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JD.com squeezed by price war and brain drain

China's No. 2 e-tailer struggles for elusive profits

Several senior JD.com executives are leaving amid the company's uncertain outlook.   © Reuters

SHANGHAI/BEIJING -- Chinese e-commerce operator JD.com is under heightened pressure as rivals' aggressive discounts weigh on its bottom line and senior executives continue to leave.

With its woes compounded by a sexual assault scandal surrounding the CEO, China's second-largest e-tailer faces the prospect of sinking further into the red after nearly breaking even and ceding more ground to industry leader Alibaba Group Holding as smaller operators emerge.

JD.com announced Tuesday that it has logged a record 180 billion yuan ($26 billion) in transactions during its "6.18" anniversary sale, surpassing last year's 159 billion yuan.

"High-quality products were especially popular," Yan Xiaobing, vice president of sales, said at a news conference that day. "We also saw significant growth in regional cities with smaller populations."

The sale, which will run through Thursday, is held every year around the same time and is China's second-largest online shopping event -- after Alibaba's Singles Day sale.

But despite a stellar showing this year, JD.com's future is far from certain. Alibaba, which boasts more than triple JD.com's annual transaction volume, launched 1.5 million new products and flooded customers with half-off coupons during the rival's sale. This has allowed Alibaba to match the smaller platform's prices on many items this year, dealing a blow to JD.com's usual advantage during this period.

"We don't want to be compared with our rivals," Yan said, a possible sign that JD.com is growing worried about the competition.

The company charges sellers lower fees than does Alibaba, but has been spending just as much lately on promoting products. It has significantly less wiggle room than its better-known rival.

"Although transaction volume is going up, JD.com must be feeling the heat in terms of profits," said a source at a manufacturer that uses the platform, echoing sentiment among vendors.

JD.com has already tallied more than 180 billion yuan in transactions during its "6.18" anniversary sale this year. (Photo by Shin Watanabe)

Smaller competitors are catching up quickly as well. Pinduoduo, which has catapulted to the No. 3 spot through rock-bottom prices, introduced the iPhone XS on its platform for 1,000 yuan less than JD.com during the latter's annual sale. Pinduoduo is carving out market share by offering eye-catching deals, even at a loss.

China's e-commerce sales jumped roughly 50% in 2013. Growth has since slowed to about 20% for the first five months of this year, according to the National Statistics Bureau.

JD.com's earnings have never stood out, given the company's emphasis on bolstering the logistics network and other capital investments. Still, its net loss shrank to 150 million yuan in 2017 from 12.9 billion yuan in 2014.

But losses grew again last year to 2.4 billion yuan as the leadership team grapples with scandal. Competitors are sweeping in to take advantage of the company's moment of weakness.

In August, JD.com founder and CEO Richard Liu Qiandong was arrested in the U.S. on suspicion of rape. Though never charged, he has since eased his iron grip on the company and delegated more authority.

"Now, no one can make key strategic decisions," said one employee.

But Liu still criticizes other executives harshly at work, leading some to jump ship, a company source said. Lan Ye, who helped drive the group's rapid growth as vice president, resigned in May. Chief Technology Officer Zhang Chen and General Counsel Lu Yong are stepping down in June.

Zhang, who formerly worked for Yahoo, led JD.com's push into unmanned logistics operations. He was also the point person for its capital partnership with Google, which began in 2018.

JD.com cited family matters for all three resignations. But the trend appears to be spreading to midlevel managers as well.

"Talented workers are starting to quit because they are worried about the outlook for the company," an employee said. Turmoil on the ground is further dissuading leadership from launching bold initiatives for growth.

JD.com is exploring a partnership with Tencent Holdings, its leading shareholder and Alibaba's rival. It actively promoted its anniversary sale this year through Tencent's smartphone games and social media platforms in an attempt to hit back at Alibaba.

However, Tencent "respects the independence of the companies we invest in," a company representative said, indicating that it has no plans at this point to deepen its relationship with the e-retailer.

Until a few years ago, JD.com was considered a serious contender to wrest away Alibaba's throne in China. But its momentum has long since evaporated. It remains to be seen whether the company can emerge from its slump and once again take the market by storm.

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