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JD.com

JD.com restructures amid rising competition, slower growth and investor concerns

  • The overhaul will divide JD Mall, the e-commerce company’s main revenue driver, into three segments
PUBLISHED : Wednesday, 26 December, 2018, 5:39pm
UPDATED : Wednesday, 26 December, 2018, 8:23pm

China’s second largest e-commerce player, JD.com, has announced a restructuring of its main shopping site and the creation of an office of the chief executive to better serve its customer-centric strategy and allay investor concerns amid rapid changes in the country’s online shopping industry.

The overhaul will divide JD Mall, the company’s main revenue driver, into three segments, according to an internal document distributed by JD.com’s human resources department on Friday.

Following that initiative, JD.com announced on Wednesday a share repurchase programme that will see the company buy up to US$1 billion of its shares over the next 12 months. The firm said that scheme will be funded from its existing cash balance.

On its restructuring, the new JD Mall segments include a unit responsible for understanding customer behaviour and market changes, another to provide services to satisfy customer demands, and a third to handle infrastructure-building, service support and risk management, according to the documents, which were provided to media upon request on Wednesday.

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The new business segments will report directly to Xu Lei, who took on the role of rotating chief executive for JD Mall last year, in a move considered unusual in a company tightly controlled by founder Richard Liu Qiangdong. The internal document also reveals the establishment of a new Chief Executive’s Office to coordinate the company’s major reorganisation and business reforms, without naming members of the office.

“The aim of JD Mall’s business restructuring is to signal that JD is diversifying its management team and to comfort investors that the key-man risk is reducing within the company,” said Li Yi, chief fellow at the Shanghai Academy of Social Sciences. “However, JD is tightly controlled by its founder Liu and that reality will not change under any kind of business restructuring.”

The JD.com announcement said the e-commerce industry was undergoing “tremendous changes after rapid development in the past decade”.

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“The new structure will focus on customers,” it said. “The disappearance of a demographic dividend requires us to more precisely satisfy the demands of our customers. The evolution of the technology and business models require us to keep innovative and the changes in competitive environment require us to respond in a more agile and flexible way.”

On December 21, US prosecutors announced that an investigation had turned up insufficient evidence to follow through with charges against 45-year-old Chinese billionaire Liu, who was arrested in Minneapolis, Minnesota, on August 31 after a woman accused him of rape while he was attending a university business programme. Liu was released the next day and returned to China hours later.

Even though the news ended a long period of uncertainty, JD.com continues to face challenges on several fronts and it will take some time to win back the confidence of customers and investors.

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The company reported lower-than-expected revenue in November due to increased spending. It also said investment costs in technology and logistics were escalating amid rising competition in China’s online shopping market. The US-listed e-commerce giant also announced its first sequential fall in annual active customers since listing on the Nasdaq stock market in 2014.

Beijing-based JD.com is backed by Walmart, Alphabet’s Google and China’s Tencent Holdings.

JD.com is not the only company to announce a business restructuring amid slowing growth. Tencent, JD.com’s biggest shareholder, announced in September that it would shift its focus from consumers to the industrial internet.

JD.com shares rallied 5.9 per cent in New York on Friday after US officials said they would not charge Liu, but were down 6.3 per cent on Christmas Eve trading.