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JD.com surges amid year of low prices, signaling major recovery

Written by 36Kr English Published on   6 mins read

The Chinese e-commerce company surpassed market expectations with strong growth after a year of intense price competition.

After a year of intense price competition, China’s e-commerce giants appear to be gradually regaining the trust of users and entering a slow recovery phase.

In the first quarter of 2024, Alibaba achieved double-digit growth in gross merchandise value (GMV) for the first time in two years, and the growth rate of customer management revenue—stemming from merchant advertising fees and commissions—also hit a new high in three quarters. JD.com (also known as Jingdong) is not far behind, exceeding market expectations in GMV, revenue, profit, and user numbers.

More importantly, both companies reported GMV growth rates in Q1 2024 that exceeded the 11.6% growth rate of online retail, signaling a recovery after several quarters of struggle. JD’s stock price also rebounded by 40% in the past month, surpassing the 27% increase in the Hang Seng Tech Index (HSTECH) during the same period. It then retreated, ending up around 5% higher month-to-date.

At this time last year, Xu Lei, who had been with JD for 12 years, announced his retirement plan, with CFO Sandy Xu (also known as Xu Ran) succeeding him as the new CEO. In his farewell speech, Xu Lei thanked and praised Sandy Xu, saying that “JD Retail was able to emerge from its darkest moment in 2018 through adjustments, which were inseparable from Sandy,” and emphasized that JD would focus more on the health and quality of its business in the future.

Now, a year later, Sandy Xu has perfectly executed Richard Liu’s low-price strategy. In Q1 2024, JD achieved a revenue of RMB 260 billion (USD 35.9 billion), a year-on-year increase of 7.0%, and operating profit reached RMB 7.7 billion (USD 1 billion), a significant increase of 20.3% year-on-year.

In a year dominated by low-price subsidies, JD’s operating profit for retail decreased by far less than the company had indicated, decreasing by about 5% instead of the forecasted 16%.

Breaking out of the retail quagmire

Q1 2023, when Xu Lei had yet to retire, was a quarter when JD’s retail sector was mired in difficulties.

At that time, the shadow of the epidemic had yet to disperse, and revenue from product categories such as 3C electronics and daily necessities had both slumped, with revenue growth rates falling by 2% and 8.7%, respectively. A year later, JD appears to have rebounded in both of these major revenue categories.

In the first quarter, revenue from 3C electronics rebounded from RMB 117 billion (USD 16.1 billion) to RMB 123 billion (USD 16.9 billion), a growth rate of 5.3%, almost on par with social commerce. After the launch of its RMB 10 billion (USD 1.3 billion) subsidy plan, JD narrowed the price gap in electronics-related categories compared to its peers, regaining market share.

An insider at JD told 36Kr that, as of the second quarter, the growth rate of 3C electronics is still rising and has exceeded the growth of social commerce. Recently, JD has also signed deals with Xiaomi, Lenovo, and Oppo.

JD’s revenue from daily necessities rose from RMB 78.5 billion (USD 10.8 billion) to RMB 85.3 billion (USD 11.7 billion), an increase of 8.6%, reaching a new high in the past two years, continuing to rebound significantly from the 0.2% growth rate in the previous Q4.

The rebound in sales of daily necessities can be largely attributed to JD’s adjustment of the postage threshold for self-operated goods in August last year, reducing it from RMB 99 (USD 13.6) to RMB 59 (USD 8.1) for non-JD Plus members. Sandy Xu had previously revealed that this measure enabled the growth of orders for supermarkets to recover and the frequency of shopping to be significantly higher than the growth of average revenue per user (ARPU), a trend that has continued for two quarters.

Now, this postage service is not limited to self-operated goods. By the end of the first quarter, 90% of JD’s third-party goods have also implemented a new rule of free postage for orders over RMB 59, while all products in 13 categories such as home appliances, kitchenware, and health products are postage-free.

Initially, there were concerns about whether this measure would weaken the growth of revenue generated by logistics services. However, in reality, the increase in shopping frequency not only failed to weaken but also indirectly boosted growth.

In the first quarter, JD’s logistics and other service revenue reached RMB 32.3 billion (USD 4.4 billion), with a growth rate of 13.5%, exceeding the 6.6% growth rate of product revenue and the group’s 7% revenue growth rate. However, the growth rate of fulfillment expenses was only 9.3%. This difference drove JD Logistics from a loss of RMB 1.12 billion (USD 154.7 million) in the first quarter of 2023 to a profit of RMB 220 million, and the operating profit margin also returned from -3.1% to 0.5%.

Regarding the progress of the “platform open plan” (POP) ecology that outsiders are concerned about, Sandy Xu revealed that, as of the end of Q1 2024, the number of active merchants on JD POP has exceeded one million, and the order volume and number of users of third-party products have increased significantly. However, she also admitted that, compared to competitors, JD is still at a disadvantage in terms of third-party product supply. However, she said that it is only a matter of time before 3P orders and GMV surpass self-operated goods. 3P refers to JD’s third-party platform business.

So, what is the secret to maintaining profit? One of the important reasons for Sandy Xu’s promotion to become JD’s new CEO is her financial background. After JD deployed its low-price strategy, what Liu wanted was not bottomless subsidies and investment, but to spend every penny wisely.

Over the past year, JD’s profit performance in almost every quarter has exceeded market expectations. At least in this aspect, Sandy Xu has done a good job. As for how JD achieved a rebound in revenue and users without reducing profits, some insights can be gleaned from this quarter’s financial report.

Prior to the report’s release, JD’s guidance for its retail business was that operating profit might decline by 16%, but it actually only decreased by about 5%. With revenue and expenses broadly in line with expectations, the main difference was that gross profit exceeded expectations by about RMB 1.8 billion (USD 248.5 million), leading to a year-on-year increase in gross profit margin of about 0.5%.

This may be attributed to JD’s control of the discount rate for self-operated goods and the categories covered, or the optimization of some product structures in the first quarter—such as giving more traffic to high-margin goods. The rebound in the growth rate of daily necessities this quarter also seems to indirectly prove this point.

On the other hand, JD has relied more on subsidies to users through POP merchants, at the cost of sluggish advertising service revenue and commission revenue. Revenue performance of JD’s platform advertising services remained slow-moving this quarter, with a growth rate of only 1.2%. Several brokerage analysts told 36Kr that, although advertising revenue has somewhat improved, the growth rate of commission revenue is still declining, roughly on par with the decline in the previous Q4, both in the double digits.

Previously, POP merchants participating in JD’s subsidy program stated that they were motivated to participate mainly because of JD’s commission rebates. POP merchants selected for the program automatically have their commission rates reduced to 0.6%, compared to 3–8% for different categories in the past, which has effectively diluted JD’s commission revenue.

Attracting third-party merchants, optimizing product structures, and better implementing the low-price strategy have been the core themes for JD over the past year. However, the historically high number of new merchants onboarded has yet to increase its revenue significantly..

During the announcement of the financial report, JD’s management once again emphasized that it will take time to convert the increase in the number of 3P merchants into growth in orders, GMV, and revenue. In the short term, JD said that it will not make monetization a core target as its 3P and other platforms are progressing at different stages, making it unconducive to do so.

An employee at JD told 36Kr that, based on Sandy Xu’s performance over the past year, she may be the most suitable candidate for CEO at the moment. A series of adjustments and turbulent external environments have made JD in need of a stable figurehead to work with Liu and lead the group forward. This stability is not only in management, but more so in finance and performance.

JD’s journey in the past year has been marked by resilience and adaptation to changing market conditions. As it continues to navigate the e-commerce landscape, its focus on financial prudence and strategic execution will likely remain central to its success.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Dong Jie for 36Kr.


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