The promotion of the Double 11th National Congress has just ended, and the newly released Q3 transcript has become a new window for outsiders to observe JD's low-priced strategy.
On the evening of November 15th, JD announced that in Q3 this year, its revenue was 247.7 billion yuan, an increase of 1.7% year-on-year, and its operating profit was 9.3 billion yuan, an increase of nearly 7% year-on-year. The net profit attributable to the parent company increased by over 30% year-on-year to 7.9 billion yuan.
In addition, JD announced a senior personnel change on the same day: JD Group CEO Xu Ran will also serve as the CEO of JD Retail, and the original CEO Xin Lijun will be appointed. Xu Ran also predicted in the financial report meeting that evening that overall consumption will maintain a steady recovery trend next year and become one of the main driving forces for economic growth.
On November 15th, JD, whose stock price has been sluggish, experienced a long period of growth and ultimately closed at $28.59, up 7.04%.
JD Retail Changes Hands
Retail business has always been the ballast of JD.
The newly released third quarter report shows that JD's retail revenue in Q3 this year is 212.59 billion yuan, accounting for nearly 86% of the entire JD Group's revenue, and its 5.2% operating profit margin is also ranked first among the four major sectors.
The importance of the position of CEO of JD Retail is also self-evident. According to public information, Xin Lijun joined JD in October 2012 and has held various positions such as the President of JD Retail Life Service Business Group and CEO of JD Health. In September 2021, JD announced an organizational restructuring. With the promotion of former JD Retail CEO Xu Lei to the position of Group President, Xin Lijun took over from Xu Lei, and it has been more than two years since then.
Xu Ranze joined JD.com in 2018, and before taking on the position of CEO of JD.com Group in May this year, he successively held positions such as JD Retail Finance Director and JD.com Group CFO.
Regarding this reshuffle, industry insiders close to JD.com believed during discussions with reporters from China Times that JD.com was considering reducing costs and increasing efficiency in its retail business. Xu Ran also stated in the financial report meeting that there will be no significant changes in the direction of the overall retail strategy in the future. She will continue to work hard to promote the implementation of the retail business strategy with "cost efficiency experience as the core", and promote the synergy between retail and other business sectors of the group.
From a strategic perspective, low price is one of the most attractive strategies for JD Retail this year. According to reporters, following the launch of a 10 billion yuan subsidy in March, JD has gradually lowered the shipping threshold and launched a 9.9 yuan package channel. This year's Double Eleven, JD's low-priced live streaming has also attracted external attention.
The low-priced strategy also showed corresponding changes in the Q3 financial report: JD's revenue from goods in the current period was 195.3 billion yuan, a decrease of nearly 1% year-on-year. Among them, the revenue from electrified products, which accounted for over 60%, remained basically unchanged year-on-year, while the revenue from daily necessities decreased by 2.3% year-on-year. However, throughout the first three quarters, JD's revenue from daily necessities decreased by 6.7% year-on-year. As a comparison, JD's Q3 service revenue increased by 12.7% year-on-year this year.
Xu Ran mentioned the internal reasons for the decline in revenue from daily necessities during the aforementioned conference call. She stated that JD's supermarket category has undergone relatively significant business adjustments this year, including overall category planning, warehouse network transformation, refined operations, and some channel adjustments. However, in the long run, she firmly believes that the supermarket category remains JD's most important growth driver.
In addition, Zhang Yi, chief analyst of iMedia Consulting, also said when communicating with the reporter of the Huaxia Times, from an external perspective, in the field of general merchandise, in addition to Pinduoduo and Taobao, JD also faces fierce competition from Tiktok, Kwai and other competitors.
JD's gameplay has changed
However, an interesting phenomenon is that although product revenue has decreased, the operating profit margin of JD Q3 has increased by nearly 7% year-on-year, and JD Retail's operating profit margin of 5.2% in the third quarter is also at the same level as the same period last year, when JD had not yet started implementing a low-priced strategy.
Behind this, the corresponding increase in expenses brought about by the low-priced strategy has allowed this retail giant to balance its various expenses.
According to the financial report, JD's fulfillment expenses of 15.2 billion yuan in Q3 this year increased by 6.1% year-on-year. JD stated that this increase is mainly related to the adoption of lower free shipping thresholds. In addition, JD's marketing expenses in the current period increased by 4.6% year-on-year to 8 billion yuan, which JD said was mainly due to an increase in promotional activities. On the other hand, in Q3 this year, JD's research and development expenses decreased by 7.8% year-on-year to 3.8 billion yuan (500 million US dollars), while general and administrative expenses decreased by 5.6% year-on-year to 2.5 billion yuan.
In addition, the flat profit margin is also related to JD's adjustment of revenue structure.
During an interview with reporters, Li Yingtao, a guest consulting partner, also believed that the decline in JD's product revenue was due to its proactive adjustment of its revenue structure. "The main reason is that the gameplay of JD's entire platform has changed, with a greater emphasis on third-party platform models, which rely on collecting service fees and commissions, rather than relying on self operated models
The platform model means higher profit margins. An example is that Taotian Group, which is relatively platform oriented, adjusted its EBITA (Earnings Before Interest, Taxes and Amortization) margin to 43% in Q2 this year. Li Yingtao also told reporters that many of JD's billions in subsidies are subsidized to third-party merchants, which is also an important reason for its decline in product revenue.
According to reporters, in April this year, JD's procurement and sales underwent organizational changes, with each operational unit no longer divided into self operated and third-party merchant teams. Instead, it comprehensively coordinated all business under this category, promoting further "equal rights" between self operated and third-party merchants. Xu Ran also stated in the aforementioned conference call that platform ecology has always been a strategic direction that JD focuses on investing in. The ultimate choice of self operated (1P) or 3P merchants for transactions is the result of users' natural selection. "In the long run, I expect the proportion of 3P orders and GMV to exceed that of self operated, but of course, this still requires a process
From the financial report, JD's service revenue in Q3 this year was nearly 52.4 billion yuan, a year-on-year increase of 12.7%. Among them, platform and advertising service revenue was 19.53 billion yuan, a year-on-year increase of 3%, while logistics and other service revenue was 32.9 billion yuan, a year-on-year increase of 19.3%.
Xu Ran also stated on the same day that the advertising revenue of 3P merchants continues to maintain double-digit growth, thanks to the increasing participation of a large number of new merchants. But she also stated that JD is still in the investment stage of supporting merchants, and the monetization of third-party platform merchants is not the primary task in the short term.