DIpil Das
We present an edited version of our conversation with Brad Burgess, Global Head of Corporate Affairs at JD.com, from the Coresight Research & Blue Yonder Open for Business webinar held on April 29, 2020.
Deborah Weinswig welcomes everyone to the Open for Business webinar
Source: Coresight Research [/caption] So, there's much for us to cover. Today, we are going to discuss how Covid is affecting the retail supply chain, what we can learn from China on that front and when retailers should begin thinking about reopening for business. We will launch poll questions after we start the call, and we will have a transcript and video available on our site following the webinar. Lastly, please use the Q&A function at the bottom of your screen during our conversation if you'd like to ask a question; thank you to those participants who sent in questions in advance. With that, I'm going to kick it off. Brad, would you mind telling us a little bit more about JD.com? Brad Burgess: Absolutely. Thank you so much, Deborah, for this excellent opportunity to share our story with you and have the honor to speak with JoAnn as well. I'm very excited about the partnership that you've just alluded to. When we think about JD.com, I’ve found that it is often important—especially with people outside of China—to talk a little bit about how we started off… how we came to be the company we are today. I'll begin with that, in brief. JD is roughly 21 years old as a company. We started, back then, as set of offline stores focusing on multimedia equipment. Our founder, Richard Lui, believed in something that was fundamentally radical at the time—that customers wanted access to authentic products at an authentic price and that they were willing to pay that price. Richard believed what they wanted was the real deal, so what he sold in his stores was real authentic brands/products at that price, and he did not haggle. At that time in China, haggling was the norm. Anybody who has visited China has probably experienced that. When you go into a store in Beijing or in a tourist area, you get pulled aside by staff. They haggle with you over price… and you finally meet in the middle after about 30 or 45 minutes. Now, that's fun for tourists, but it is pretty annoying for day-to-day living, so Richard developed his strategy on the belief that people wanted the real product for the real price. Richard ultimately built a loyal consumer base that would come back and buy the products that they trusted. This is important because when we think about why consumers choose JD, they choose it because of the trust that they have in the quality of the products from day one.
What happened next was, interestingly enough, the SARS epidemic that broke out in China back in 2002–2003 drove us to make a very strategic decision at the time—to close our offline brick and mortar stores and go online. The reality was that foot traffic to those brick-and-mortar stores stopped radically during that time. Concurrently, online communication technologies that were somewhat nascent had enabled Richard and the team to communicate with consumers directly. Through that process, we learned that the Internet would provide more opportunity for commerce than offline alone, so we went fully online after the SARS epidemic. Our topic today about Covid is therefore highly relevant, since JD.com, as an online retail company, was born in a public healthcare epidemic—proving that there can be a silver lining.
Since then, we have continued to grow. We started focusing on electronics products and then began to go full service/full scope in terms of having multiple categories.
Another part of our story that is important to understand is that, back in 2007, Richard made another radical decision—to set up our own in-house logistics business. The reason for that, primarily, was for customer service—the product quality that consumers would receive, and the issues that people dealt with in terms of damaged products and things of that nature that cannot be managed by a third-party supply company. At the time, making the decision to own and drive the A-to-Z of the logistics business was a fundamental decision that we are reaping the benefits of today.
Those two decisions have fundamentally led to who we have become after 20 years—hence being China's largest retailer online and offline. JD.com is the company that sits over the top of JD Logistics, which was started in 2007 as China's largest last-mile delivery logistics business, and also JD Retail, which is China's largest online-to-offline company. Then we have—as Deborah alluded to in the beginning—JD Health, which is now valued at over $7 billion, as of the last funding round at the end of last year. JD Health is incubated within JD.com to be a health solutions provider. We have other businesses too.
That's a very quick summary of who we are, but I think it's important to understand the fundamentals of our business and how consumers choose us because they have trusted the quality ever since day one, when we sold real quality products at a real price and it was non-negotiable. They trust us because we offer full end-to-end logistics services, and this is important because when they order a product, it is delivered by an employee in our compound that they see every day; we build a relationship with each customer that is unique, so the consumer sees the same person every day and they get to know them by name. The employee drops our products off; they ask the customer if they want to send something; and it's a great relationship orientation that can only happen by owning the entire business. This is the kind of company we are, and it is the reason we have been able to develop into who we are today.
Brad Burgess highlights the key challenges in the supply chain during Covid-19
Source: Coresight Research [/caption] Another challenge is logistical. JD.com has made what I call a “counter-cultural” decision that is interesting. For reference, Chinese New Year is the one time a year when all Chinese move; if you can imagine how huge China is, the majority of China moves from one location to another over the course of a couple of weeks’ time. It is a major migration that happens every year. Most people are familiar with this, but if you think about what this means logistically, it creates several challenges. JD made a decision eight years ago to continue to stay in business during Chinese New Year—most businesses close shop during Chinese New Year. I have been in China for almost 20 years. I have mixed feelings about Chinese New Year: It is a fun time to rest and see family, but it can also be a very annoying time because everything is closed. If I want to go get my coffee and get a newspaper, I can’t do that! So, JD.com made that counter-cultural but pro-business decision to stay open for the duration of Chinese New Year—and rewarding logistics staff for doing that, so people are willing to do that. They do get subsidies, and our founder would even provide subsidies so that employees can see their kids if they are in another city—there is a lot of that sort of situation where the parents would move to another city for better work—so there is a lot of that kind of employee care. But I think the fact that we've been open for business for eight years during Chinese New Year has very much been a good foundation for us for when Covid happened, because we were one of the only logistics providers who was on site and who was already in the game. That gave us a step forward, I think, in being there when we needed to be. Having said that, our technology and our supply chain expertise really helped us to address these issues—using new technology and modeling to forecast inventory. So, how do you guarantee that there aren’t stockpile issues or inventory challenges throughout China? By using different models that supply chain scientists would bring to bear so that we could predict who was really sick, what the nature of the confirmed cases is in relationship to where inventory is located, and how that can work in real time so that we can provide the inventory where it's really needed on an up-to-date ongoing basis. That was key. So, it's a combination of strategies in terms of how we successfully addressed Covid. One is simply the fact that for eight years we've been in the game throughout Chinese New Year, and Chinese New Year is when Covid erupted, so we were there—we had a foot in, and we had a channel open. Secondly, our top technology and supply chain allowed us to find new solutions and ways to unlock some of the issues that arise because of supply chain inventory: hoarding and things like that.
There’s other supply chain innovation, which is quite interesting: omnichannel fulfillment. JD Retail has two different retail models; one is what we call “1-P” and the other is “3-P.” 1-P is our owned business: We buy a product wholesale; we inventory it in our own warehouses; we put that product close to consumers throughout China; and then we deliver it with our own people down to your doorstep. The other business model is a marketplace model, which is not that we provide a platform for other third-party businesses to sell with us. What we do through our business is provide that product—typically (through 1-P) for warehouses, where if people would get online and order a product, they would have that product delivered from a JD warehouse. But what happens is that when a country is in this kind of crisis, people need products throughout China; distribution is uneven, et cetera. We have this new program, this omnichannel fulfillment program, which unlocks the supply chain for offline stores, which are not JD stores, but we have a relationship with them through our technology and partnerships.
So, when consumers from someplace throughout China's 200 cities or what have you, want to order something—for example, a bottle of cooking oil or sugar or rice—if it is less efficient for a JD warehouse to ship it the technology will inform our offline partner to sell that and deliver it to them directly. So, it's really customer focused, and this is a new area too that’s quite exciting: It is because of this omnichannel fulfillment that customers can get things in as quick as 29 minutes after placing their order, so it’s quite radical.
Deborah Weinswig: Brad, I've been on the receiving end of placing orders and getting them in an hour, which continues to impress me. I have two questions. After your opening remarks, you talked about this idea of establishing relationships with those who are delivering. I've always been very impressed by the white-glove service, more just around the innovation surrounding it and this idea that you actually build a true relationship with those who are delivering as well as the platform itself—so that's first.
Secondly, we saw an amazing amount of innovation coming out of the earlier part of 2020 around the virus, et cetera. Can you talk about what we've seen in terms of last-mile fulfillment, and what that means in terms of the leapfrog that we might see going forward as a result of some of the innovation that was put in place by JD.com during the virus?
Brad Burgess: Sure. One of the things I've already mentioned in terms of last-mile fulfillment is this omnichannel fulfillment. It's basically working with partners so that consumers can get their goods as fast as they can and as efficiently as they can through our technology. That's last-mile related, but in terms of JD’s own technology and last mile, there are other really exciting technologies that we've brought to bear because of Covid.
JD.com is the first e-commerce company in the world to employ drone technology for retail solutions, and that's always been very exciting; people have always been very interested in that, and media love that—it's got a marketing edge to it. We've developed this technology internally, in house, and we also sell it to our partners.
A perfect example of that would be something that we did this past summer. We sold drone technology to Rakuten, which is Japan's e-commerce retailer. They bought this technology because they wanted to provide a fun way for vacationers, who are on an island, to buy beer and brats [sausages] through their mobile phone app. So, they [consumers] can download the Rakuten app, and they can order beer and ketchup or whatever Japanese eat when they barbeque. Then, we put that product on a drone and have it flown over to the island to give to them.
Now, this is all fun stuff—it is relevant and it's exciting—but what Covid did was it provided new opportunities for us to push that technology forward a little bit. For example, in the city of Wuhan—which was the epicenter of the epidemic when it exploded with this virus—roads were closed, and there was poor access and an inability to get into key areas to deliver to the hospitals, to deliver medical supplies and food and needed goods to the community. So, to help ensure safety with contact-free solutions, we employed autonomous robots in the streets of Wuhan—and that is very exciting. What's interesting is that the autonomous robots were programmed and piloted from Beijing… which is considerably far away [around 1,200km]. The technology had fixed routes: [Drones] would be equipped with the food and goods, and they would go on their routes to the hospitals that were in need of the products. I think that's one thing that's really exciting—the autonomous robots and the application of that in a new scenario.
Another is, again, back to our drone technology, where we had used that for last mile in terms of rural scenarios. Certain rural areas where people are unable to receive goods because of terrain or what have you, we would use drones to send goods over regularly. We had used this technology to provide disinfectant for certain communities in Inner Mongolia, and so this is exciting too.
We have just announced, maybe about a month ago, a new partnership with Gree. Gree is a major manufacturing company in China, and we are partnering with them to create three new robot types, which are specifically designed for handling viruses—disinfecting inside areas where you don't need to go: You program the robot; you put them inside the building; and it disinfects on its own. It has other applications as well. So, this is very exciting technology that we've seen that we're able to bring to bear.
So, we have been doing it and we've been creating new ways to apply this technology, but Covid allowed us to push it forward a little faster.
In terms of some of the other stuff that's quite exciting, my personal favorite is something that our technology team is developing, which I believe they call “empathetic chatbots.” JD.com has these shopping bonanzas, which you may have heard of or may not. Most people have heard of Singles’ Day, and that happens in November—and then we also have our anniversary shopping festival, which is 6.18 on June 18, to celebrate the anniversary of JD.com. So, in China, there are two major online shopping bonanzas. The first is in the summertime and it is ours that we have created, and it's now an industry standard… That is coming up by the way, so people who are interested in getting involved in that, probably now is the time to be thinking about that. The other is Singles’ Day in November, so one in summertime and one in wintertime. What this is, is just a—I don't know what word to say—it's a crazy time of deal hunting, and there are all kinds of deals that are provided to Chinese consumers to buy online.
Everybody competes. It's not just us, it's all kinds of retailers—it’s offline retail. Everybody is competing to win customers and to win market share through deals. So, what happens is we get so many inquiries and so many purchases during that period of time, it is just an insane amount of purchases online. JD.com has 362 million customers—362 million loyal customers. That is a huge amount of people; that's a little less than a third of the Chinese population. It's a massive group of people, and so you can imagine that all these people are hunting for deals. How do you manage that? How do you manage customer service? I don't know about you, but my personal pet peeve is when I call the bank in the US—I'm not going to name the bank—I get a runaround for 25 minutes…
Deborah Weinswig: [Laughing] Brad, the question is, how long does it take for you to actually get a person to pick up the phone though?
Brad Burgess: My last one was 25 minutes! So, I'm calling from China to the US on my own dollar and I get the runaround. For my last phone call, I got to person number three and they repeated what I told person number one—I had to repeat everything. I was so frustrated. I don't want to be angry when I'm calling people. So, I think that that customer service experience is very important.
So, during these shopping bonanza times, what happens is, there's such a massive wealth of purchases and potential customer service issues that can accrue over that course of time. You can imagine, “This is not the thing I bought; what do I do with this?” Well, how do you manage such a huge group of customer service inquiries or complaints?
We found a way to be doing that through our technology… We have this automated technology, which is empathetic. It is able to discern the emotions of the consumer and to address them very quickly, so people feel cared for, even though it's just technology—it’s AI [artificial intelligence], machine learning and everything else. It's empathetic and it's very successful, and I find that personally compelling. I think it’s very interesting and that's one of the things that we're continuing to develop, and it also goes through our robotics—so it's empathetic robotics. That is an area that we are working on as well, so I think that's quite interesting.
We have a lot of other technologies that we brought to bear, like cashless convenience stores and things of that nature, but for me, I think what's most compelling are these empathetic chatbots.
Deborah Weinswig: Alright, I'll dive into the next question. “Would it help if brand owners had greater levels of fulfillment agility capabilities built into their supply chains?” I assume this is retailers and brands who are working with JD.
Brad Burgess: Well, I'm not sure if I'm the right person for this question, but what I can tell you is that what JD is known for is our 1-P business—so it's managing the entire process. Part of the reason that brands choose to work with us is because we handle it from A to Z, and you can trust JD to handle it from A-to-Z. We have the entire system behind that. So, I think it depends on the nature of the partnership, but part of the reason that global brands like to work with us is the fact that we manage it very well for them. I'm happy to follow up with any kind of specific questions about this separately, but I think our 1-P model is quite compelling for a lot of brands. They can be quite carefree, because they know that there is no middleman involved—it's all JD, and people trust us.
Deborah Weinswig: I'm going to ask a follow-up question to that. You have Western brands that operate in the East, right? There is so much to learn. How often do you find that they are taking that—whether it's supply chain oriented or other innovations that they're learning—how often do they actually bring that back to the West, since it tends to be different teams who are focusing on operations in the West or the East?
So, let's say you've got a large retailer on the West who is working with JD.com in the East. They are learning a lot about supply chain, thinking differently about delivery and service. How do they fluidly—if you have seen them successfully do that—take those learnings back to their operations in the West?
Brad Burgess: That's a very good question. I don't think I have an answer to that, to be honest, but I think probably what they can learn is a lot of the marketing that we're doing, because a lot of what China does to market the brands to consumers is quite compelling and quite innovative.
For example, during Covid over the last couple of months… we've really rolled out some very cool innovations to help brands to launch and to engage customers. One example is our livestream platform, JD Live, and we've been launching a range of brand engagements through that. In one particular case of JD Live that I really like is online clubbing. What we've discovered is that the younger generation in China is quite lonely and cooped up [during the coronavirus pandemic]. People are kind of hunkering down and they are cooped up. Cabin fever is quite tough—you are probably discovering that now in the US!
Deborah Weinswig: [Laughing] Yes!
Brad Burgess: What's interesting is, people would think that their sleep quality would improve, but the reverse has been the case. Sleep has been getting worse, and people have insomnia. What we've done is found ways of integrating fun to help sell products. So, we have this partnership with a music group, Taihe Music Group, where we've launched online clubbing. People can go online, and they can hear the DJs and they can dance and have a good time. And then liquor brands are in the mix, and they are selling all kinds of liquor and beer and everything else to these groups that [consumers] can make a decision to buy in the moment that they're seeing the DJ and having fun. I shared this example with some friends of mine in the US and they loved it and tried to recreate it. They were at home and they were like, “We are going to do an online clubbing session with our friends!”
It's ways of engaging the consumer that are new and fun and then maybe taking that back [to the West], because China is really on the cusp of consumer engagement, I think. There is a lot of that kind of stuff that we can share.
Another initiative that is quite interesting, which is on the opposite side, is something we call “consumer to manufacturing” [C2M]. Basically, we have our big data, and it is a combination of our qualitative insight and our quantitative data. We create portraits of what is happening in China. It will provide advice to brands on how to market and brand their products to “China-fy” their products. Consumer tastes can be quite unique. There are a lot of Chinese consumers who want things exactly as they are in the West, but similarly, there are a lot of consumers who want things to be a little bit more “Chinafied.” We help global brands to do that.
One perfect example of this is Huggies Diapers. We worked with them on changing the nature of the composites in the diaper to be more sensitive to Chinese baby bottoms and also changing the nature of the packaging and how those are provided to consumers so that Chinese moms can buy the right amount and store the right amount in their closets. So there is a range of things that we do in terms of consumer products and also food—changing the flavors of food to be more tailored for Chinese audiences. Global brands, they love this stuff. A lot of our brand work is C2M, and we have created some significant innovations for the Chinese consumer, together with global brands in this aspect.
JoAnn Martin co-hosts the Open for Business webinar series
Source: Coresight Research [/caption]
Introduction
Deborah Weinswig: We are honored to have Brad Burgess as our special guest today. Brad has an impressive background, including his current role in global corporate affairs, and we are very excited to welcome him to Open for Business. I’m your co-host Deborah Weinswig, and I'm honored to be joined by my fellow co-host, JoAnn Martin, who is the VP of retail at Blue Yonder. JoAnn has extensive strategic retail experience and a proven track record across apparel, footwear and accessories, including at L brands, DSW and Luxottica. In her role at Blue Yonder, she was the industry thought leader for retail. Her expertise also includes merchandise planning, item planning, assortment planning, allocation and omnichannel inventory enablement. I'll turn the call over to JoAnn now for a few opening remarks. JoAnn Martin: Good morning, Deborah. Good morning, Brad. I'm very excited to be here today. As we have announced in the past several weeks, JD.com and Blue Yonder have signed a strategic partnership agreement in which we will be working together to leverage our 35 years of expertise on end-to-end supply chain platforms. We are very excited about our partnership and where supply chain sits currently. We know supply chain is top of mind, and we are going to help resolve disruptions throughout the supply chain for the entirety of retail and manufacturing. Deborah Weinswig: We are thrilled to have Brad with us. Brad has an impressive background, including his current role in global corporate affairs at JD.com, but for those of you who are less familiar, we’ll let Brad tell us a bit more in just a moment. JD.com is the technology and service company with supply chain. At its core, the company is the largest last-mile delivery business in China—JD Logistics—and it is also China’s largest retailer, JD Retail. The company's experience addressing the challenges brought about by Covid-19 should be incredibly relevant for today's audience. What I learned a lot about, in preparation for this interview with Brad and JoAnn, is JD Health. It has been incubated within JD.com and has grown at an impressive scale to be one of the world's largest unicorns today. [caption id="attachment_110243" align="aligncenter" width="700"] Deborah Weinswig welcomes everyone to the Open for Business webinar Source: Coresight Research [/caption] So, there's much for us to cover. Today, we are going to discuss how Covid is affecting the retail supply chain, what we can learn from China on that front and when retailers should begin thinking about reopening for business. We will launch poll questions after we start the call, and we will have a transcript and video available on our site following the webinar. Lastly, please use the Q&A function at the bottom of your screen during our conversation if you'd like to ask a question; thank you to those participants who sent in questions in advance. With that, I'm going to kick it off. Brad, would you mind telling us a little bit more about JD.com? Brad Burgess: Absolutely. Thank you so much, Deborah, for this excellent opportunity to share our story with you and have the honor to speak with JoAnn as well. I'm very excited about the partnership that you've just alluded to. When we think about JD.com, I’ve found that it is often important—especially with people outside of China—to talk a little bit about how we started off… how we came to be the company we are today. I'll begin with that, in brief. JD is roughly 21 years old as a company. We started, back then, as set of offline stores focusing on multimedia equipment. Our founder, Richard Lui, believed in something that was fundamentally radical at the time—that customers wanted access to authentic products at an authentic price and that they were willing to pay that price. Richard believed what they wanted was the real deal, so what he sold in his stores was real authentic brands/products at that price, and he did not haggle. At that time in China, haggling was the norm. Anybody who has visited China has probably experienced that. When you go into a store in Beijing or in a tourist area, you get pulled aside by staff. They haggle with you over price… and you finally meet in the middle after about 30 or 45 minutes. Now, that's fun for tourists, but it is pretty annoying for day-to-day living, so Richard developed his strategy on the belief that people wanted the real product for the real price. Richard ultimately built a loyal consumer base that would come back and buy the products that they trusted. This is important because when we think about why consumers choose JD, they choose it because of the trust that they have in the quality of the products from day one.
What happened next was, interestingly enough, the SARS epidemic that broke out in China back in 2002–2003 drove us to make a very strategic decision at the time—to close our offline brick and mortar stores and go online. The reality was that foot traffic to those brick-and-mortar stores stopped radically during that time. Concurrently, online communication technologies that were somewhat nascent had enabled Richard and the team to communicate with consumers directly. Through that process, we learned that the Internet would provide more opportunity for commerce than offline alone, so we went fully online after the SARS epidemic. Our topic today about Covid is therefore highly relevant, since JD.com, as an online retail company, was born in a public healthcare epidemic—proving that there can be a silver lining.
Since then, we have continued to grow. We started focusing on electronics products and then began to go full service/full scope in terms of having multiple categories.
Another part of our story that is important to understand is that, back in 2007, Richard made another radical decision—to set up our own in-house logistics business. The reason for that, primarily, was for customer service—the product quality that consumers would receive, and the issues that people dealt with in terms of damaged products and things of that nature that cannot be managed by a third-party supply company. At the time, making the decision to own and drive the A-to-Z of the logistics business was a fundamental decision that we are reaping the benefits of today.
Those two decisions have fundamentally led to who we have become after 20 years—hence being China's largest retailer online and offline. JD.com is the company that sits over the top of JD Logistics, which was started in 2007 as China's largest last-mile delivery logistics business, and also JD Retail, which is China's largest online-to-offline company. Then we have—as Deborah alluded to in the beginning—JD Health, which is now valued at over $7 billion, as of the last funding round at the end of last year. JD Health is incubated within JD.com to be a health solutions provider. We have other businesses too.
That's a very quick summary of who we are, but I think it's important to understand the fundamentals of our business and how consumers choose us because they have trusted the quality ever since day one, when we sold real quality products at a real price and it was non-negotiable. They trust us because we offer full end-to-end logistics services, and this is important because when they order a product, it is delivered by an employee in our compound that they see every day; we build a relationship with each customer that is unique, so the consumer sees the same person every day and they get to know them by name. The employee drops our products off; they ask the customer if they want to send something; and it's a great relationship orientation that can only happen by owning the entire business. This is the kind of company we are, and it is the reason we have been able to develop into who we are today.
Challenges and Innovations in the Supply Chain amid Covid-19
JoAnn Martin: When you think about the kind of impact and the innovations that have spun out as a result of some of your realizations within your supply chain, can you give us some insight into some of the things you've done to combat Covid through innovation in your supply chain? Brad Burgess: Absolutely. I'll talk broadly about supply chain rather than getting into technicalities, but a couple of things that I think are fundamentally key stem from the pandemic, which created several challenges. One challenge is simply imbalance. It is imbalance in the system in terms of supply and demand—and this is logical: If a consumer in some city typically doesn’t have access to as much disinfectant or as many masks as they would need as this thing erupted, they're going to want to buy and hoard, right? How do you guarantee that stock is available, and how do you guarantee that the product is efficiently provided and not just given to people who hoard? I think this is a key consideration. The other challenges are in ensuring that consumers are protected. There needs to be a guarantee of social stability. This is extremely important for China; there are a lot of people outside of the country who talk about social stability in China and its importance politically. The reality is that it's just good for people—regardless of which country you live in—to ensure that if you need to buy something, there is not going to be price gouging and price hikes that are unfair when you get on the platform to buy them. So, another consideration is, how do you ensure that prices are fair and that there aren’t unfair price hikes? There are other challenges as well, such as guaranteeing merchant credibility. [caption id="attachment_110245" align="aligncenter" width="700"] Brad Burgess highlights the key challenges in the supply chain during Covid-19 Source: Coresight Research [/caption] Another challenge is logistical. JD.com has made what I call a “counter-cultural” decision that is interesting. For reference, Chinese New Year is the one time a year when all Chinese move; if you can imagine how huge China is, the majority of China moves from one location to another over the course of a couple of weeks’ time. It is a major migration that happens every year. Most people are familiar with this, but if you think about what this means logistically, it creates several challenges. JD made a decision eight years ago to continue to stay in business during Chinese New Year—most businesses close shop during Chinese New Year. I have been in China for almost 20 years. I have mixed feelings about Chinese New Year: It is a fun time to rest and see family, but it can also be a very annoying time because everything is closed. If I want to go get my coffee and get a newspaper, I can’t do that! So, JD.com made that counter-cultural but pro-business decision to stay open for the duration of Chinese New Year—and rewarding logistics staff for doing that, so people are willing to do that. They do get subsidies, and our founder would even provide subsidies so that employees can see their kids if they are in another city—there is a lot of that sort of situation where the parents would move to another city for better work—so there is a lot of that kind of employee care. But I think the fact that we've been open for business for eight years during Chinese New Year has very much been a good foundation for us for when Covid happened, because we were one of the only logistics providers who was on site and who was already in the game. That gave us a step forward, I think, in being there when we needed to be. Having said that, our technology and our supply chain expertise really helped us to address these issues—using new technology and modeling to forecast inventory. So, how do you guarantee that there aren’t stockpile issues or inventory challenges throughout China? By using different models that supply chain scientists would bring to bear so that we could predict who was really sick, what the nature of the confirmed cases is in relationship to where inventory is located, and how that can work in real time so that we can provide the inventory where it's really needed on an up-to-date ongoing basis. That was key. So, it's a combination of strategies in terms of how we successfully addressed Covid. One is simply the fact that for eight years we've been in the game throughout Chinese New Year, and Chinese New Year is when Covid erupted, so we were there—we had a foot in, and we had a channel open. Secondly, our top technology and supply chain allowed us to find new solutions and ways to unlock some of the issues that arise because of supply chain inventory: hoarding and things like that.
There’s other supply chain innovation, which is quite interesting: omnichannel fulfillment. JD Retail has two different retail models; one is what we call “1-P” and the other is “3-P.” 1-P is our owned business: We buy a product wholesale; we inventory it in our own warehouses; we put that product close to consumers throughout China; and then we deliver it with our own people down to your doorstep. The other business model is a marketplace model, which is not that we provide a platform for other third-party businesses to sell with us. What we do through our business is provide that product—typically (through 1-P) for warehouses, where if people would get online and order a product, they would have that product delivered from a JD warehouse. But what happens is that when a country is in this kind of crisis, people need products throughout China; distribution is uneven, et cetera. We have this new program, this omnichannel fulfillment program, which unlocks the supply chain for offline stores, which are not JD stores, but we have a relationship with them through our technology and partnerships.
So, when consumers from someplace throughout China's 200 cities or what have you, want to order something—for example, a bottle of cooking oil or sugar or rice—if it is less efficient for a JD warehouse to ship it the technology will inform our offline partner to sell that and deliver it to them directly. So, it's really customer focused, and this is a new area too that’s quite exciting: It is because of this omnichannel fulfillment that customers can get things in as quick as 29 minutes after placing their order, so it’s quite radical.
Deborah Weinswig: Brad, I've been on the receiving end of placing orders and getting them in an hour, which continues to impress me. I have two questions. After your opening remarks, you talked about this idea of establishing relationships with those who are delivering. I've always been very impressed by the white-glove service, more just around the innovation surrounding it and this idea that you actually build a true relationship with those who are delivering as well as the platform itself—so that's first.
Secondly, we saw an amazing amount of innovation coming out of the earlier part of 2020 around the virus, et cetera. Can you talk about what we've seen in terms of last-mile fulfillment, and what that means in terms of the leapfrog that we might see going forward as a result of some of the innovation that was put in place by JD.com during the virus?
Brad Burgess: Sure. One of the things I've already mentioned in terms of last-mile fulfillment is this omnichannel fulfillment. It's basically working with partners so that consumers can get their goods as fast as they can and as efficiently as they can through our technology. That's last-mile related, but in terms of JD’s own technology and last mile, there are other really exciting technologies that we've brought to bear because of Covid.
JD.com is the first e-commerce company in the world to employ drone technology for retail solutions, and that's always been very exciting; people have always been very interested in that, and media love that—it's got a marketing edge to it. We've developed this technology internally, in house, and we also sell it to our partners.
A perfect example of that would be something that we did this past summer. We sold drone technology to Rakuten, which is Japan's e-commerce retailer. They bought this technology because they wanted to provide a fun way for vacationers, who are on an island, to buy beer and brats [sausages] through their mobile phone app. So, they [consumers] can download the Rakuten app, and they can order beer and ketchup or whatever Japanese eat when they barbeque. Then, we put that product on a drone and have it flown over to the island to give to them.
Now, this is all fun stuff—it is relevant and it's exciting—but what Covid did was it provided new opportunities for us to push that technology forward a little bit. For example, in the city of Wuhan—which was the epicenter of the epidemic when it exploded with this virus—roads were closed, and there was poor access and an inability to get into key areas to deliver to the hospitals, to deliver medical supplies and food and needed goods to the community. So, to help ensure safety with contact-free solutions, we employed autonomous robots in the streets of Wuhan—and that is very exciting. What's interesting is that the autonomous robots were programmed and piloted from Beijing… which is considerably far away [around 1,200km]. The technology had fixed routes: [Drones] would be equipped with the food and goods, and they would go on their routes to the hospitals that were in need of the products. I think that's one thing that's really exciting—the autonomous robots and the application of that in a new scenario.
Another is, again, back to our drone technology, where we had used that for last mile in terms of rural scenarios. Certain rural areas where people are unable to receive goods because of terrain or what have you, we would use drones to send goods over regularly. We had used this technology to provide disinfectant for certain communities in Inner Mongolia, and so this is exciting too.
We have just announced, maybe about a month ago, a new partnership with Gree. Gree is a major manufacturing company in China, and we are partnering with them to create three new robot types, which are specifically designed for handling viruses—disinfecting inside areas where you don't need to go: You program the robot; you put them inside the building; and it disinfects on its own. It has other applications as well. So, this is very exciting technology that we've seen that we're able to bring to bear.
So, we have been doing it and we've been creating new ways to apply this technology, but Covid allowed us to push it forward a little faster.
Dynamics of the Workforce during the Crisis
JoAnn Martin: Brad, maybe you can help us understand a little bit about how your conversations and your dynamic with your employees and your customers have changed during this time. How have you interacted with them, or how has it changed the dynamics of the workforce? Brad Burgess: Well, I think the easiest way to answer this question is about my own experience as an employee. The company was quite careful and quite rigorous in terms of providing health and safety for staff. Everything was taken very seriously, because even though we stayed open for business, no unnecessary risk was taken—to guarantee that we were in safe conditions. So, the provision of masks and sanitizer and encouraging us to stay home were the norm. Most of us worked from home for a very, very long time. We’re headquartered in Beijing and so staff were encouraged to come back to Beijing in appropriate time, but according to the city regulations, there was a 14-day quarantine before returning to the office, and that got extended, so many people were working from their apartments. The beautiful thing in China is that because of companies like JD.com and others, you don't need to actually leave your apartment. You can order food online and get it delivered very quickly, so people didn't feel pressure to leave the long-distance work or work-from-home scenario. I think people felt quite good about that. They felt quite safe, and we were encouraged to take care of ourselves. There was constant monitoring in terms of how people are doing—so, “Where are you?”, “Where have you been?” and “How are things going?”; it's just constant check-ins. I think staff felt pretty good about it, and JD had actually won awards—I'm not sure if you've seen this. Our logistics team is 180,000 strong; it is a huge business. JD.com itself has over 220,000 employees, so you can imagine the scale at which we operate. Our logistics team had won awards for really riding into the fire and not fleeing in fear, but the only way that we could do that was by being equipped with health and safety—making sure that that our needs were taken care of. I don't know if that answers your question well enough, but that was my experience through this, and I think that really helps. People didn't feel like they were at risk, I don't think, and even being back to the office, people felt that they were cared for, in a sense. The food planning, eating in the cafeteria and stuff—everything is pre-managed and pre-planned very carefully.Live poll: Demand Forecasting through a Smart Supply Chain
Deborah Weinswig: It's really helpful because there are so many questions that not only the landlords but also the tenants have as they are getting back to being open for business. Also, we're starting to see a lot of dynamics and changes in those relationships, so it is really interesting to hear your experience. I'm going to just review the poll questions and the results quickly. So, number one, “In what areas are you investing?” 60% of people on the call said the retailers are investing in supply chain technology. Secondly, “In regards to your supply chain, where is your largest pain point during this time that you need to resolve?” It is demand forecasting. Brad, what we're seeing right now is that so many retailers, whom I know work with JD very closely, are talking about how even once they were in the crisis, they were having a challenge trying to figure out demand and supply. At JD, how have you been able to help your customers and the company itself think about ways to predict demand? Brad Burgess: It kind of goes back to what I mentioned a few minutes ago in terms of the challenges that the epidemic brought about in terms of lockup and supply and demand. What we did was to bring a scientific, formulaic approach to it—I believe we call it SCIR. I'm not sure if that resonates with any of you, but it's not traditional forecasting of demand; it's looking at a model that assumes that people who are going to carry the virus have a certain immunity, and then providing supply according to that and distributing it to areas based upon the actual need. This is somewhat related to the virus outbreak and then how to manage things like spikes in demand for masks and disinfectants and things like that. That's one aspect, but I think it's really about employing a smart supply chain. We have a group in JD.com called “JD Y”: JD Y is our smart supply chain team. Their job is specifically dedicated to providing new solutions to make the supply chain more efficient all the time, and they were really called upon to help this issue specifically. There are a lot of details I could probably share later if there are follow-up questions, and if people are interested, I'm happy to follow up on that in terms of technicality and how they did that, but there's a lot of science behind it. It worked pretty well: I think we were up at 95% guaranteed product delivery. I don't remember the exact figures, but it was impressive at the end of the day that we were able to manage it holistically. So, yes, it’s working with our smart supply chain team and bringing that technology to bear overall.Q&A: Customer Service, End-to-End Logistics and East-to-West Learnings
Deborah Weinswig: JoAnn, do you want to jump into the more formal Q&A? We have a lot of questions that have come in from the audience. Do you want to kick us off? JoAnn Martin: Sure, absolutely. So, the first question, Brad, is, “JD.com works closely with luxury brands and white-glove delivery. How do the robotics or other technologies provide the same service level to customers as they have in stores?” Brad Burgess: Okay, maybe not everybody is familiar with the white-glove service, so maybe I'll just touch on that quickly before mentioning some others. The white-glove service is actually quite unique in a sense that you can select the white-glove delivery service option, when you buy a luxury product on JD.com. For example, if you are going to buy a nice watch or something and give it to your girlfriend or your wife, you can select the service and set a time and a suited, white-gloved gentlemen will drive an electric vehicle to the location of residence and will go up to the doorstep and make a presentation of the product right in front of the customer. It's a very nice service, and it’s fun and people love it. So that is what that's all about, and there is a great marketing aspect to that in addition to just great customer service.
In terms of some of the other stuff that's quite exciting, my personal favorite is something that our technology team is developing, which I believe they call “empathetic chatbots.” JD.com has these shopping bonanzas, which you may have heard of or may not. Most people have heard of Singles’ Day, and that happens in November—and then we also have our anniversary shopping festival, which is 6.18 on June 18, to celebrate the anniversary of JD.com. So, in China, there are two major online shopping bonanzas. The first is in the summertime and it is ours that we have created, and it's now an industry standard… That is coming up by the way, so people who are interested in getting involved in that, probably now is the time to be thinking about that. The other is Singles’ Day in November, so one in summertime and one in wintertime. What this is, is just a—I don't know what word to say—it's a crazy time of deal hunting, and there are all kinds of deals that are provided to Chinese consumers to buy online.
Everybody competes. It's not just us, it's all kinds of retailers—it’s offline retail. Everybody is competing to win customers and to win market share through deals. So, what happens is we get so many inquiries and so many purchases during that period of time, it is just an insane amount of purchases online. JD.com has 362 million customers—362 million loyal customers. That is a huge amount of people; that's a little less than a third of the Chinese population. It's a massive group of people, and so you can imagine that all these people are hunting for deals. How do you manage that? How do you manage customer service? I don't know about you, but my personal pet peeve is when I call the bank in the US—I'm not going to name the bank—I get a runaround for 25 minutes…
Deborah Weinswig: [Laughing] Brad, the question is, how long does it take for you to actually get a person to pick up the phone though?
Brad Burgess: My last one was 25 minutes! So, I'm calling from China to the US on my own dollar and I get the runaround. For my last phone call, I got to person number three and they repeated what I told person number one—I had to repeat everything. I was so frustrated. I don't want to be angry when I'm calling people. So, I think that that customer service experience is very important.
So, during these shopping bonanza times, what happens is, there's such a massive wealth of purchases and potential customer service issues that can accrue over that course of time. You can imagine, “This is not the thing I bought; what do I do with this?” Well, how do you manage such a huge group of customer service inquiries or complaints?
We found a way to be doing that through our technology… We have this automated technology, which is empathetic. It is able to discern the emotions of the consumer and to address them very quickly, so people feel cared for, even though it's just technology—it’s AI [artificial intelligence], machine learning and everything else. It's empathetic and it's very successful, and I find that personally compelling. I think it’s very interesting and that's one of the things that we're continuing to develop, and it also goes through our robotics—so it's empathetic robotics. That is an area that we are working on as well, so I think that's quite interesting.
We have a lot of other technologies that we brought to bear, like cashless convenience stores and things of that nature, but for me, I think what's most compelling are these empathetic chatbots.
Deborah Weinswig: Alright, I'll dive into the next question. “Would it help if brand owners had greater levels of fulfillment agility capabilities built into their supply chains?” I assume this is retailers and brands who are working with JD.
Brad Burgess: Well, I'm not sure if I'm the right person for this question, but what I can tell you is that what JD is known for is our 1-P business—so it's managing the entire process. Part of the reason that brands choose to work with us is because we handle it from A to Z, and you can trust JD to handle it from A-to-Z. We have the entire system behind that. So, I think it depends on the nature of the partnership, but part of the reason that global brands like to work with us is the fact that we manage it very well for them. I'm happy to follow up with any kind of specific questions about this separately, but I think our 1-P model is quite compelling for a lot of brands. They can be quite carefree, because they know that there is no middleman involved—it's all JD, and people trust us.
Deborah Weinswig: I'm going to ask a follow-up question to that. You have Western brands that operate in the East, right? There is so much to learn. How often do you find that they are taking that—whether it's supply chain oriented or other innovations that they're learning—how often do they actually bring that back to the West, since it tends to be different teams who are focusing on operations in the West or the East?
So, let's say you've got a large retailer on the West who is working with JD.com in the East. They are learning a lot about supply chain, thinking differently about delivery and service. How do they fluidly—if you have seen them successfully do that—take those learnings back to their operations in the West?
Brad Burgess: That's a very good question. I don't think I have an answer to that, to be honest, but I think probably what they can learn is a lot of the marketing that we're doing, because a lot of what China does to market the brands to consumers is quite compelling and quite innovative.
For example, during Covid over the last couple of months… we've really rolled out some very cool innovations to help brands to launch and to engage customers. One example is our livestream platform, JD Live, and we've been launching a range of brand engagements through that. In one particular case of JD Live that I really like is online clubbing. What we've discovered is that the younger generation in China is quite lonely and cooped up [during the coronavirus pandemic]. People are kind of hunkering down and they are cooped up. Cabin fever is quite tough—you are probably discovering that now in the US!
Deborah Weinswig: [Laughing] Yes!
Brad Burgess: What's interesting is, people would think that their sleep quality would improve, but the reverse has been the case. Sleep has been getting worse, and people have insomnia. What we've done is found ways of integrating fun to help sell products. So, we have this partnership with a music group, Taihe Music Group, where we've launched online clubbing. People can go online, and they can hear the DJs and they can dance and have a good time. And then liquor brands are in the mix, and they are selling all kinds of liquor and beer and everything else to these groups that [consumers] can make a decision to buy in the moment that they're seeing the DJ and having fun. I shared this example with some friends of mine in the US and they loved it and tried to recreate it. They were at home and they were like, “We are going to do an online clubbing session with our friends!”
It's ways of engaging the consumer that are new and fun and then maybe taking that back [to the West], because China is really on the cusp of consumer engagement, I think. There is a lot of that kind of stuff that we can share.
Another initiative that is quite interesting, which is on the opposite side, is something we call “consumer to manufacturing” [C2M]. Basically, we have our big data, and it is a combination of our qualitative insight and our quantitative data. We create portraits of what is happening in China. It will provide advice to brands on how to market and brand their products to “China-fy” their products. Consumer tastes can be quite unique. There are a lot of Chinese consumers who want things exactly as they are in the West, but similarly, there are a lot of consumers who want things to be a little bit more “Chinafied.” We help global brands to do that.
One perfect example of this is Huggies Diapers. We worked with them on changing the nature of the composites in the diaper to be more sensitive to Chinese baby bottoms and also changing the nature of the packaging and how those are provided to consumers so that Chinese moms can buy the right amount and store the right amount in their closets. So there is a range of things that we do in terms of consumer products and also food—changing the flavors of food to be more tailored for Chinese audiences. Global brands, they love this stuff. A lot of our brand work is C2M, and we have created some significant innovations for the Chinese consumer, together with global brands in this aspect.
Changes in Chinese Consumer Behavior and Post-Covid Trends
Deborah Weinswig: Great. JoAnn, do you want to take the next question? JoAnn Martin: Sure. “What kind of e-commerce behavior changes has JD observed during the coronavirus, and what behavior or changes would likely remain as the new norm as everybody is re-establishing the norm coming out of Covid?” Brad Burgess: Probably the easiest way to answer the question is to look at what we've seen in terms of data. So, some of the data that we've seen indicates—which I think is pretty compelling from a trends perspective—that Chinese are taking up hobbies. The Chinese are extremely hardworking people, and I know that New Yorkers are as well… Deborah Weinswig: Thanks, Brad! Brad Burgess: So, Chinese city living is quite stressful to be honest. There is very little work-life balance… and one is always available at all times. That is just the nature of how things are. I think being forced to stay home was interesting, because in China, we have this great benefit—which most other countries do not have—which is the ability and resources to outsource a lot of our work. What do I mean by that? Price of labor is low in China, so there is a group of au pairs… and cooks and cleaners and things like that. It is still normal culture for people who live in the city in China—in Beijing, Shanghai, et cetera—to hire a full-time person who comes in and cooks and cleans and takes care of the kids while you go to work; it's really quite convenient, and it's quite reasonably priced. Those people are happy, because they make a pretty good wage, and then you're happy because you can make a lot more by going to work and then not needing to worry about coming home and having to cook a meal. Chinese cooking is delicious, but it's exhausting—it takes you two hours just to cut up vegetables and boil potatoes and have it all come out nicely. What happened was, because all these people returned home for Chinese New Year and had been delayed in quarantine and whatnot, a lot of consumers when they're forced to hunker down and stay home found they really wanted to take up hobbies. They wanted to take up cooking, and they wanted to learn how to bake. I don't have the figures on hand, but we saw the sales data of baking products skyrocket. We saw data for hobby-related stuff go up, and I think that it's really interesting that the Chinese would want to learn how to bake and then they want to take pictures of their cakes and show it to their friends on WeChat moments. I saw that all over the place, and I also saw a lot of yoga practitioners with the same spirit: Yoga mats when went quite high as well in terms of sales—there are a lot of yoga practitioners or amateurs out there as well in China. There was this rise of hobbyism, and there was a rise in health. So, pulling equipment, rowing machines, yoga mats, et cetera—this became quite important. There was a rise in reading, and I think this was personally interesting, because in China… people tend to read for a purpose—getting ahead in business [and] to better your life. But what we saw is that there began to be a greater interest in literature—in particular, things like calligraphy. Who would have thought of that? So, people are buying books about calligraphy, and they’re buying books about literature. In a sense I found that quite nice, you know, just to note that people are kind of getting back to being curious, and I think getting healthy curiosity and creativity because of [the pandemic]. We saw that, and I think it is an interesting dynamic. What does it mean for in the future? I hope what it means for the future is that the Chinese are going to be enjoying life a bit more, rather than just working. I think that's a great thing to note, and I think that would be a great lesson for all of us. I know a friend of mine who shared with me that she felt guilty, you know, compelled to do something, to produce something [during the lockdowns]. I think with this time, when you're at home, it's really the chance to rethink and to reconnect. It is a bit of a vague conclusion, but I think that does offer some pretty good scenarios for everybody. Deborah Weinswig: That's really interesting, and actually it kind of feeds right into the next question, which is from one of our participants. “Coming out of the coronavirus, would JD change the way it does business and in what areas? For example, marketing, logistics, et cetera.” Brad Burgess: I think one of the things that I've alluded to that we've done because of the virus is that we have done a lot more “cloud” launches. It's a lot more stuff online—engaging with people online, launching products online. We just held our top internal frontline employees celebration—I think it was yesterday—online. That was interesting; we congratulated and reward the top 100 frontline employees who were working hard during the virus. The adoption of this new way of engaging is just going to keep going, I think. I don't know if this is the case, but one of the data points that people are talking about, not necessarily in China, is the rise of the freelancer. I think it raises interesting questions as to what it means in the China scenario. I don't have an answer for that, but is this going to introduce new fragmented ways of working and new solutions of working? I don't know. China and Chinese teams tend to be quite tight in terms of how they work together, but I think that this virus has provided new platforms and ways to engage with people and to launch brands—and that's not going to go away anytime soon. I think this coming year—especially for technologies like livestreaming—is going to see a focus on quality. Last year for livestreaming, it really focused on making it happen. There were a lot of people get into livestreaming, and they were learning. There was a very, uneven quality in terms of how people are using it, but this year, 2020, is going to be a much greater focus on quality. We are hoping that 100% of brands that are in our 1-P business will engage in livestreaming, and we are hoping that 60% of our third-party business will engage in livestreaming—so that's our target for this year for livestreaming, and we see that as being something that is really emblematic of something that came about during Covid that is going to stay with us. Deborah Weinswig: Those numbers are impressive. JoAnn, I'll turn it over to you for the last question. JoAnn Martin: “Does the global coronavirus condition impact the way JD Global imports Western brands into the hands of Chinese consumers?” Brad Burgess: Well, we are actually continuing to work around the world. I think we have worked with 105 countries since the virus has broken out. I don't have specific figures in terms of how it's been working out, but we have superb logistics. It is incomparable: Nobody is better than JD.com in China in terms of this market. That’s not bragging—we can say that truthfully, because it's just the nature of our business model, and so we’ve been doing very well. I have not heard of any issues in this to be honest, and I would share with you if I did, but I have not heard of any. If people want to follow up with this kind of question, I'm happy to follow up, but I think things are going quite well. Deborah Weinswig: Great. With that, Brad, I want to thank you so much for joining us. We could probably ask you questions for another hour, and hopefully we will have the chance to do so! JoAnn, thanks again. This is just amazing; I think we learn so much, and I think we will all think differently as we're operating our businesses in 2020. Thanks everyone, and thanks for joining us once again. Brad Burgess: Thanks very much. JoAnn Martin: Thank you. [caption id="attachment_110248" align="aligncenter" width="700"] JoAnn Martin co-hosts the Open for Business webinar series Source: Coresight Research [/caption]