Although Dolphin Jun foresaw in its outlook report a few years ago, 2023 will not be a big year for pan-commerce companies to invest in it. But the current actual situation may be worse than Dolphin Jun earlier expected, specifically:
(1) The backlash of offline channels to online may be more serious than expected, from January to February, the growth of total social zero quickly repaired to +3.5%, while the growth rate of online physical retail slowed down from 6.4% in 4Q to 5.3%. From the current trend, the growth center and rebound strength in 2023 will still be catering & store > offline physical ≈ online physical goods.
At the same time, although the overall recovery of optional goods consumption arrived as scheduled, the growth rate of clothing, shoes, hats and cosmetics quickly rebounded from -12%~-19% in December to +5.4% and +3.8% in January-February. However, on the Taojie platform, clothing and beauty are still declining at a rate of 10%+ during the same period. It also suggests that online channels may not be enjoying the dividends of the optional recovery (or it may be Alibaba's own problem).
(2) In addition to the headwinds at the macro level, the competition pattern between e-commerce companies has also deteriorated beyond expectations. The overall year-on-year decline in 4Q e-commerce companies has narrowed from -7% in the second and third quarters to -2%, which shows that e-commerce companies have begun to restart the investment cycle, and the temporary flattening has passed.
(3) Subsequently, JD.com launched the "tens of billions of subsidies" with a high profile, and Ali also quickly followed up with measures such as "five-star price power" and "99 sale channel", which completely focused the focus of the e-commerce industry on the competition for the "cost-effective" positioning in the minds of users. Dolphin Jun believes that the measures of JD.com and Ali mainly focus on two points:
First, the promotion strategy has changed from "big promotion promotion" to "low price every day", reversing consumers' consumption habits of "no big promotion and no shopping" and tend to frequently compare prices. So that consumers can consume at any time without worrying about buying expensive, thereby increasing the frequency and stickiness of consumption.
Second, in terms of traffic distribution strategy, merchants with high profit margins and strong buying capacity also occupy the traffic advantage; There are changes to low-priced merchants can get a certain traffic tilt. Under this distribution strategy, merchants use the cost of buying volume directly to subsidize the price to attract users at low prices, thereby driving user traffic and stickiness of the entire platform, following the logic of small profits and quick turnover.
Therefore, JD.com and Ali are inclined to "cost performance" this time, that is, sacrificing part of the profit margin, and defending user traffic through low prices rather than buying volume.
(4) However, in order to successfully convince consumers of the platform's "cost-effective" positioning, in addition to maintaining low prices for a long time and stably, non-price elements such as brand grade, service level, and decoration level of goods on the whole platform also need to match the price positioning.
Jingdong and Ali are unlikely to give up the tone and user group of the main site, so this round of tilt towards "cost performance" is more of a defensive counterattack within the sector, through high-frequency and naturally suitable for the "daily low price" strategy of daily necessities consumption to suspend or reverse the trend of user traffic outflow. However, the role of spillover to the main station to drive overall sales is relatively limited. But the decline in profits caused by subsidies is real.
(5) Implement in investment, because of industry headwinds, revenue growth will not have many bright spots, and profit margins may deteriorate, and e-commerce companies are not in a favorable cycle in the short and medium term. Therefore, the investment strategy is basically only when the stock price is over-falling, significantly lower than the valuation of core assets, and the investment that is over-falling and rebounding is not prone to the opportunity of continuous upward trend.
At the beginning of the second quarter of this year, when revenue growth enters an absolute low base period, offline backlash gradually decreases, and e-commerce companies re-examine or adjust their competitive strategies after a few quarters of involvement, opportunities for fundamental and stock price resonance rebound may appear.
Event-driven, the recent wave of asset spin-offs and listings may release hidden assets for companies and create short-term investment opportunities. Dolphin Jun will analyze this in a separate article.
For the valuation adjustment of specific stocks, please look forward to the next part
First, has the spring of consumption come?
1. A double-edged sword for offline recovery
As expected by Dolphin Jun in its outlook report a few years ago, consumption is bound to usher in an overall recovery after the lifting of prevention and control, but structurally, offline consumption scenarios and traffic begin to recover, and the dividends of online consumption will also decrease. The latest zero-entry data released by the Bureau of Statistics for January-February basically verified the above expectations, specifically:
1) The growth rate of total social zero quickly recovered from -2.7% in 4Q22 to +3.5%. At the same time, the growth rate of online physical retail not only did not increase, but slowed slightly from 6.4% in 4Q to 5.3%.
2) From the perspective of online retail penetration (excluding automobile retail), the penetration rate from January to February this year was 24.8%, a year-on-year increase of only 0.2pct. As can be seen from the chart below, this year is the smallest increase in online penetration since the new crown (except for March 2021, when the penetration rate fell year-on-year due to a high base).
3) In contrast, the rebound of catering revenue, which reflects the prosperity of offline consumption, was relatively strong, and the growth rate of catering retail sales in January and February directly rose from -14% in December last year to +9%. Even the growth rate of offline retail sales, which has been weak, turned from negative to positive this time to 1.6%.
Based on the above three points, it can be seen that the recovery of offline consumption has indeed eroded online retail; Service consumption, represented by eating, drinking and entertainment, is indeed the strongest recovery. From the current trend, the growth center and rebound strength in 2023 will still be catering & store > offline physical ≈ online physical goods.
2. Has the consumption of optional goods recovered?
In addition to the relative advantages and disadvantages of online/offline consumption will be reversed, and the service will be stronger than the commodity, the second judgment of Dolphin Jun looking forward to 2023 is that in the consumption of goods, the recovery of optional products will be relatively stronger than the required consumption. So what is the actual situation? Overall, there has indeed been a considerable recovery in optional consumption, but online channels have not enjoyed dividends.
According to the data of the above-scale society from January to February, the retail sales growth rate of clothing, shoes and hats and cosmetics in optional consumption shrank from -12%~-19% year-on-year in December, and quickly rebounded to +5.4% and +3.8%, which was significantly higher than the overall growth rate of 1.5%. Therefore, from January to February, omni-channel consumption of optional goods did show a relatively strong recovery.
According to data from third-party organizations, sales of beauty and skin care and makeup categories on the Taojie platform in January-February still shrank by 19% year-on-year, compared with -14.4% in 22Q4.
In terms of clothing sales, the Taoji platform also fell by 14% year-on-year in January-February this year, which was also no improvement compared with the previous quarter.
From the situation that although optional consumption has recovered as a whole, but the performance of online channels is poor, Dolphin Jun believes that two inferences can be made: (1) the erosion of offline consumption on online is quite significant, especially for non-standard goods such as clothing; (2) The above online sales data only counts Taoji platforms, and it may be that other platforms (mainly Douyin) have further seized the share of Taoji.
Combined with recent research, Kuaishou's GMV growth rate in 1Q is about 30%, and the loss of its own share may still be the main reason for the poor performance of Taoji, and the overall online situation of optional products may be better than that of Taoji.
In summary, service and optional consumption in 2023 has recovered as expected, but at present, due to offline backlash and internal competition on online platforms, the performance of mainstream e-commerce platforms is still poor, which is also in line with the management of Ali and JD.com giving unoptimistic first-quarter performance guidance.
3. Will the recovered in-store consumption be the main battlefield?
In addition, it can be seen from the sharp increase in the growth rate of catering revenue from January to February to +9%, which shows that the recovery momentum of in-store consumption is quite strong. At the same time, Meituan's guidance for GTV in 1Q in-store business is also a double-digit% year-on-year increase. In the impact of Douyin, Meituan's in-store business can still have such considerable growth, which shows that the recovery of the industry market still overshadows the negative of competition.
However, according to management's communication, Meituan has decided to go head-to-head with Douyin (or Kuaishou, which is also entering local life). The discount of group purchase coupons will be increased, and some merchants will be given discounts on advertising fees. At the same time, perhaps aware that competition will exist for a long time in the future, Meituan has also lowered its forward profit guidance for its in-store business.
In general, the competitive landscape of the in-store business may gradually deteriorate to the current comprehensive involution of the e-commerce industry. However, at the industry beta level, unlike online retail, which tends to be saturated and has short-term headwinds, the in-store business has room to continue to increase the penetration rate and expand the scale of the industry in the long term, and the short-term recovery of offline consumption is good, and the prospects are still better than online retail.
Second, lying flat is only a moment, how will e-commerce companies go in the future?
1. The days of lying flat are over?
Although Dolphin Jun in the industry review in the middle of last year, it has been foreseen that it will not be the norm for e-commerce companies to "lie flat" and make profits under the headwinds of the environment. In the context of the stock market, once the external environment improves, it is the conventional business logic for companies to return to competition and compete with each other for market share.
Although it is still at the bottom of the industry cycle in the fourth quarter, the overall revenue growth rate of pan-e-commerce companies is only 7%, which is close to the situation in the second quarter, and the performance has bottomed out for the second time.
However, with the liberalization of policies during the fourth quarter, the recovery of consumption will be a definitive event, and the marketing spending of e-commerce companies has also shown signs of bottoming out. The overall marketing expenses of pan-e-commerce companies have narrowed from -7% in the second and third quarters to -2% year-on-year.
From the perspective of the pace of accelerating marketing expenses, Pinduoduo and Vipshop, which were optimistic about last year's 3Q e-commerce review, are also the fastest turning. Among them, Pinduoduo's marketing expenses have increased by 56% in the fourth quarter, and Vipshop has also rapidly narrowed to -18% from a year-on-year decline of 50%~60% in the first two quarters.
In contrast, Ali and Meituan's expense declines are also narrowing, and only JD.com's marketing expense declines are still expanding. It can be seen that the acceleration of the 4Q marketing expenses of e-commerce companies is basically one-to-one correspondence with the company's performance in the current quarter. Once the company sees a trend of improvement in its performance, it will re-invest more. The profit improvement brought about by cost reduction and efficiency improvement and temporary slowdown in competition in 2022 will not be sustainable.
2. "Cost performance" in the whole industry
Since 2023, JD.com has launched the "tens of billions of subsidies" with a high profile, once again focusing on cost-effective positioning and competition for users' minds. Ali also followed up quickly, successively launching measures such as "five-star price power" (to give low-priced merchants more traffic tilt), "99 sale channel" (a low-priced daily consumer goods channel with a large price similar to 9.9 free shipping).
Since 2022, Pinduoduo, which focuses on cost performance, is undoubtedly the best performing company in the industry, and JD.com and Ali also agree to the cost performance, so why does "cost performance" seem to be the most reliable magic weapon to win, and what are the deep-seated strategic considerations behind the company? Dolphin Jun believes that the "transformation from big promotion promotions to low prices every day" pointed out by JD.com's management in the performance meeting is the biggest change that e-commerce companies are currently trying.
In fact, these two terms are not coined by JD.com management, but are specialized terms in the field of marketing, where:
(1) "Hi-Lo Pricing" is generally a marketing strategy adopted by quality merchants, that is, most of the time the goods are sold at standard prices, and a large discount is given to selected parts of the goods in a small number of time ends to stimulate consumers' shopping impulse.
The characteristics of this strategy include: (1) the time and goods of discounts are limited, and the merchant still maintains high profits most of the time; (2) The principle of promotion is that consumers think that they have "taken advantage", but it will also make users tend to only consume during the big promotion; (3) Most of the users attracted by the promotion are not loyal, and tend to frequently compare prices to obtain the maximum discount; (4) The promotion strategy is generally suitable for low-frequency optional consumption, and the cost of frequently comparing prices for daily consumption to find discounts is too high; (5) Due to irregular promotions, merchants should carry out a large number of marketing promotions during the promotion period to let users know.
(2) "Every Day Low Pricing": It is generally a marketing strategy adopted by discount stores or affordable supermarkets, which is characterized by: (1) most of the goods provided by merchants have maintained relatively low prices for a long time, and the price is stable and less significantly reduced; (2) It is suitable for daily consumption and the user's loyalty is high. Because users already believe that merchants are relatively low prices in most cases, they will not frequently compare prices, and they are not worried about the price "backstab" caused by irregular promotions.
Obviously, Ali and JD.com adopted a "big promotion" strategy earlier. Promotional activities such as 11.11 and 6.18 are the most important events for e-commerce platforms to attract traffic and rush performance in a year. But in fact, the gradual transformation of e-commerce from "big promotion" to "daily sales" has long begun. The frequency of promotions has increased, and there are basically monthly promotions on 3.8, 5.1, Children's Day, the school season in September, and the Spring Festival New Year Festival.
The time period of the promotion is also lengthening, and the current promotion period is generally about half a month, smoothing the original single-day promotion peak to a period of time. However, its essence is still the "taking advantage" brought by discounts to stimulate consumption, and it is also easier to lead to consumers' habit of not consuming during the non-promotional period.
However, after the user forms this consumption habit, it means that the strategy of merchants to bring traffic with temporary promotions and make profits at normal prices is invalid. Consumers only spend during low-priced promotional periods, which is not conducive to the company's performance and profits. At the same time, when there is a platform that can reach the daily low price of almost all categories, consumers will naturally turn to the daily low-price platform that saves time and effort, resulting in the loss of traffic of the promotion strategy platform.
3. Platform positioning and refactoring of the underlying mechanism?
Judging from the current initiatives, is this transformation still a formality, or is it a fundamental change? Why do JD.com and Alibaba tilt the positioning of the platform towards "cost performance"? Can this change succeed in countering Pinduoduo's market share? Let's look at the above questions separately:
(1) JD.com and Alibaba's attempts: As mentioned above, the current initiatives of JD.com and Ali can be divided into two types, one is the "tens of billions of subsidies" and "9.9 sales" of price subsidies, and the other is the exile distribution mechanism, the "five-star price power" and other traffic tilts for low-priced merchants.
So how is the push? According to the survey of the number of burns, JD.com's current "tens of billions of subsidies" are compared with the "thunder and rain" when it was first launched, and the current intensity and coverage have been improved.
As of March 26, the GMV of goods participating in JD.com's tens of billions of subsidies accounted for 9% of the platform, an increase of 6pct over the launch date. Among them, proprietary channels contribute 83% of GMV with less than half of SKUs. The number of SKUs covered by the 10 billion subsidy exceeded 7,500+ on March 26 compared with 3,000+ on the launch date. And the price is a large discount compared to the historical low price in the past.
In terms of categories, the SKUs of four categories: home appliances, mobile phones, computer offices, and digital accounted for nearly half, contributing 75%+ GMV. However, the category is expanding, and the proportion of food and alcohol is increasing.
However, according to the survey, in terms of the two categories of household appliances and mobile phones, which account for the highest proportion, the proportion of GMV of goods participating in tens of billions of subsidies is increasing, but the GMV growth rate of these two categories has not improved significantly; It's just that the stock demand has shifted from the conventional channel to the "tens of billions of subsidies" channel, which has not brought incremental demand.
It can be seen that JD.com is indeed expanding the "tens of billions of subsidies" from a small-scale attempt to a universal normal. But so far, the effect of subsidies in pulling GMV does not seem to be good.
(2) Reform of traffic distribution mechanism: In addition to the "tens of billions of subsidies" and "9.9 sales", which respectively change the minds of users through subsidies for large items and daily consumer goods, Ali and JD.com are also trying to optimize the core traffic distribution mechanism.
Although the traffic distribution algorithm of e-commerce platforms is similar to black boxes for us, various factors such as store level, foot traffic, conversion rate, and paid promotion have an impact. Under the logic of traffic monetization first, Dolphin Jun believes that the circular logic of traffic is: merchants have high commodity prices (can generate higher transaction volumes)→ high profit margins (strong ability to pay for promotion)→ Paid buying volume, traffic tilt (further promoting merchant transaction volume).
Under this distribution logic, in short, the merchants who can make the most money and are most willing to spend money to buy will always occupy the traffic highland, contribute the most revenue to the platform, and are the real services of the platform.
The recent low-price-first traffic distribution strategies such as "one-click price comparison" and "five-star price power" launched by Taobao and Jingdong are: merchants have the lowest commodity prices, → platforms give free traffic tilt, → merchants have small profits but sell more→ and low prices bring more user traffic. That is, merchants directly use the cost of buying volume to subsidize the price and attract organic user traffic at low prices, and both merchants and platforms are the logic of volume rather than price.
Dolphin Jun believes that the difference in the above traffic distribution strategy is one of the most essential differences between Pinduoduo and Ali and JD.com in addition to brand/price tonality. Therefore, the purpose of JD.com and Alibaba's tilt towards "cost performance" this time is also to sacrifice part of the profit margin, and defend/counterattack user traffic through low prices rather than buying volume. This time, e-commerce platforms are no longer focused on their own revenue or profits, but on how to retain users and hopefully attract new organic traffic.
This is why JD.com changed the assessment index from revenue to GMV; Pinduoduo believes that it should not mainly rely on the monetization of head merchants, but should monetize the traffic of the whole platform.
(3) Whether the transformation can be successful: Combined with academic research in related fields, Dolphin Jun found that the mall originally positioned as "quality/high-end" (also applicable to online platforms) needs to meet the following if you want to transform downward price positioning: (1) long-term and stable relatively low prices, (2) daily consumer goods need to guarantee low prices on a large scale, optional consumption can only guarantee low prices for some influential items, (3) non-price elements such as product brand grade, service level, and decoration degree in the whole platform also need to match price positioning. (This may explain why Pinduoduo still maintains a relatively rough app page).
It can be seen that the initiatives of JD.com and Ali are correct and reasonable operations in the above business logic and academic research. We also believe that "10 billion subsidies" and "9.9 sales" can compete with Pinduoduo in their sectors.
But the stratification of user groups is one of the key differentiators of platforms. This is why JD.com and Alibaba's previous sinking market was through independent "Taote" and "Jingxi" apps, so as to distinguish them from the main site app and protect the experience of the main site users. Therefore, Dolphin Jun does not think that JD.com and Ali will shift the overall tonality of the main station to "cost performance".
Therefore, the spillover effect of driving the main station through "tens of billions of subsidies" and "9.9 sales" may be relatively limited, and it is more of a defensive behavior.
(4) What is the cost of leaning towards "price-performance ratio"? First of all, for Ali and JD.com, price subsidies or giving low-priced merchants some free traffic are bound to increase the marketing subsidy costs of the two companies. And the result of the current subsidy is more just to transfer the transaction from the conventional channel to the subsidy channel, and the additional increment is limited.
Therefore, it will also have a negative impact on the revenue scale of JD.com and Alibaba. Combining the two, JD.com and Alibaba's profits are bound to deteriorate marginally.
For Pinduoduo, although Dolphin Jun believes that Duoduo's cost-effective positioning in the hearts of users will not be subverted, the deterioration of competition is inevitable. At the same time, after the recovery of consumption (although it is a weak recovery), the logic of daily necessities dominating last year, consumers' "consumption downgrade", and merchants destocking will continue to weaken marginally.
In general, when Ali, JD.com, Pinduoduo, and other leading players in the industry all do the same subsidy strategy, the final result is likely to be a zero-sum game, and it is difficult for anyone to achieve real incremental traffic, but it will have a negative impact on the profits of the three companies.
4. Where are the opportunities for pan-e-commerce in 2023?
Looking forward to 2023 from the current node, Dolphin Jun believes that the key points to invest in pan-e-commerce companies need to pay attention to as follows:
(1) The weak recovery of commodity consumption and the rebound of online dividends predicted a few years ago are expected headwinds, so at the industry beta level, online retail will not prevail in the short and medium term, and the revenue growth rate is difficult to improve well.
(2) Although the restart of competition does not surprise Dolphin Jun, the speed of restarting and the competition method of price wars through subsidies are still expected by Xiaochao Dolphin Jun. Instead of taking the differentiation route, but choosing the same strategy involvement, it is basically doomed that before no one gives in, the profit margin level of Ali, JD.com, and Pinduoduo is likely to decline compared with the high point of 3/4Q last year.
(3) Combined with the above two points, there is no bright spot in revenue growth, profit margins may deteriorate, and e-commerce companies are not in a favorable cycle in the short and medium term. Therefore, the investment strategy is basically only when the stock price is over-falling, significantly lower than the valuation bottom of the core assets, and the investment is carried out in the over-fall rebound. It is not easy to have the opportunity of a sustained upward trend.
But other than that, there is no chance for pan-e-commerce? Dolphin Jun thinks that this is not the case,
(4) First of all, although there is not much upward trend in the short to medium term in terms of performance, the wave of spin-off and listing of their assets set off by Alibaba and JD.com has given Internet companies with many hidden assets the opportunity to release valuation.
(5) Finally, Dolphin Jun believes that from the third quarter, the revenue of e-commerce companies will enter a very low base period; The impact of online channels may also begin to fade; After two quarters of involution that is likely to be ineffective, e-commerce companies may also re-examine their competition and investment strategies. At that time, e-commerce companies may usher in a wave of performance and stock price repair from a fundamental point of view.
For the valuation adjustment of specific stocks, please look forward to the next part
![Ali JD, dragged into the new inner roll[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)