products have “all just rebounded really well.”

“618” also coincides with the company’s secondary listing this week on Hong Kong’s stock exchange. It raised nearly $3.9 billion — money that could help it increase its share of China’s e-commerce market. JD.com shares in Hong Kong jumped 3.5% in their debut on Thursday.

The ‘biggest winner’ of the lockdown

At the height of the coronavirus outbreak in China, large parts of the country were on lockdown, driving a lot of people to turn to online platforms for groceries and daily goods.

JD was best placed to meet the surge in demand because, unlike Alibaba and Pinduoduo, it has its own logistics and delivery services.

JD’s approach is more costly, but it is also more reliable — and its control over the entire network has paid off handsomely during the pandemic.

“Without a doubt, JD is the biggest winner of the pandemic,” said Bernstein analyst David Dai.

JD and its logistics network were running at near full capacity, even in the worst days of the pandemic, while other e-commerce platforms couldn’t fulfill orders, Dai added. Top executives at Alibaba and Pinduoduo acknowledged delivery issues during earnings calls earlier this year because of delays and limits in delivery capacity.

Meanwhile, JD’s chief financial officer Sidney Huang said last month that the company was able to provide “undisrupted and timely services to users” throughout the Covid-19 outbreak.

“As a result, [JD has] won users, they have won orders and the tailwind is helping them not only during the pandemic, but also … after the pandemic,” Dai said.

Ling called the pandemic “a double-edged sword.”

Covid-19 helped the company grow sales in medical supplies, fresh produce and daily necessities, the JD executive said, but demand in other categories was severely impacted, such as home appliances and other big ticket items.

Because the rest of the world is still fighting Covid-19, domestic consumption will be key to China’s economic recovery. And early numbers for June indicate that Chinese shoppers are eager to spend.

‘618’ sales up nearly 20%

Demand for fresh groceries surged, with sales more than tripling over last year. On Thursday afternoon, with a few hours left in the “618” event, JD said sales had topped 239 billion yuan ($33.8 billion), up nearly 19% over last year.

At least one of JD’s rivals is also seeing positive trends. An Alibaba spokesman said on Monday that categories such as pet snacks, beauty tools and health check devices were showing “high triple-digit growth this year” so far. Pinduoduo did not respond to requests for comment.

The Chinese government has also latched on to “618” in an effort to spur domestic consumption. Beijing offered government-sponsored coupons to JD users, who could use them to get discounts on items like home appliances or furniture. City mayors used live-streaming to sell local fruits and vegetables.

Coming out of Covid-19, Chinese consumers are spending more time shopping online, and expanding the kinds of goods they buy, said Xiaofeng Wang, an analyst with market research firm Forrester.

More older Chinese shoppers are also trying out e-commerce, she said.

“Previously they didn’t shop online, and now they have to,” Wang said. Older Chinese are now buying groceries online, and they’ll likely expand their online shopping habits to other categories, such as clothing and footwear. A Forrester survey conducted in April found that 74% of respondents over the age of 65 in China said they would “shop much more online in the future.”

JD’s Hong Kong listing comes as tensions between the United States and China are ramping up. Chinese companies listed on US exchanges are coming under much more intense scrutiny from US lawmakers.

Ling declined to comment on the potential risk to its business should tensions between Beijing and Washington continue to escalate.

“We do hope that there could be a very open and equal environment, global environment, for us to work with other partners, no matter [if they are] domestic or overseas,” Ling, the VP for JD Retail, said.

The Hong Kong listing is about more than just protecting JD from tensions in the United States, where it trades on the Nasdaq exchange. JD said it will use the fresh money it raises to invest in supply chain technology and improve operating efficiency.

Founder still plays an ‘important role’

JD was founded by billionaire Richard Liu in 1998, and he remains the company’s CEO. But since his 2018 arrest in the United States on suspicion of sexual misconduct, Liu has handed control of operations to JD Retail CEO Xu Lei. Minnesota prosecutors decided not to file charges against Liu, who has apologized for his “interactions” with a woman and said in December 2018 that he did not break the law.

Liu may have taken a lower profile in the last couple of years but Ling said he’s still very present at the company.

“Honestly speaking, Richard is still playing a very important role in the company, and he’s also involved in all the strategy and development,” he said.