Written by | Pu Zixu

Because it once came close to being number one, when Liu Qiangdong stepped away from JD.com and was left behind by competitors, he has pursued the "low price" strategy in recent years, which is both a desperate move and a manifestation of his unwillingness to give up.

However, on November 14, 2024, JD.com released its third-quarter financial report, which is likely not the result Liu Qiangdong wanted to see. In the third quarter, although JD.com's overall revenue growth rate rebounded year-on-year, it has been less than 10% for eight consecutive quarters. At the same time, Liu Qiangdong has emphasized the low-price strategy several times to build an ecosystem for small and medium-sized merchants on JD.com, aiming to foster a thriving business environment. However, the current effect is mediocre and requires more time to verify. Additionally, the "state subsidy" promotion during one month of the third quarter only resulted in a year-on-year growth rate of 2.7% for JD.com's 3C revenue, which is hardly surprising. Coupled with the impact of the "Double 11" Yang Li incident, it has, to a certain extent, eroded the confidence of some ordinary male groups who once trusted JD.com, purchased with dedication, and even called Liu Qiangdong "Brother Dong." The dilemma for JD.com is whether to prioritize brothers or sisters, growth or profit.

If you're behind in the score, you need to score quickly?

In the past two years, after Liu Qiangdong forcefully declared that he would pursue the low-price strategy to the end and revive JD.com's greatness, long-awaited changes began to emerge. This is understandable. Over the years, JD.com's 3C business has differentiated itself and gained the favor of a large number of male users. However, to open up incremental space, JD.com's relatively few SKUs (stock keeping units) are also obstacles that need to be overcome. Including the 5.1% year-on-year growth in the third quarter of 2024, JD.com's revenue has grown by less than 10% year-on-year for eight consecutive quarters, which is not outstanding compared to other peers.

Therefore, low prices are merely a means to attract more small and medium-sized merchants and daily necessities categories to the platform, thereby enriching JD.com's business ecosystem from the source. Facing this bottleneck, it is imperative for JD.com to build an ecosystem. "Especially for products from industrial belts that are popular in the sinking market, we are also focusing on investing more resources to promote business development. Related to this is the continuous balance and development of JD.com's entire platform ecosystem." This time, JD.com CEO Xu Ran said this during the earnings call. In fact, even when other platforms began to withdraw from the low-price war this year, JD.com persisted and successively launched activities such as "JD Super 18," "Instant Delivery Zone," "9.9 Free Shipping," and "Dutch Auction." Among them, one of the key tasks for JD.com to enrich its platform ecosystem is undoubtedly the expansion and support for fashion categories such as apparel and beauty products, mainly operated by 3P (third-party merchants), as mentioned by Xu Ran during the earnings call. It is worth noting that the third-quarter report shows that JD.com's commissions and advertising business, which are mainly charged to 3P sellers, generated revenue of 20.8 billion in this quarter, with a year-on-year growth rate of only 6.3%, which did not exceed expectations. Moreover, to reduce prices and stimulate growth, JD.com's marketing expenses also increased significantly in the third quarter, reaching 10 billion, with a year-on-year growth rate of 25.71%, which is much higher than the current revenue growth rate.

It is worth noting that in this third-quarter report, JD.com only stated that the number of quarterly active users and user shopping frequency have maintained double-digit year-on-year growth for three consecutive quarters, without disclosing specific data on user growth. Overall, JD.com's low-price strategy has a limit in driving the company's overall revenue and has not exceeded the overall market level. Relevant data shows that the average revenue growth rate of the e-commerce industry was approximately 6% in the third quarter of 2024. Among them, JD.com Retail contributed revenue of 225 billion in the third quarter, with a year-on-year growth rate of 6%. In addition, while JD.com's overall growth rate lacks sufficient attractiveness, its new business expansion is also hindered. In the third quarter, JD.com's new business segment, including Dada, JD.com Industrial Development, Jingxi, and overseas business, generated revenue of 4.97 billion, a year-on-year decline of 25.7%. While continuing to incur losses, it also failed to bring new growth points to JD.com.

Among them, Dada faces challenges from other instant retail platforms in the instant retail sector. A straightforward example is that in the second quarter of 2024, Meituan's instant delivery transactions reached 6.2 billion, with a year-on-year growth rate of 14.2%. Previously, Meituan CFO Chen Shaohui revealed that the growth rate of Meituan Flash Delivery orders is expected to be much higher than that of food delivery orders in the second quarter and throughout 2024, even more than twice the growth rate of food delivery orders.

Is JD.com's success or failure determined by its 3C business?

JD.com Retail supports JD.com's revenue as a cash cow, and JD.com's 3C business is the foundation of its retail operations. In the third quarter, JD.com's 3C revenue was 122.56 billion, with a year-on-year growth rate of 2.7%. Considering the strong promotion of the "state subsidy" for one month, this indicator may not be as encouraging. In August of this year, the Ministry of Commerce and three other departments issued the "Notice on Further Improving the Work of Replacing Old Household Appliances with New Ones." As of October 15, Ministry of Commerce data showed that 20.667 million consumers had applied, and 10.134 million consumers had purchased 14.624 million units of eight categories of household appliances, receiving subsidies of 13.17 billion yuan, driving sales of 69.09 billion yuan. Affected by this, data from AVC Cloud Network shows that online and offline retail sales of the home appliance industry increased by 25.1% and 31.3% year-on-year in September, significantly reversing the downward trend. To some extent, JD.com may not have fully capitalized on the benefits of the "state subsidy" in September this year. Moreover, in the first three quarters of 2024, JD.com's overall 3C business has actually stagnated, achieving only a year-on-year growth rate of 0.6%. Over the years, JD.com's 3C business has decreased from accounting for 98% of the total when it first went public, and even fell below 50% for the first time last year. The stagnation in the growth of JD.com's 3C business and the decline in its proportion have greatly affected the deceleration of JD.com's revenue, undoubtedly shaking its foundation.

In recent years, due to consumer pressure, it is understandable that JD.com's 3C business has been impacted. At the same time, JD.com's 3C business has inevitably been squeezed by peers, especially the impact of Pinduoduo's hundred-billion subsidy program, which has significantly affected JD.com's 3C business and even Liu Qiangdong's strategic resolve. Due to various factors, the overall profit performance of JD.com Retail is also declining: For example, although JD.com Retail's operating profit in the third quarter increased by 5.5% year-on-year to 11.6 billion, its operating profit growth rate was lower than the 6.1% year-on-year growth rate of revenue in this segment, and the operating profit margin decreased year-on-year. From this perspective, if growth itself does not bring many surprises, JD.com's ability to bring more expectations to the market actually lies in its profit expansion trend. However, as JD.com's 3C business continues to stagnate, JD.com's attractiveness may continue to decline. In addition, JD.com CEO Xu Ran mentioned during the earnings call that due to the time required for consumers to understand policies and insufficient brand capacity, the effect of the "state subsidy" in the third quarter has not been fully realized. The question is, can the favorable effects of the "state subsidy" in the fourth quarter offset the ongoing controversy caused by the Yang Li incident during JD.com's "Double 11" period?

Liu Qiangdong's dilemma of the century

Previously, Liu Qiangdong bluntly stated, "Low prices were the most important weapon for our past success and will remain the only fundamental weapon in the future." Since then, JD.com's low-price strategy has begun. This year, as JD.com searches for directions for growth, it has turned its attention to categories such as apparel, beauty products, and daily necessities, paying more attention to them than to 3C. Moreover, during this third-quarter earnings call, Xu Ran reiterated that the expansion of potential categories is the driving force behind JD.com's future growth. She believes that JD.com's long-term strategy is to focus on user experience and user growth, thereby continuing to promote the expansion of potential categories and the expansion of products across different price ranges. A straightforward example is that JD.com has continuously increased its procurement and sales efforts for the past two years due to the low-price war. For instance, over the past year or so, Liu Qiangdong made a bold move, and JD.com's procurement and sales teams have received consecutive salary increases, doubling their previous raises, sparking heated discussions. However, the main content of live streaming sales by the procurement and sales teams on JD.com's special live stream is not 3C products but rather daily necessities, cosmetics, fresh produce, etc. Compared to 3C products, the profit margins for the latter are relatively limited.

Generally speaking, the main consumer group for 3C products is male, and they pay more attention to product parameters rather than endorsements. However, for cosmetics and daily necessities, which are mainly consumed by females, finding an endorser is a rigid demand. Precisely for this reason, in JD.com's strategic shift that has lasted for two years, from top to bottom, the original intention was to tap into the incremental market, gain a larger profit margin, and overcome dependence on 3C products, thereby expanding SKUs as much as possible. However, for some reason, this strategy has been implemented in a distorted manner. From this perspective, the Yang Li incident that erupted during JD.com's Double 11 may have also been influenced by the company's shift in target groups away from 3C consumers. However, such operational "missteps" have also triggered dissatisfaction among male groups, leading to even collective exits.

During the previous "Double 11" press conference, Xu Ran stated that in the current fiercely competitive market, there are still phenomena of vicious internal competition and "bad money driving out good" within the industry. JD.com's "Double 11" aims not only to provide every user with a "cheap and good" shopping experience but also to ensure that every brand merchant can sell well, experience growth, and earn money. However, it is worth noting that one of the keywords of this year's "Double 11" has become the "return rate." According to data from the Consumer Protection Service Platform under the China Electronics Chamber of Commerce, during the Double 11 period, the platform received a total of 48,000 complaints related to e-commerce, with a cumulative amount in dispute exceeding 80 million yuan. Among them, JD.com received 15,000 complaints, ranking first in complaints. In addition, when JD.com showcased its final battle report for Double 11, which lasted over 30 days, it mentioned year-on-year double-digit growth for products such as down jackets, windbreakers, and thermal underwear but barely mentioned the overall performance of the 3C business, nor did it disclose more critical and specific data.

From this perspective, during critical periods like Double 11, will any unexpected developments undermine the benefits of the "state subsidy" for JD.com? Moreover, how to win back the return of the male consumer group that is the main force in the 3C business may also become a major highlight of JD.com's next quarterly financial report.