Six years ago, on June 27, 2017, the entire Internet community stayed up all night to witness the miracle of "JD.com surpassing Baidu in market value." Of course, JD.com did not end the BAT ranking in the end. The market value gap between the two sides was still US$800 million that night. Today, in this exciting moment, the protagonists have become Pinduoduo and Alibaba. The difference from five years ago is that Pinduoduo has truly staged the reversal moment of "the younger brother becomes the elder brother".
Looking at JD.com, almost no one mentioned it that night. But it is not difficult to see that Liu Qiangdong, as the helmsman of JD.com, is anxious.
Back on December 11, the stock price of JD.com (NASDAQ: JD/09618.HK) fell nearly 8% that night, and finally closed at HK$98.25 per share, a drop of more than 50% from the beginning of the year.
The incident began when a JD.com employee posted a thousand-word article on the intranet, discussing in detail some of the company’s existing problems. The post attracted the attention of founder and chairman of the board Liu Qiangdong.
Late on Saturday night, Liu Qiangdong personally responded to the employee, affirming the company's pain points raised by the employee. He also reflected on his own "poor management and very self-blame" and said that JD.com "must change, otherwise there will be no way out." As of December 12, JD.com’s market value was around US$40 billion, and Pinduoduo’s market value had risen to US$190 billion, surpassing Alibaba by US$181.7 billion, becoming the largest Chinese concept stock in the US stock market.
At this time, Pinduoduo’s market value is equivalent to 4.7 JD.com.
When Pinduoduo picked up JD.com’s old “low-price” weapon and attacked the hinterland of the e-commerce platform, JD.com had no choice but to bite the bullet and join this low-price battle.
The low price JD wants is the low price it wants from the supply chain, but this low-price battle is destined to be long.
Pinduoduo "fights hard"
Jingdong is also "anxious"
Why is Liu Qiangdong "angry"?
Turning the clock back to three years ago, JD.com’s market value was at the same starting point as Pinduoduo, with its market value hovering around US$50 billion. Today, Pinduoduo’s market value is the sum of the market values of the four JD.com companies, and has even surpassed the market value of “big brother” Alibaba recently. Judging from the latest three quarterly reports disclosed by the e-commerce platform, JD.com lags behind Pinduoduo in terms of retail, overseas business and user dimensions.
In the retail dimension, since JD.com is currently more like a self-operated e-commerce platform, its revenue data will be higher than that of third-party e-commerce platforms such as Pinduoduo, so this article will only compare growth data.
JD.com’s revenue sources are divided into four major sectors, namely JD Retail, JD Logistics, Dada and New Business. Among them, JD Retail achieved revenue of 212.1 billion yuan in the third quarter, accounting for 81% of revenue, but the growth rate was only 0.06%. JD.com’s retail segment includes two major parts: commodity self-operated business and platform e-commerce business.
In this regard, Xu Ran, CEO of JD Group and JD Retail, explained in a conference call, saying, "Retail business is JD's core business with the highest proportion of revenue, and is also the foundation of JD's other diversified businesses. Next, we will continue to work hard to promote the implementation of the retail business strategy of 'cost efficiency experience as the core' and promote the synergy between retail and other business sectors of the group."
In contrast, Pinduoduo’s retail business revenue growth rates in the first and second quarters of this year were 58.18% and 66.29% respectively, and the growth rate in the third quarter reached 93.89%.
Judging from the financial report, Pinduoduo’s revenue from transaction services was 29.15 billion yuan, a year-on-year increase of 315%, and this part of revenue mainly consists of Duoduo’s commission income from grocery shopping, cross-border e-commerce platform Temu’s income, and some commission income from tens of billions of subsidies. It can be seen that Pinduoduo’s retail business revenue has increased significantly, and a large part may come from cross-border e-commerce business.
Although Pinduoduo has not released data on cross-border e-commerce Temu's revenue, costs, marketing investment and other data, since the business was launched in September last year, it has expanded to more than 40 countries and regions around the world. According to media reports, Temu's sales in the third quarter of this year have exceeded US$5 billion, and may exceed the annual GMV (Gross Merchandise Volume) target of US$15 billion.
Looking at JD.com's overseas business, it classifies overseas business into the new business segment. This quarter, JD.com's new business revenue recorded 3.818 billion yuan, a year-on-year decrease of 24%. This revenue of less than 4 billion yuan also includes the revenue of JD.com and Jingxi.
JD.com’s overseas expansion can be traced back to ten years ago.
In June 2015, JD.com launched its global sales business (JOYBUY) Russian site, but half a year later, JD.com decided to suspend the Russian site. In June 2017, the "JD.com Sells Global" business was officially launched, and subsequently JD.com continued to make efforts in Southeast Asia. However, at the beginning of this year, JD.com closed its Thailand and Indonesia stations. JD.com’s overseas journey has not been smooth.
The foundation of e-commerce is a large number of users. Whether at home or overseas, JD.com’s imagination for the capital market is obviously no better than that of Pinduoduo. In terms of user volume, JD.com Group will no longer disclose user data starting from the fourth quarter of 2022.
▲Chart: Comparison of monthly activity data of e-commerce platforms from 2020 to 2023, charted by Zero State LT
According to Internet data in 2022, Taobao has 520 million monthly active users, Pinduoduo 419 million, and JD.com 300 million. Earlier, Pinduoduo’s 2019 annual report showed that the number of annual active buyers reached 585 million. Compared with JD.com’s 362 million annual active users in the same period, Pinduoduo has far surpassed the latter.
According to the "2023 Double Eleven Insight Report" released by the third-party organization Questmobile, during this year's Double Eleven, the number of daily active users of Taobao and Pinduoduo exceeded that of JD.com.
▲Picture: Comparison of daily active users of e-commerce platforms during Double 11. Source: QuestMobile
In such a situation, it is not surprising that Liu Qiangdong is "anxious".
On the evening of November 15, JD.com Group announced that the company’s CEO Xu Ran will concurrently serve as JD.com Retail CEO, effective immediately.
At this time, just over two years after the previous Xin Lijun served as JD.com’s retail CEO, JD.com once again made personnel changes.
low price
Can JD.com afford it?
Judging from Liu Qiangdong’s statement on the company’s intranet on December 9, JD.com will not give up its low-price strategy.
On the intranet, the employee who sent the long letter mentioned the "price following problem" and the "low price mentality" problem. He believed that JD.com currently has the problem of "low prices only follow up, without leading". He also mentioned that the current low prices given by the company are not low enough to attract users, but are only low prices that "move" the procurement and sales team. Liu Qiangdong’s comment on this is that “it has reached the company’s pain point” and JD.com must change.
▲Picture: Screenshot of part of JD employees’ intranet speeches
At the end of 2022, Liu Qiangdong returned to the front line of management. During last year's Double 11 promotion, he issued an internal email, pointing out that "low price is the most important weapon for JD.com's success in the past, and it will also be the only basic weapon in the future."
What Liu Qiangdong said is true.
As early as its establishment, JD.com relied on its "price butcher" advantage to exclude Dangdang, Gome Electrical Appliances, etc. from the table. Today, new competitors have used JD.com’s weapons to once again launch a low-price e-commerce campaign.
In order to achieve low prices, JD.com has successively launched tens of billions of subsidies, 9.9 free shipping channels, and launched many measures such as double compensation for expensive purchases and lowering the self-operated free shipping threshold. On March 6 this year, JD.com launched a tens-billion subsidy channel. JD.com set a standard value for product prices against platforms such as Pinduoduo’s “Ten-Billion Subsidy” and Taobao’s “Juhuasuan.” Merchant bidding prices need to be lower than the standard value in order to win admission to the “Ten-Billion Subsidy” channel.
In addition, this year JD.com also launched a price guarantee function to reduce consumers’ concerns about “expensive purchases”. During the event, more than 800 million products enjoy full price guarantee. The price guarantee period lasts from 20:00 on October 23 to 24:00 on November 13. The price guarantee period for some products is as long as 90 days.
In addition to subsidizing and reducing prices for products, JD.com has also shifted its operational focus to the merchant side.
Self-operated products account for a large proportion in JD.com, and the revenue from the self-operated segment accounts for nearly 80% of the entire retail segment. The strong development of JD.com's self-operated products has naturally caused a squeeze on POP merchants (Platform Open Plan, that is, third-party merchants). However, the operating costs and supply chain costs of self-operated products are higher, making it difficult to take advantage of "low prices".
Since self-operation and POP are in a competitive relationship, there is no need to distinguish between self-operation and POP. Liu Qiangdong set new guidelines in April this year, "Whoever can achieve low prices will favor traffic", truly realizing the same rights for self-operation and POP.
Earlier, in categories with lower price ranges such as daily necessities, the number of POP merchants participating in JD.com was relatively insufficient. Therefore, in terms of attracting a wider range of POP merchants, JD.com currently provides more supportive policies.
At the beginning of 2023, JD.com released the Chunxiao Plan, providing merchants with a series of support measures such as "0 yuan trial operation", "opening a store in as fast as 1 minute" and "10 billion traffic support". In the second quarter of 2023, the number of new merchants on JD.com increased by 417% year-on-year. Then, in August this year, JD.com announced the upgrade of 20 measures in the "Chunxiao Plan" to continue to recruit small and medium-sized businesses.
A large number of small and medium-sized businesses have been attracted, and product subsidies have been provided. In the next step, can JD.com just sit back and enjoy the success?
Another problem is that low prices often come at the expense of quality and service. JD.com has always emphasized its own quality and service, and must maintain a balance between the two. This is a difficult problem to solve in the short term. If quality control issues in POP stores affect the quality reputation that JD.com has built over the years, it will be difficult for JD.com to regain its quality advantage.
Whether JD.com can afford the price of low prices is still unclear, and the current low prices have entered deep water. A McKinsey report shows that after major e-commerce platforms fully engaged in the competition for “the lowest price on the entire network”, the GMV of all e-commerce platforms during Double 11 only increased by 2% year-on-year.
Jingdong enters a long defensive battle
Since announcing its "low-price strategy" at the end of last year, JD.com has been working hard on this for a year. What is the result?
As mentioned earlier, JD.com’s retail revenue has barely increased compared to the same period last year. Specifically, in terms of product categories, self-operated e-commerce fell 0.9% year-on-year; 3C and home appliances saw zero year-on-year growth; daily necessities fell 2.3% year-on-year.
▲Chart: JD.com’s merchandise sales revenue composition and growth rate in the past three years, sourced from Soochow Securities
In terms of merchants, the overall number of merchants maintained a three-digit growth year-on-year in the third quarter, and the contribution of the "tens of billions of subsidies" to the total GMV of third-party merchant platform products' tens of billions of subsidies increased to 50%.
The core indicator in e-commerce is GMV. Since last year, the three major e-commerce platforms have stopped publishing GMV. For self-operated e-commerce platforms like JD.com, GMV is almost equal to operating income. For third-party e-commerce platforms such as Alibaba and Pinduoduo, GMV needs to be multiplied by a monetization rate to equal total operating income.
In order to simply and crudely compare the core revenue growth rates of the three major e-commerce platforms, this article lists the revenue growth rates in the past five years for comparison. It can be seen that Pinduoduo’s revenue growth rate is unparalleled, while the revenue growth rate of “rising star” JD.com cannot match Alibaba’s.
▲Chart: Comparison of revenue growth rates of the three major e-commerce platforms in the past five years, charted by Zero State LT
Jingdong Group CEO Xu Ran said that as the platform ecosystem continues to improve, it is expected that the proportion of orders and GMV of POP merchants will exceed that of self-operated businesses, but this is still a long process.
Although it is a long process, fortunately, JD.com has now found a better "starting point" than "copying" tens of billions of subsidies - JD.com's procurement and sales live broadcast room.
This year, it is no longer Taobao or Pinduoduo that takes the lead in “Double 11”, but JD Procurement and Sales. The cause of the matter also starts with Li Jiaqi, Jingdong’s tough guy in procurement and sales.
On October 24, JD.com’s sales staff named Li Jiaqi as “Choose One” in their WeChat Moments, saying that JD.com had received a lawyer’s letter from the brand owner Hai’s because the price of an oven was lower than that of Li Jiaqi’s live broadcast room, requiring him to pay huge liquidated damages. Procurement and sales staff believe that the low price is entirely a subsidy paid out of JD.com’s own pocket and “sacrifices the gross profit of the entire department.” However, the brand owner complained instead.
That night, Hai's denied having a "minimum price agreement" with Li Jiaqi, and claimed that JD.com had unauthorizedly changed the discount price of a Hai's oven from 669 yuan to 639 yuan before launching Double 11. The cost was entirely borne by Hai's and was not a platform subsidy. Li Jiaqi's company, Meipiao, also denied the "low-price agreement" and emphasized that it has never asked the brand to make any "choose-one". The pricing power of the products in the live broadcast room lies with the brand.
This war of words has not yet been concluded to this day, but it is not difficult to see that JD.com’s purchasing and selling has gone out of the circle and is using this to implant a “low price” mindset into consumers.
On October 25, JD Home Appliances temporarily launched the "Low Price Li Jiaqi Live Broadcast Room", which was watched by tens of millions of people.
Following the home appliances and home furnishings sector, JD.com has successively opened purchasing and sales live broadcast rooms for 3C digital, beauty, automobile, health and other categories. On the evening of November 6, the number of viewers in JD.com’s multiple live streaming rooms for purchasing and selling exceeded 1 million, including more than 3 million viewers in JD.com’s live streaming room for mobile purchasing and selling. The screen was full of barrage comments saying “can’t get it”. Before this Double Eleven, the number of people online in JD’s live broadcast rooms was often only tens of thousands.
▲Picture: JD.com purchasing and selling live broadcast room, sourced from the official public account
JD.com's live streaming of purchasing and selling products is equivalent to using the company's money to buy the goods first and then selling the goods itself, so there is no need to charge pit fees or talent commissions. The popularity of purchasing and selling live broadcasts has undoubtedly given JD.com an additional lever for its “low-price strategy”.
JD.com stated that the low prices that JD promotes are not “fake low prices” obtained by shoddy products, lacking quality, or cheating; they are “real low prices” that rely on honest management, continue to “squeeze water” in the supply chain, and pass on the money saved through extreme efficiency to users and partners, which can truly promote consumption and stimulate the vitality of the consumer market.
Since it is necessary to "squeeze water" from the supply chain, Liu Qiangdong cannot be impatient. If JD.com wants to become great again, "veteran" Liu Qiangdong needs a tough battle, but this is destined to be a long war.