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Text | Digital Reading of Business

In the latest second quarter report, JD.com showed an unusual phenomenon, not mentioning the keyword "618" at all. Even at the earnings conference, 618 was only mentioned in one sentence.

Looking back at JD.com’s previous second quarter reports, 618 has never been absent. Externally, even Alibaba, which does not play a leading role, also mentioned 618 in its financial reports.

There are only two explanations here. Either 618 is so bad that there is no highlight, or the importance of 618 is declining.

The success and failure of low-price strategy

The latter is more likely, because JD.com has been growing and has never declined. Even if things are not going well, there are always some bright spots.

This quarter, JD.com's revenue was 291.4 billion yuan, a slight increase of 1.2% year-on-year. Since the second half of 2022, JD.com's growth rate has dropped to single digits, and it has not achieved double-digit growth for seven consecutive quarters. Obviously, JD.com is facing the problem of stalling growth. The growth rate this quarter is a new low for a single quarter, which is not a good performance for JD.com. At the end of 2022, JD.com began a low-price strategy, launched "10 billion subsidies", and launched the slogan of "everyday low prices". After a year and a half, JD.com has not stopped the momentum of market share being eroded.

But this does not mean that JD.com's performance is poor. On the one hand, JD.com has never experienced a decline in revenue, which is rare in the context of the emergence of three trillion GMV platforms in the industry. On the other hand, JD.com has never lost profits in exchange for scale like Alibaba.

During the same period, Alibaba's net profit for the quarter was 24.4 billion, down 29% year-on-year, and has fallen sharply for three consecutive quarters. In comparison, JD.com's net profit for the quarter was 12.6 billion, up 92% year-on-year. This is the first time that JD.com's profit in a single quarter has exceeded 10 billion, setting a record high.

The improvement in profits has provided stability to JD.com's operations to a large extent. In the second quarter, JD.com's net cash flow from operating activities was 50.7 billion, a year-on-year increase of 9%. Free cash flow was 49.56 billion, a year-on-year increase of 11%. At the end of the period, JD.com's cash and cash equivalents were 209.5 billion, an increase of 11.8 billion from the beginning of the year.

Theoretically, a low-price strategy often leads to revenue growth and profit decline, but JD.com is just the opposite. CEO Xu Ran explained that low prices are achieved through low costs brought about by economies of scale and high operational efficiency brought about by technological improvements, so it is not through subsidies to achieve short-term unsustainable price reductions.

If we look at JD.com's performance, it is true that efficiency is improving. As of the end of the period, JD.com's inventory turnover days were 26.8 days, a decrease of 1.29 days year-on-year, which is the lowest in the last six quarters. It can be seen that turnover efficiency is improving. However, it is undeniable that JD.com's growth rate has not achieved the ideal effect in its low-price strategy.

Revenue growth seems to be JD.com’s last bastion to be conquered.

Lack of high-growth businesses

JD.com and Alibaba are facing the same problem. The difference is that Alibaba has the support of fast-growing business, while JD.com will prosper and suffer together.

Compared with the same period last year, JD.com's main businesses are currently only retail (including health) and logistics. In addition, Dada, Chanfa, Jingxi and overseas businesses are classified as "new businesses". Among these three businesses, JD.com's retail business was 257.1 billion, a year-on-year increase of 1.5%; logistics was 44.2 billion, a year-on-year increase of 7.7%; and new business was 4.6 billion, a sharp year-on-year decline of 35%.

Compared with Alibaba, its retail business was hit harder, with Taobao's business declining by 1% year-on-year. However, Alibaba's overseas business grew by 32% year-on-year, Cainiao's business grew by 16%, and local life business grew by 12%, which well supported Alibaba's growth, making Alibaba's growth rate 4%, exceeding JD.com.

JD.com mainly relies on JD.com Mall to conduct business, and the retail business, which accounts for the absolute core of its revenue, has a slow growth rate, so it is difficult for the overall growth rate to improve. The new business has dropped sharply by 35%, leaving JD.com with no new growth points, and the overall revenue growth rate is slow.

When dissecting JD.com’s retail business, it is the 3C business that is the main drag on growth. As the foundation of JD.com, the electronic products and home appliances business revenue in the second quarter was 145.1 billion, a year-on-year decline of 4.6%. In contrast, daily necessities played a positive role, with a revenue of 88.8 billion in the second quarter, a year-on-year increase of 8.7%.

Combined with the data of the first quarter, the electronic products and household appliances business declined slightly by 0.3% in the first half of the year, indicating that this business was significantly dragged down in the second quarter, especially during the 618 period, when the 3C business may have performed very poorly. Compared with the same period last year, this business was still an important support for the growth rate, increasing by 11%. It can be seen that JD.com 3C encountered considerable challenges.

This is not unrelated to the overall environment. Live streaming and billions of subsidies are prevalent, and 3C has become the main battlefield for subsidies. This has led to the loss of JD.com's previous price advantage, and it is inevitable that it will be impacted. At the same time, this industry has long been a stock market, and it is even more difficult to maintain growth.

As 3C businesses, which are mainly self-operated, have encountered problems, the entry of third-party merchants has become JD.com's hope for growth. CFO Shan Su said that the construction of the platform ecosystem will be firmly promoted. In the long run, the order volume and GMV of third parties will exceed those of self-operated businesses.

618 Normalization

The growth of third-party business requires, to a large extent, extraordinary measures.

Judging from the earnings communication meeting, JD.com's low-price strategy will continue to be implemented. Xu Ran said that the low-price strategy has not changed. The three most critical elements are product, price and service. The low-price strategy is the core, and the user experience is constantly improved.

This has also been proven in action. JD.com has enriched its low-priced products, launched a 10 billion yuan subsidy, and a 9.9 yuan free shipping channel. Starting in July, JD.com launched the "Super 18" IP, which offers discounted popular products from 8 pm on the 17th to the 18th of each month, all day long, at a fixed price of 18 yuan. The latest attempt is actually to normalize 618, with the 18th of every month being "618".

In previous articles, Business Reading mentioned that it is becoming increasingly difficult to maintain a shopping carnival once a year. On the one hand, even if it is not the "Super 18", e-commerce shopping festivals have developed to once a month or even once a week, such as the Hot 8 Shopping Season, 818 Mobile Phone Festival, 88 Global Carnival, 88 Membership Festival, etc. In August, shopping festivals throughout the year no longer reflect the price advantage.

On the other hand, new e-commerce companies have eliminated the value of shopping festivals. The emergence of billions of subsidies and live streaming by top anchors have made low-price promotions a normal practice with their own subsidies and bargaining power. Factory direct supply and group buying have left little room for price compression. The prices during JD.com's 618 and Tmall's Double Eleven were even higher than Pinduoduo's billions of subsidies. The discounts during shopping festivals are no longer as strong as before, allowing consumers to feel the intuitive changes in prices.

The competitiveness of the shopping festival model has been surpassed, but JD.com needs to increase its GMV, which requires a more radical model.

Hundreds of billions of subsidies, live streaming, refund-only policies, etc. are all strategic follow-ups of JD.com. Now, weakening the "6" in "618" and launching "Super 18" is an innovation of JD.com. JD.com has played its trump card by cutting into the store anniversary and the most well-known IP. From the current perspective, "Super 18" strives to create a new IP through a normalized promotion model, and to shape the image of JD.com as a money-saving and low-price brand. Once such an IP stands firm like the 10 billion subsidies, JD.com will have a strong brand perception in the low-price field, and the traffic it brings will become JD.com's foothold.

At the same time, JD.com's last moat has not changed. In the second quarter report, JD.com weakened many businesses. Among the business highlights, Dada, Chanfa, Jingxi and overseas, which were occasionally mentioned in the past, did not appear, which indicates that JD.com is strengthening its main business. The service capabilities accumulated by self-operation are the key link that distinguishes JD.com from other platforms, and have always been the ability that JD.com is most proud of. This helps to take on the traffic that low prices may bring.

But the real difficulty in this link is whether "Super 18" can become a super IP comparable to JD.com's 618. JD.com is not the only one doing price involution, and we need to see the subsequent results. In extraordinary times, extraordinary measures are needed. JD.com has revealed its trump card, and it depends on whether this trump card can become JD.com's trump card.