Globally, there has been a trend of Internet pure plays opening brick-and-mortar stores. Amazon has opened physical bookstores in the US and fashion names such as Bonobos and Zalando have expanded offline. In China, Alibaba is partnering with Suning, which has more than 1,600 physical stores and 5,500 after-sales service centers, and is planning to open  100,000 Taobao rural service centers over the next three to five years. JD.com, the closest competitor of Alibaba in China, is embracing a similar brick-and-mortar strategy.

Brick-and-Mortar in Rural China

JD.com has opened physical service centers under the commercial name of Jingdong Bang in rural China, using a franchise model. These centers, which provide after-sales services for home appliances purchased from the company, are designed to tap into the appliance market in remote areas of China, where logistics are often challenging. Due to these high logistics costs, home appliances purchased online in rural China can cost 10%–30% more than they do in urban areas. JD.com uses its rural physical locations as distribution centers to overcome such cost challenges and to provide after-sales services such as delivery, installation and maintenance to ensure customer satisfaction. JD.com opened its first service center toward the end of 2014, and its original target was to open 500 centers by 2015, 1,000 by 2016 and 2,000 by 2017. The retailer has been expanding at a faster pace than expected, however. According to a company press release, it had already opened more than 1,200 service centers by the end of 2015.

Brick-and-Mortar Pharmacy Expansion

JD.com is expanding into brick-and-mortar in the pharmaceutical market, too, and is opening a new pharmacy in Qingdao as an experimental step in its O2O expansion strategy. The physical store will be a rebranded version of a pharmacy owned by Qingdao Anjitang Pharmacy, a company JD.com acquired in 2013. JD.com obtained a license to sell pharmaceutical products online in 2015 and is expected to utilize the Qingdao Anjitang chain to expand its pharmaceutical products business. IMS Health estimates that the Chinese pharmaceutical market will grow to $185 billion by 2018. In order to tap into this opportunity, JD.com has partnered with more than 70 brick-and-mortar pharmaceutical companies to sell pharmaceutical products on its online platform. It has also launched an O2O initiative with more than a thousand of these companies’ physical outlets to offer home delivery and other services.

Source: JD.com/toutiao.com

JD.com is expanding its home appliance and pharmaceutical businesses by offering offline services in order to solve the logistics challenges of rural e-commerce and complement the online transaction experience. We expect the online retailer will continue to open more physical stores to complement its online businesses.