Now JD.com is like a tiger with lost teeth - bites do not hurt people.
On the evening of the 23rd, in the face of analysts' questions about price subsidies, Alibaba's chairman Daniel Zhang said this at the results meeting:
"Every once in a while, someone will take the initiative to jump out and do some price subsidies, hoping that through subsidies, the situation can be reversed and win the first opportunity." But looking back at history, no company has been able to change the situation through its own continuous price subsidies. ”
If the so-called change of the situation refers to shaking Taobao's status, then Daniel Zhang this sentence is indeed true; But his pattern is still a little smaller, because several large-scale price wars in history have actually changed the pattern of China's retail industry, and losers such as Suning, Gome and Dangdang have gradually faded out of the echelon of mainstream retailers.
And these price wars, without exception, were either provoked by Liu Qiangdong on his own initiative or by his strong intervention, and the judgment of who is the biggest winner is a matter of opinion, but JD.com is definitely the one who persists to the end. But what did such an enterprise that can fight a good war and an entrepreneur with a strong fighting spirit gain after releasing the news of "tens of billions of subsidies"?
First of all, the stock price plummeted, last week a total of four trading days in the U.S. stocks, JD.com (NASDAQ: JD) fell every day, the news of the "tens of billions of subsidies" on the 21st, the decline reached 11%, together with the entire Chinese concept e-commerce stocks plunged together; Then there is the contempt of peers, the direct opponent of the price war, Pinduoduo, has no response, seems to be dismissive of JD.com's determination, Ali's Daniel Zhang directly denied the role of subsidies at the performance meeting.
So, how critical is the situation that led Liu Qiangdong to launch a price war? And where will this war take JD.com?
01 Competitive advantage is gone
In our opinion, the three-year blow to JD.com is huge, because JD.com's real core advantages have been eaten away in these three years, and there is little left.
To understand this change in the competitive landscape of business, a simple question can be summarized:
How long has it been since you live in your neighborhood seen a JD courier delivering to your door?
If you live in a first-tier city, then congratulations, you are likely to be able to receive express delivery at home; However, in a large number of second- and third-tier cities, door-to-door delivery by JD couriers is no longer "standard".
Originally, the advantages of JD.com can be summarized as "more, fast, good, and provincial", which is also the brand value proposition of early JD.com, and of course, it is also where they think their own advantages.
Through the construction of its own supply chain and express logistics for several years, the complete system established by JD.com is indeed very convincing: the timeliness is first-class, and the goods bought in the morning can be delivered to the home in the afternoon; The packaging is complete, the after-sales service system is sound, there is no need to worry about the goods being damaged during the express delivery, even if there is damage, it is extremely convenient to return and exchange the goods. Buying goods on JD.com is synonymous with fast and good, and this impression is the competitive barriers established by JD.com in the eyes of investors; In the eyes of consumers, it is also an important basis for choosing JD.com as a purchase channel.
But now, the competitive advantage represented by this "good" and "fast" has also been offset by a new format that has developed rapidly since the epidemic - express stations.
It should be noted that this offset is not only the squeeze caused by the rapid expansion of express stations to the end of Jingdong, but also seems to be the active choice of JD.com in order to quickly enter the "outside the fifth ring" market: through the convenience brought by express stations, Jingdong can ensure the timeliness and coverage of express delivery in "outside the fifth ring" city without significantly expanding personnel.
According to the "2022 Express Terminal Ecological Development Report" recently released by the research group of the Employment Promotion Professional Committee of the Labor Economics Association, public service stations represented by community express stations have become the main channels for express terminal delivery, and have also become the main force for the increase of express delivery employees.
In the three years of the epidemic, the growth rate of public service stations across the country has far exceeded that of previous years, maintaining more than 40%. By the end of 2022, the number of express public service stations nationwide reached 280,000, a year-on-year growth rate of 74%, and each public service station served an average of 5,000 people. If this is roughly calculated, the population covered by public service stations has reached 1.4 billion people, even if the population covered repeatedly by each station is removed, it occupies the absolute mainstream of terminal express delivery services.
Source: 2022 Express Terminal Ecological Development Report of the Employment Promotion Professional Committee of the Labor Economics Association
The macro statistics are like this, and the actual consumer experience is more intuitive. Since the outbreak of the epidemic, including since the opening in December last year, the author's family, located in the family home of a unit in a third-tier city, has not seen a JD.com courier who delivers door-to-door, and instead is required to pick up the goods at the express station in the community.
We also noticed that since the second half of 2019, JD.com's revenue has continued to climb to a new level, and its market value has also opened a new upward trend, but behind the significant increase in trading volume is the downgrade of service.
As a result, in addition to larger home appliances and home shopping, the service link between JD.com and consumers has been completely cut off, and the terminal perception of JD.com's online shopping service has also become the service perception of consumers for express stations.
At the same time, when express delivery changes from direct door-to-door delivery to when consumers are free and when to pick up, the perception of timeliness is also changing: for those items that are really not in a hurry, consumers' pickup time will be adjusted according to their own situation. Therefore, the timeliness of express delivery depends on when consumers are available, not how fast the express delivery is.
Can't perceive "good", can't enjoy "fast", when consumers buy goods, consider more is "more" and "save". But from the perspective of consumers, Jingdong is "more", Jingdong Mall is definitely not comparable to Taobao Mall; In terms of "province", it is now no better than Pinduoduo.
Especially in the "province" point, the current gap between JD.com and Pinduoduo is extremely large.
In this regard, you can take the more rigid Apple mobile phone on different channels as an example. On Jingdong, the price of the latest iPhone 14 Pro Max black 256G memory mobile phone in Apple's self-operated flagship store is 9099 yuan after counting all subsidies, and the official "tens of billions of subsidies" Apple mobile phone of Pinduoduo is only 8529 yuan, if you choose gold, the price can be 200 yuan cheaper, and the limit price difference reaches 700 yuan.
The price difference of 700 yuan is close to 10% of the price of this mobile phone, not to mention that in the eyes of consumers, the price to buy a mobile phone through Jingdong is more than nine thousand, and it only needs more than eight thousand on Pinduoduo, and the gap between 8 and 9 in thousands of digits, which immediately opens up the psychological acceptance of consumers when buying.
What is more serious is that compared with Pinduoduo, Jingdong's self-operated Ribai, 3C and other advantageous categories almost have no advantages. The advantages of good service and fast timeliness have been eroded, and there are many categories, more money-saving and not as good as others, and JD.com is now facing the embarrassing situation of "how fast and good to save" collapse across the board.
If you want to save the situation, you can either improve the service and force every order to be delivered to your door in all regions, especially in lower-tier cities, widening the gap with other express delivery services; Or fight a price war, while maintaining the current service status, the relatively high price will be knocked down and the hearts of consumers will be re-won.
Either of the above changes is bound to erode JD.com's profits.
02 Price war is the only way out
From the perspective of fast results and good results, price war is definitely the best way. However, "tens of billions of subsidies" is also the only way out that Liu Qiangdong can think of.
There is no traffic entrance, and JD.com, which sells goods all by itself, has fallen into the current situation, and no one can be blamed, but he can only blame himself for not contending. Since the epidemic three years ago, especially after 2022, middle-aged and elderly people in lower-tier cities that did not have a wide coverage before e-commerce platforms have begun to use online shopping, and this batch of increased traffic (which is also the last traffic benefit of e-commerce) has not brought even the slightest benefit to JD.com.
According to the financial report, JD.com's commodity sales revenue in the third quarter of 2022 was 197 billion yuan, a year-on-year increase of 5.9%, lower than the consensus expectation of 2.1%, and a decrease of 13% month-on-month. The reason for the slower-than-expected revenue growth rate is that the revenue growth of daily necessities and 3C home appliances, which are the driving forces of growth, has slowed.
In the third quarter of 2022, JD.com's revenue was 77.74 billion yuan, a year-on-year increase of 3.5% and a month-on-month decrease of 13%; The revenue of the 3C home appliance category was 119.28 billion yuan in the third quarter, an increase of 7.5% year-on-year and a decrease of 12.6% month-on-month. Unlike Taobao and Pinduoduo, JD.com is a self-operated e-commerce company, and the direct impact of the slowdown in commodity sales is the deterioration of JD.com's cash flow, which was only 9.15 billion yuan in the third quarter, down 36.7% year-on-year and 72.8% month-on-month.
The decline in free cash flow, which plays a key role in JD.com's valuation, was even more pronounced, with only 2.339 billion yuan in the third quarter, down 44% year-on-year and 92% month-on-month. According to the current development of JD.com, the above financial indicators are unlikely to improve significantly in the fourth quarter.
At the same time, JD.com's net profit in the third quarter of the year-on-year turnaround was 5.959 billion yuan, most of which was due to the investment profit and loss and other non-operating gains obtained by the equity method, which was as high as 4.43 billion yuan, accounting for about half of the total turnaround. Purely from the progress of the main business, JD.com's results in the third quarter are hardly satisfactory.
Compared with JD.com's direct opponent who initiated the price war, the performance was high. Pinduoduo achieved substantial growth in the third quarter, with total revenue of 35.5 billion yuan, a year-on-year increase of 65% and a quarter-on-quarter increase of 13%; net profit was 10.59 billion yuan, a year-on-year increase of 546% and a month-on-month increase of 20%; Net operating cash flow was RMB11.65 billion, up 33% year-over-year and down 39% sequentially.
As an e-commerce platform that still maintains rapid growth, Pinduoduo's performance brings investors the hope of growth, while JD.com makes people feel that the future is gloomy. Looking at a relatively long cycle, JD.com has a relatively big problem with its brand positioning.
JD.com's brand value proposition has changed from "only for quality life" in 2016 to "live up to every love" now, basically deemphasizing the previous brand impression of "how fast and saving". The establishment of this impression has allowed JD.com to take a completely different route from Taobao Pinduoduo - high-end.
Frankly speaking, whether high-end can constitute the competitiveness of a comprehensive e-commerce platform depends entirely on what consumers think, not what JD.com itself says. The era when consumers can accept high premiums is competitiveness; In the era when consumers want cost-effectiveness, they will abandon it.
In JD.com's revenue contribution, Ribai and 3C home appliances occupy the absolute majority, for these two categories, even if consumers want to choose high-end, they pay more attention to the product itself than the shopping platform. Also taking Apple mobile phones as an example, the price of more than 9,000 is far less attractive to consumers than the price of more than 8,000.
And what consumers pay for the cost performance is just one more day of waiting.
As we mentioned in previous articles, mass consumer goods need to return to their first principles - high quality and low price, and the same applies to JD.com. As a self-operated e-commerce platform, and there is no social and short video platform drainage bonus, leaving consumers with the impression of emphasizing high-end and light cost performance, the result is inevitably that when consumers pay more attention to cost performance, they will abandon such platforms.
Obviously, in the past two years, more and more consumers tend to be cost-effective, do not blindly pay for advertising premiums, and shopping more attention to real needs has become a new trend. A more obvious example is that while retailers such as Amazon and Target have slowed down, Costco, the world's largest retailer of membership discounts, has achieved solid growth. In the fiscal year 2022 financial report, the company's total revenue for the year was US$226.954 billion, a year-on-year increase of 15.8%; Net income was US$5,844 million, up 16.7% year-over-year.
If JD.com wants to adapt to this trend, it must pick up its old line of price war. "Low price is the most important weapon for our past success, and it will be the only basic weapon in the future." This is what Liu Qiangdong once said, and it is also the road that JD.com will take in the future.
However, choosing a price war will inevitably mean sacrificing the net profit of this year or even next year and the year after that, and at the moment when Taobao is still in place and Pinduoduo is making great progress, the continued downturn of JD.com's stock price seems to become inevitable.
03 Conclusion
Jingdong, once upon a time, was the same as Pinduoduo now, and it was a well-deserved king of cost performance.
As I write this, I looked through my own purchase history on JD.com. Records show that the first item I bought on JD.com was a gold-colored, 64G memory iPhone 6 ordered in December 2014, and its price was 6,088 yuan.
In my impression, the iPhone at that time was far from easy to get than it is now, and even more than two months after its release, the golden phone still needed to be purchased at a markup. In those days, I ran several offline mobile phone retail stores in Zhongguancun, and the price was higher than that of 6088, so I decided to give it a try on JD.com, which I had never bought online.
Needless to say, JD.com delivered a brand new unopened and inactivated mobile phone the next day, and then this mobile phone accompanied me for two years from graduating from master's degree to entering the society. Since then, my liking for JD.com has soared, including buying desktop computer accessories and laptops later, and no longer choosing offline stores, but placing orders directly on JD.com.
8 years have passed, Jingdong has gone around in circles, but now it has to rely on the strategy of low prices to win back consumers, but this time the opponent has also changed from a large number of offline stores to a strong and large traffic Pinduoduo. Can JD.com win back the market?
Disclaimer: This article is for learning and communication only and does not constitute investment advice.