On September 18, Zeng Fuhu, former VP of Sohu net and GM of Sohu Focus, confirmed to All Whether TMT that he officially joined JD.com at the end of July and served as GM of JD.com real estate department. The department, which was recently formed, is now hiring staff. Jd.com will also add a new business, real estate, to its e-commerce landscape.
In August of this year, JD.com took a commercial land in Beijing Yizhuang Economic Development Zone for 3.85 billion yuan. In September, JD.com announced it would invest 30 billion yuan in Fenggang town, Dongguan City to construct “JD.com, Urban AI New Town”. Results show that by the end of 2016, JD.com had 3.9 million square meters of land or 5850 mu in 15 cities across China – previously, due to its frequent appearance in the land market, the outside speculated a lot about whether JD.com entered real estate.
But according to Zeng Fuhu, the positioning of JD.com real estate is neither a developer nor a buyer, but a service provider. In other words, JD.com is going to be a real estate e-commerce company, and it will not be involved in real estate development. JD.com insider told All Whether TMT. that JD.com’s existing land is mainly to cooperate with e-commerce and will be used for office, warehousing and logistics, and JD.com won’t develop real estate business.
Real estate e-commerce is an O2O mode that became popular in around 2012. Representatives of 1.0 era are Soufang net, Anjuke. And representative of 2.0 era are FangDD, 5i5j, haowu and others that started from mobile Internet terminal. The main purpose of real estate e-commerce is to enter property transactions by using the Internet means, competing for offline flow and market of real estate transactions. Zeng said that after enter real estate market, JD.com would start from the new houses and gradually expand its business to second-hand housing, rental, culture-tourism real estate and overseas real estate.
Previously, Zeng had rich experience in real estate network media and real estate e-commerce. According to the public information, Zeng joined Sohu in 1999. He was the director of Sohu news center, director of business development department and general manager of Sohu Focus network. He was promoted to VP of Sohu in 2014. In 2016, he took over the post of COO of HNA Cloud Business after leaving Sohu and joined JD.com in July this year.
It is important to note that the current real estate industry is under strictest control. And the profit pattern of real estate e-commerce is also thought to face huge challenges. The industry “unicorns”, 5i5j, FangDD and other companies, were caught in dilemma, such as layoffs, model transformation, etc. Entering the real estate e-commerce at this moment, does Richard Liu’s real intention is simply to fight for real estate cake?
JD’s special supply house
All Whether TMT has heard exclusively from JD.com that JD mall is about to launch a batch of “JD.com house”, which is currently working with developers to connect with offline resources.
The launch of the product will also apply Baidu’s flow resources. On August 10, JD.com and Baidu launched the “jingdu” plan, which would open shopping entrance to “JD.com special supply” in Baidu mobile App. Baidu product matrix and JD.com e-commerce data would help stores on JD.COM to realize accurate delivery.
According to insider, JD.com real estate will open a new house sales platform first, inviting developers to enter JD.com mall and through the POP mode to connect online and offline channels. POP mode is Platform Open Plan, which refers to the introduction of third-party sellers to the platform. It is known that there are two major models for merchants to enter JD.com mall. One is purchase and sales mode of JD.com self-operation and the other is POP mode.
Some people from real estate field think, compared with the traditional housing e-commerce, JD.com has broad user base. Its own mature large data accumulation and AI technology will hugely impact traditional real estate e-commerce suppliers.
But JD.com does not intend to subvert property. Zeng said Liu stressed the value of JD.com. was “client first” and that the company hoped customers would gain better revenue and better market share on JD.com. Therefore, JD.com positions itself as service provider in the real estate trade. What they will do is to “reduce costs, improve service and enhance efficiency; JD is not likely the subvert (real estate) industry”.
Real estate e-commerce platform, for example, has problems of “being opaque”, “false housing resources”, “frequent fly deal”. While Zeng said, “JD.com may soon be able to make information of new houses more transparent”.
Yan Yuejin, think-tank center research director of E-house China R&D Institute, tells All Whether TMT that JD.com’s layout in property market is in accordance with its overall strategy of “Internet +”, but also should beware the risk of insufficient offline resources. Recently, some e-commerce businessmen had operating difficulties. In the subsequent, they need innovations in housing resources integration, etc.
As for entering real estate market when it is cold, Zeng thinks when market is satisfying, people don’t think about pattern innovation because developers have relatively abundant marketing fund. But great changes have appeared in the market at present. Developers have a lot of difficulties in marketing, and policy adjustment may be long-term, therefore, shifting pattern and trying new things are solutions”.
Richard Liu’s three cards: flow, trading tools and supply chain
In an exchange activity for people in real estate field in early September, Zeng explained the “three cards” of JD.com’s layout — flow, trading tools and upstream and downstream supply chain.
Among them, the flow is the “trump cards” for online platform to crush the traditional real estate sales model. According to JD.com’s Q2 financial results, by June 30, 2017, active users of JD.com in the past 12 months were 258.3 million, up by 37% year on year. Currently, the number of active users of JD.com is a half of that of Alibaba, but the increase rate of the latter is only about 5-10%. Since 2015, JD.com continuously launched Jingteng Plan, Jingtiao Plan and Jingdu Plan with Tencent, Headline Today and Baidu respectively. The industry believes that user flow of JD.com has room for growth in the future.
In addition, as is said by Zeng, JD.com has the tools to deal and pay, as well as JD.com Baitiao. ” JD.com has almost all the financial tools you can come up with.” In the upstream and downstream, JD.com has tens of thousands of suppliers and more than 1 million customers, involving appliances, decoration and other consumption related to the property. Jd.com thus has a first-hand online transaction data.
For example, China’s online consumption index released by JD.com Finance in August shows that in six terminal consumer goods related to real estate, hard outfit (basic building materials, kitchen, bathroom, large appliances, lamps and lanterns) grows significantly faster than the soft outfit (furniture, home textile). But growth gap has gradually narrowed, which may among online consumers, the proportion of fine decoration is gradually increasing compared with simple decoration.
In June, news that “Chaoyang District Court bid 77 houses on JD.com” caused a stir online. It is reported that at 10 a.m. on June 18, 71 implemented items accepted by Chaoyang District Court was auctioned in the JD.com Judicial Auction Platform. The 71 items include 77 houses, whose assessment is worth more than 660 million yuan.
This was not the first time that JD.com had tried the real estate + Internet. As early as “double 11”, 2014, JD.com Finance has conducted Internet marketing with Sino-Ocean Group Holding Limited and tested the real estate crowdfunding. In 2015, JD.com launched thousands of special houses on June 18, its anniversary, involving 80 projects from 43 developers, including China Vanke Co.,Ltd, CITIC Real Estate and BCDC.
“JD.com has been thinking about how to operate in real estate market, which requires upstream and downstream and coordination. Now the conditions for this collaboration are becoming more and more mature.” said Zeng.
Expanding category and increasing profit
61.3 percent is the market share of JD.com’s in 3C appliances online sales in H1 2017. In this category, JD.com is undoubtedly the biggest retailer. While real estate category appearing in the JD.com mall means JD.com which started from 3c now expands its categories and basically sells all types of goods.
For JD.com, which has three good cards, entering cars and real estate markets may be a strategic necessity. According to core insider of JD.com, JD.com is going to do full category e-commerce. Earlier, JD.com strategically held shares of Yiche.net (since January 2015, JD.com teamed up with Tencent and Baidu, whose total investment in Yiche.com reaches nearly $1 billion dollars). In this way, JD.com has connected online sales of cars and the real estate is a huge market JD.com must enter.
According to Lianjia Institute, the 2016 national housing sales totaled 20 trillion RMB. The second-hand housing was 6 trillion RMB, second-hand housing lease was 2 trillion RMB, and the new house deal was around 12 trillion RMB, whose proportion is the largest.
In terms of JD.com’s category structure, by the end of 2016, the proportion of daily provisions and other goods had reached 51%, surpassing the proportion of 3C appliances. In this year, the category of JD.com platform has been constantly enriching, which has accelerated JD’ expansion in consumer goods, fresh products and home furnishings. The industry thinks that JD.com will grow from 3C appliances platform to the platform that more than half of its categories are non-3C appliances. In the next stage, JD.com will be more vibrant.
In addition to expanding categories and revenue, JD.com is also deepening its existing business and improving its profitability.
According to JD.com Q2 2017 Finance Report, in Q2, its revenue was 93.2 billion yuan, an increase of 43.6% year on year, closing to the 100 billion. The net profit attributable to ordinary shareholders (GAAP) turned negative, losing 380 million yuan, down by 130 million yuan year on year.
According to insiders, since this year, Liu has valued JD.com’s profitability indicators greatly and has put forward in the annual meeting that “the key is not only revenue but profit and net profit must also enter the top 10 (among the world’s top 500)”.
A senior practitioner in real estate e-commerce tells All Whether TMT, the current profit source of real estate e-commerce platform mainly comes from advertising fee paid by developers, port charge paid by intermediary agent and service charge of e-commerce (or group purchase fee) paid by consumers. It is not yet known about the cooperative scheme agreed between JD.com and cooperative partner. But real estate industry has always been a more profitable industry than retail counterpart.
An overseas brokerage analyst tells All Whether TMT that in the retail e-commerce, clothing is the category with satisfying profit, whose gross margin exceeds 20%. Whereas the gross margin of 3C products such as computers, mobile phones are in single digits. By contrast, real estate and real estate e-commerce companies have higher margins.
According to the statistics of real estate enterprises released by relevant organizations, the average gross profit rate and net profit margin of the property companies in 2016 were 27.6% and 12.4% respectively. According to the finance report released by Huayan Housing Alliances, a service provider featured “Internet + real estate” listed on National Equities Exchange and Quotations (NEEQ) or the new third board (stock code: 831496), its gross profit increased from 15.04% in 2016 to 29.27% in H1 2017.
Next battleground between JD.com and Alibaba
Prior to the establishment of the real estate division, JD.com’s old rival, Alibaba, had already made a layout in the real estate sector.
The All Whether TMT learned that Alibaba real estate e-commerce has two entry points: new house market and rental market.
In the new house market, Taobao already has a property channel and signed cooperation agreements with more than 50 developers as early as 2015. According to Jiang Sha, the GM of Taobao Property, about 200 million yuan of housing fund poured in Yu ‘e Bao and the total purchase volume reached 27 billion yuan in 2015.
Taobao property is positioned as a “considerate, affordable and secure house-buying platform”. According to its website, Taobao property now mainly opens new house purchase business in more than 60 cities. In addition, the real estate channel in Taobao is changing its version and will launch the rental platform later.
On August 9, Administration of Housing of Hangzhou Municipality and Alibaba reached strategic cooperation. Hangzhou will use Alibaba’s technology and resources to build China’s first “intelligent housing rental platform”. The platform will incorporate the public rental housing, commercial housing rent, houses owned by developers, intermediary agent and individuals. It is reported that Taobao and Xianyu will become important platforms for house renting in Hangzhou.
Alibaba also injected big data, AI and financial credit into the real estate industry. In March this year, Alipay announced the access to Mushroom Rent. If user’s sesame credit exceeds 650 points, they can find “rent” entrance in services provided by third parties and could experience free rental deposit provided by the Mushroom Rent. Information from the sesame credit shows that nearly six million people have used credit rentals, covering more than 30 cities.
Currently, JD.com has entered into a full range of competition with Alibaba, with JD Finance vs Ant Financial, JD Logistics vs CAINIAO. Yan Yuejin believes that in the real estate sector, the next stage of competition between the two sides will be in the rental area. He said, “the follow-up layout of JD.com real estate will definitely have direct competition with Alibaba.”
China’s rental market is expected to grow to 2.9 trillion by 2025 and to exceed 4.6 trillion by 2030, according to the Rise of Lease Report released by the Lianjia Institute.
In addition, the Ministry of Housing and Construction is advocating a vigorous cultivation of the housing rental market. According to Yan Yuejin, among the 33 real estate policies published by different local governments in July this year, there are nine policies directly or indirectly involved in rental market, which is in stark contrast compared with the tightening housing policies in H1.
This article originally appeared in All Weather TMT and was translated by Pandaily.
Click here to read the original Chinese article.