How to understand the Chinese e-commerce industry

China is the world’s largest online retail market, and investors looking for Chinese e-commerce exposure have a wide range of options to choose from, large and small.

In this Motley Fool “Backstage Pass segment, recorded on 23 august, Fool contributors Brian Withers and Jeremy Bowman analyze the differences between three of China’s most popular e-commerce stocks: Ali Baba (NYSE: BABA), (NASDAQ: JD), and Baozun (NASDAQ: BZUN). While all three provide e-commerce exposure in China, they do so in quite a different way.

Brian Withers: Let’s move from Tencent and talk about the e-commerce space. There are a number of e-commerce players in China, and we are going to talk about three of them. We are going to talk about, ticker JD; Alibaba, BABA teleprinter; and Baozun, ticker BZUN. You put them in an ecommerce cart, but I think of them as very, very different businesses.

Jérémy Bowman: I think everyone is doing something different. Alibaba is almost like a conglomerate. I think with Tencent they are the biggest Chinese tech companies, but they are mostly known as an e-commerce company. You have Tmall, which is like an upscale mall where you’re going to find Nike luxury goods or products. They’re fully brand-authenticated, that sort of thing. They have the Taobao Marketplace which is more of a peer-to-peer marketplace as you might see with eBay. Then they have a lot of businesses outside of China, with Lazada in South East Asia and AliExpress, which you can buy here in the US. They also have a cloud business and their own type of YouTube product called Youku. So there are a lot of things, mainly e-commerce.

Withers: It is mainly a third party e-commerce company. When we think of a third party, we think of eBay as people selling to other people, and Alibaba facilitates that in their Tmall marketplace but doesn’t necessarily touch the goods. Are they getting into a first party business?

Archer: I do not believe that. They’ve been a deal, so thank you for making that point. This is an important distinction between them and But yes, they’ve been a market since the early days of the internet and they’ve had a lot of success doing it. I don’t think they plan to do a first party, although they also have their logistics branch, called Cainiao.

Withers: It’s thanks to an acquisition, isn’t it?

Archer: Yes. It was one of the acquisitions they made in the last few years.

Withers: I vaguely remember the story of Alibaba’s founding. Jack Ma Google Searched For Chinese Products In China And He Didn’t Get Anything [laughs], nothing came. So he said to me: “This is not good.” The idea of ​​Alibaba was therefore born. You mentioned They present themselves as the largest retailer in China. While Alibaba may be the biggest marketplace for sales, JD is the biggest first party. Think of them as a line Walmart in China. They have managed to put in place a huge amount of infrastructure across the country. I think they now have over 1,200 warehouses and over 200,000 people doing last mile delivery. They not only buy the inventory, but put it on their platforms to sell it; they also handle all order processing and last mile delivery themselves. They have a big hand in what gets to the market, as well as how it is delivered.

Archer: I see in part as a cutting edge logistics company, and they are experimenting with delivery drones. I think they have a warehouse in Shanghai which is just pretty much fully automated, with only four employees. I saw that they were trying autonomous delivery robots. They do a lot of cool things with that stuff, I think.

Withers: You and I are crazy about their technology. I remember you wrote an article about a year ago that explained how far JD was ahead of You’re here in a number of avenues on autonomous driving and other technologies.

Archer: Yes. [laughs] Maybe by bending it a certain way, [laughs] but they deployed it. I think the last time I saw that there was testing in, I believe, Chengdu but –

Withers: Yes yeah.

Archer: I don’t know if you’ve seen any updates on this, but it’s live, so it’s pretty exciting.

Withers: Their delivery vehicles have tiny little things, they are different sizes, but they can drive on sidewalks. They are about this size.

The third e-commerce company is Baozun and its stock symbol BZUN. At first, when he was first recommended in The Motley Fool, he was called the Shopify from China, and I’m bristling with that explanation right now, because that’s not really what they do. They are much more –

Archer: The performance was not very Shopify. [laughs]

Withers: Well it sure is [laughs] true. Certainly not the stock market performance, but I think of them as a service provider where a western brand, someone like Nestle, wants to enter the Chinese market. They don’t have a footprint there, they don’t know how to get there, and Baozun guides them through the process. We’ll take Nestlé’s delivery pallets, then put them in the right places across the country, potentially help the market, and ultimately fill their goods and help them collect the money. Really, they’re focused on capturing those brand partners, and that’s their growth. It is their niche market that they have.

Archer: Yes I also think it’s important to distinguish them from Shopify which is a software company as Baozun really does logistics, warehousing, marketing, IT, government relations. for these multinational companies to do business in China.

Withers: Yes. What’s interesting is that I just took a quick look at the market caps of these three before the show, and Baozun is under $ 2 billion, is around $ 99 billion. , $ 100 billion currently and Alibaba is about $ 400 billion. Baozun was worth $ 1.8 billion, JD about $ 100 billion, and Alibaba about $ 400 billion. Very different market caps, and although JD and Alibaba’s income is actually quite close, but you have to remember that JD’s income is from the sale of goods, and so if they sell an item of 100 $, they get $ 100 plus their extra service fee, and if Alibaba sells an item for $ 100, they get whatever their take rate is. Maybe it’s 10% of that as a service charge. So very different. Alibaba carries more cargo overall, but JD actually bought that inventory, so that’s a bit of a difference between the two.

Archer: Yes. I think that’s why JD can claim he’s the biggest in China –

Withers: Largest retailer.

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