How is JD.com, a veteran player, performing in the ongoing e-commerce price war?

On August 15, JD.com Group released its second-quarter financial report for 2024, showing that revenue reached RMB 291.4 billion, an increase of 1.2% year-on-year. In the quarter, JD.com achieved a net profit of RMB 14.5 billion, with a net profit margin reaching 5.0% for the first time. For the first half of 2024, JD.com Group's revenue reached RMB 551.4 billion, and its net profit reached RMB 19.7 billion.

Over the past year, JD.com has strengthened its platform infrastructure by focusing on offline layout and digital transformation, unleashing its advantages in cost and efficiency. Despite the low-price competition, it has managed to increase both revenue and profit. In today's fiercely competitive e-commerce landscape, JD.com continues to increase its share in physical retail.

Furthermore, JD.com has integrated AI technology, enabling merchants to perform various operations such as product listing, store decoration, and intelligent customer service within 30 seconds. The AIGC content generation platform also allows ordinary merchants to achieve precise operations.

However, the low-price competition in e-commerce requires substantial investments and tests a company's comprehensive capabilities, patience, and determination. Despite achieving phased results, JD.com's advantages are far from decisive in this fiercely competitive market.

Offline home appliances quietly gain momentum

At the beginning of the second half of 2024, e-commerce platforms have revised their rules. It is rumored that Taobao Tianmao Group will abandon its one-year-long low-price strategy and prioritize GMV once again. In contrast, JD.com has adopted a different strategy.

The new rules effective from August 8 have further expanded JD.com's price comparison scope, including Douyin as a comparison platform and broadening categories in competition with Pinduoduo and Taobao. This means JD.com will engage in price wars across more categories and platforms.

The participation of players with a large number of physical stores in price wars suggests that low prices are merely a means, not an end. While JD.com engages in price wars online against Taobao and Pinduoduo, it also targets offline markets to generate profits.

Data shows that from 8:00 PM to midnight on May 31, the first four hours of the 618 shopping festival, the number of viewers on JD.com's live streams increased by 460% year-on-year, and the number of orders placed through live streams increased by 300% compared to the first four hours of Singles' Day 2023. Nearly 10,000 brands witnessed over fivefold year-on-year growth in transaction volume. However, Tmall remains at the top of comprehensive e-commerce platforms, leading with RMB 571.7 billion in GMV.

This indicates that JD.com's tight competition in order volume and transaction value is not solely driven by online sales.

As mentioned earlier, the issue of talent aggregation in JD.com's procurement and sales team has received a clear answer. After completing the echelon construction, JD.com has restructured its offline ecosystem. The home appliance and furniture replacement service, launched in response to government policies, has already partnered with over 20 provinces and cities, driving over 700 brands to achieve over 100% year-on-year growth in transaction volume during promotional events.

The core of the home appliance strategy lies in gaining pricing power in the market. Unlike books in the past, JD.com has invested RMB 1.27 billion to acquire nearly half of the shares of Five Star Appliance in 2019, laying the groundwork in this field for over five years. According to Tianyancha App, on July 31, JD Five Star Appliance Group Jinan Co., Ltd. was established. Located at Quancheng Road, Lixia District, Jinan City, Shandong Province, this site was once the 20th mall of GOME in the city. After GOME withdrew, it remained idle for a year. According to public reports, the first JD Mall in Shandong, a comprehensive offline consumer complex, may start trial operations on September 1, primarily focusing on electrical appliance sales. Cities like Jinan are becoming new battlegrounds for major electrical appliance retailers.

During the 618 shopping festival, 34 self-operated stores nationwide welcomed new openings and renovations. Among them, new JD Malls opened in Guangzhou, Chongqing, and Suzhou, while eight new city flagship stores opened in regions like Shanghai, and 23 self-operated stores underwent upgrades and reopened in cities like Nanjing.

In the first half of this year, JD.com opened or upgraded over 1,900 new or existing home appliance and furniture specialty stores, with an average store size increasing by 59% year-on-year. It is understood that JD.com plans to further expand its offline market by opening or upgrading over 2,000 stores nationwide in the second half of the year.

At present, JD.com's electrical appliance strategy seems clear. On the one hand, it leverages existing sales channels like Five Star Appliance to enhance sales capabilities and reduce inventory. On the other hand, JD Mall serves as a platform for targeting the home appliance and 3C markets with different store formats, potentially bypassing existing distribution systems to achieve lower costs.

In doing so, JD.com gains partial pricing power in the home appliance market, giving it an advantage in price wars. The second-quarter results demonstrate that JD.com's strategy has achieved initial success in terms of revenue and profit growth.

Self-operated business combined with logistics breaks the deadlock

Home appliances offer high profits, strong demand, and rapid iteration, creating higher barriers to entry. While engaging in price wars with Taobao, JD.com also recoups costs through home appliance sales, providing it with more leeway in price competition.

Two years ago, JD.com established a self-operated store matrix comprising JD Malls, JD Electric Super Experience Stores, and JD Electric City Flagship Stores, without charging entry fees. Subsequently, JD Electric City Flagship Stores expanded to over 100 locations across first- to fourth-tier cities, achieving nationwide coverage.

Furthermore, as mentioned in the second-quarter report, nearly 50,000 self-operated food and beverage products and over 10,000 third-party stores have joined the "Money-Back Guarantee for Unsatisfactory Purchases" program, showcasing JD.com's self-operated supply chain combined with logistics capabilities.

In reality, JD.com's self-operated business has always relied on its warehousing capabilities. As of the second quarter, JD.com's supply chain infrastructure assets exceeded RMB 156 billion, a year-on-year increase of over 11%. Globally, it has nearly 100 bonded, direct mail, and overseas warehouses. Facing Pinduoduo's low-price competition, JD.com adopts an offline offensive and online defensive strategy.

This means that while JD.com's low-price or subsidy policies may seem aggressive, they are not necessarily beneficial everywhere. In simpler terms, while the amount of subsidies may not be as high as Pinduoduo's, consumers still feel a sense of gain.

In the beauty and cosmetics sector, after launching its "Billion Subsidy" program with additional gifts, JD.com immediately increased investments across all beauty categories, with no upper limit. To date, it has invested over RMB 3 billion. In e-commerce, beauty remains a growth driver. The second-quarter report indicates that Liu Qiangdong's strategy is becoming increasingly refined, focusing on supply chain investments that radiate to distribution, forming a unique system that covers the entire midstream and downstream industrial chain from upstream, centered around offline warehousing.

A large number of self-operated products combined with superior logistics services give JD.com the initiative in price wars, allowing it to compete with Pinduoduo and Taobao while ensuring profitability. Perhaps this is why JD.com remains resilient in price wars that inflict heavy casualties on both sides. By consolidating offline home appliance channels, JD.com has effectively gained significant pricing power in bulk electrical appliances, where sales venues determine the profitability of distributors.

It can be assumed that once JD.com completes its offline channel coverage nationwide, it will capture a significant portion of the industry's profits from home appliance replacements. Behind home appliance replacements lies the iterative upgrade of the previous "Home Appliance to the Countryside" program, making capturing the Downward market a top priority. According to QuestMobile data, nearly 68% of new JD.com app installations during the 618 period four years ago came from tier-3 cities and below. Jingxi (a JD.com subsidiary) witnessed over 100% month-on-month growth in new user additions, with 70% of these new users hailing from tier-3 to tier-6 cities.

By mastering the core elements of price wars, JD.com's Five Star Appliance hosts various real estate purchasing groups, partnering with developers to offer discounts to consumers, enabling them to experience and bundle purchases offline upon receiving their new homes.

As GOME and Suning weaken, JD.com's market share in home appliances is likely to exceed 30% or even higher. With high market penetration, confidence in the industry is further boosted. Before the financial report release, JD.com's share price briefly fell by 3% but opened higher the next day, with intraday gains approaching 10%.

JD.com's future prospects

In this JD.com quarterly report, AGI's performance was also impressive.

Official data shows that Yanxi Digital Humans provided live streaming services for 5,000 brands during the 618 period, including 21 CEO digital humans, attracting over 100 million cumulative viewers.

The AIGC content generation platform helped 140,000 third-party merchants increase their store operation efficiency by over 90%. This year marks a significant year for AGI, transitioning from the era of AI assistance to AI assistants. JD.com had little time to react, as 2017 marked the year of its technological transformation, with strategic upgrades to its fully automated warehouses and logistics.

At that time, JD.com's Shanghai warehouse covered an area of 40,000 square meters, consisting of four operational systems: receiving, storage, order picking, and packaging. The storage system comprised eight shuttle rack systems capable of storing 60,000 cartons simultaneously. However, JD.com has already embarked on new AI explorations.

The RMB 130 billion mentioned in the financial report can also be seen as transformation costs. Nonetheless, the adoption speed of AGI and the size of large model corpora have exceeded initial expectations.

In 2023, 26 leading Chinese semiconductor companies, including Huawei, Xiaomi, SMIC, and BYD, received government subsidies totaling over RMB 20.8 billion, an increase of approximately 35% from 2022. The hardware conditions for large models are initially in place. The future battlefield of e-commerce will continue to comprise two parts: online price wars and offline experience centers. In the context of price wars, charging exorbitant merchant fees would inevitably lead to merchant exodus. The recent closure of crown-level online stores on a certain platform is a microcosm of long-term price wars.

For JD.com, a stable procurement and sales team brings cost optimization opportunities. The abundance of low-priced products, the "Billion Subsidy" program, and the integration of JD Express's one-hour delivery service make transportation costs controllable. Xu Ran, CEO of JD.com, stated, "This year, JD.com will firmly push forward with its low-price strategy... to further enhance the user experience in terms of affordability."

In other words, JD.com's low-price strategy is targeted rather than impulsive. However, it is worth noting that as price wars intensify, merchants are inevitably affected. At this point, JD.com's zero-threshold policy seems more like a means to disrupt competitors' supply chains.

In the second quarter, JD.com quietly outmaneuvered Taobao and Pinduoduo offline. The third-quarter e-commerce war will be even more intense, with a focus on ground operations. While the online shopping market still holds vast potential, user numbers and activity levels may have peaked. Competition in the existing market is naturally more brutal, as avoiding confrontations was previously an option, but with a shrinking scope, market share has become a necessity.

It is worth noting that while JD.com prides itself on quality, it is objectively not the cheapest option. Some netizens have reported on social media platforms that the same product is priced RMB 15 more expensive on JD.com than on other platforms, making it the most expensive across all platforms. Similarly, 3C electronics and home appliances are also price-sensitive categories, with JD.com sometimes charging more than other mainstream e-commerce platforms for the same products.

JD.com's commission system, which is currently highly regarded, involves more complex channel issues. It remains unclear whether the retail model is a panacea or the culprit behind disrupted pricing. As the battlefront extends, the extent of discounts offered to consumers and the implementation of the promised low-price strategy remain uncertain.

If offline electrical appliance stores cannot stabilize pricing, they may become a liability. Currently, offline store prices for electrical appliances are still higher than online prices, with the intermediate profits potentially used for price comparisons.

China's e-commerce wars have entered a white-hot stage.