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At the financial analyst meeting on the evening of the 16th, JD.com's management said that it was confident that the revenue growth rate in 2024 would exceed the growth rate of total retail sales of consumer goods. JD.com's total revenue in Q1 increased by 7% year-on-year, of which the retail business grew by 6.8%. According to the National Bureau of Statistics, retail sales in the first quarter increased by 4.7% year-on-year (12.4% online). It seems that after a sluggish 2023, JD.com is off to a good start this year.
It seems that the market has really changed, and e-commerce is now going to grow faster than the retail market. In 2023, the growth rate of the broader market will be 7.2%, of which the growth rate of online goods will be 11%. JD.com did not outperform the market last year, with its annual revenue growth of only 3.7%, of which the retail business grew by only 1.6%. Entering 2024, this wave of decline has been suppressed.
Observing the perception around us, it seems that offline reshoring is quietly happening. According to data from the National Bureau of Statistics, online sales accounted for 23.3% of total retail sales in the first quarter of this year, while the proportion exceeded 27% throughout 2022 and 2023. Considering the Spring Festival in the first quarter, it remains to be seen whether this turn will form a trend.
The change in category structure seems to tell us something. In 2023, the year-on-year growth rate of online physical goods will be 11.2%, 10.8% for clothing, and 7.1% for use. Eating is growing the fastest, and people are spending more energy on online shopping. In line with this, (offline) food and beverage sales increased by more than 20%, the fastest growth rate in recent years. The business of restaurants has regained popularity driven by holidays and online celebrity marketing; In contrast, people's consumption satisfaction in wearing and using it has been delayed.
However, the online penetration rate of food is not as good as that of wear and use, which also means that there is more room for potential growth. Seeing that the supermarket category picked up in the first quarter (JD Supermarket achieved double-digit year-on-year growth), JD.com's management pinned its hopes on supermarkets to become the main category driving this year's retail performance, and the background improved the algorithm accordingly to reduce the cost of warehouse distribution fulfillment. At the same time, the company will seize the opportunity of the current wave of home appliances to trade in the old to stabilize the basic market of home appliances. In the first quarter of this year, JD.com's revenue growth rate of electronic products and home appliances was 5.3% year-on-year, lower than the 6.1% in the whole of 2023.
The direct sales part of Alibaba's retail business, dominated by Tmall Supermarket and Tmall Global, fell by 2% year-on-year in the first quarter of this year, and increased by 6% in the entire fiscal year 2024 (2023Q2-2024Q1), with consumer electronics and electrical appliances becoming important driving factors. The food and beverage category under the B2C supermarket format performed merediocre.
Looking at it this way, in the 11.2% year-on-year growth rate of online sales of food in 2023 given by the Bureau of Statistics, it may be significantly driven by live broadcast e-commerce. We always habitually think that active search is a more efficient way to shop, but ignore the onlookers and recommendations to draw a larger user circle outside of search, which belongs to the cognitive fragmentation of the circle. Another influencing factor that cannot be ignored is Pinduoduo's fresh e-commerce, which is also a high-traffic model that focuses on low prices.
In short, online supermarkets focusing on food FMCG products will usher in more fierce competition in 2024, with relatively low platform loyalty, more frequent price comparisons by consumers, and a gradual decline in customer unit price. The same trend is true offline, with ALDI and Hema both comparatively doing discounts. Jingdong previously lowered the free shipping threshold for self-operated goods to 59 yuan, which can be said to be taking advantage of the trend and playing a role in driving the order volume of Jingdong supermarket. It's easier for consumers to combine food with food in their shopping cart for free shipping. JD.com's management revealed at the earnings conference that the growth of the number of users from lower-tier cities has maintained a double-digit percentage, which is higher than the growth rate of the first- and second-tier cities and the overall number of users.
Blindly rolling low prices is not sustainable
JD.com's first-quarter revenue and EPS earnings per share both beat analysts' expectations. Although the low-price strategy has played a short-term performance effect, it is not difficult to find that JD.com no longer blindly emphasizes low prices, but instead emphasizes cost performance and user experience. This year's 6.18 will also pursue "good and cheap", highlighting the differentiation from other platforms; And cancel the pre-sale system, and start selling directly at the point.
The low-price platform Jingxi also seems to have lost the halo effect of the previous price war. New business segments, including instant delivery Dada, Jingxi, JD International, etc., saw a sharp 19% year-on-year decline in revenue in the first quarter.
In the eyes of the outside world, although consumers are concerned about the price, it is not the best policy for Jingdong and Pinduoduo to fight low prices, the latter is supported by a large number of white-label commodity industries, and Jingdong is based on the brand after all. This hurts JD's profit margin, judging from the financial report, the operating profit margin of JD retail in the first quarter was 4.1%, compared with 4.6% in the same period last year, and the decline shows that the profitability of the main business has been restricted to a certain extent. JD.com's overall operating profit margin performed well in the first quarter, and more profits from logistics improved.
According to the breakdown of the income statement, the growth rate of JD's commodity cost and revenue in the first quarter were basically the same, and the growth rate of fulfillment costs slightly exceeded the growth rate of total revenue, and the proportion of total revenue increased. This is due to the lowering of the free shipping threshold, which is expected to take some time to absorb. In addition, in the three expenses, research and development expenses decreased by 3.6% year-on-year, general administrative expenses decreased by 21% year-on-year due to the reduction of equity incentives, and the company spent 8 billion yuan on marketing expenses in the first quarter, a year-on-year increase of 15.6%.
On the one hand, the details are to improve the efficiency of internal operations and save unnecessary waste, which is the main internal work of JD in the past year; On the other hand, it is waiting for the revenue contribution of third-party sellers to increase and increase the monetization rate. But neither was an immediate move.
Let's compare it with Amazon
Compare JD.com with Amazon, both self-operated platforms have been losing money for a long time and have achieved profits, and they also take low prices as their creed. The difference is that Amazon's main profit force is on AWS cloud computing, and this first-mover effect is lacking in JD.com; Amazon has reached the structure of third-party sellers' transactions exceeding the platform's own operation many years ago, and JD.com is not yet. JD.com's management also said that in the long run, the third-party will exceed the self-operated part in terms of order volume and GMV. The reasonable ratio of the two would probably be 6:4.
The advantage of this hybrid structure is that Amazon not only earns commissions, warehousing and logistics usage fees, etc., from third-party sellers, but also receives ad serving fees from them. Judging from the table below, the combined income of these two items can basically be tied with the e-commerce income of the online store, and the online store also includes the sale of media content such as videos, games, and music. Despite such diversified revenue, it is still difficult to rely solely on e-commerce to "wipe out" the total cost and various expenses without relying on AWS.
Years ago, when I visited Amazon's headquarters as part of a Chinese press corps, a senior executive answered a question about the relationship between self-management and a third party. He said that U.S. consumers don't care whether the item is sold by Amazon or a third-party seller on Amazon when they place an order, and they are more concerned about how many days they receive the product. This is a significant difference between the two markets, domestic consumers are concerned about this difference, they are on Jingdong is interested in fast logistics, door-to-door delivery and quality trust. As the proportion of third-party sources continues to increase, whether consumers can eliminate the difference in perception between self-operated and third-party by improving service quality may be more concerned about old users.
JD.com's current logistics revenue and platform and advertising revenue are on a growth trend, forming a business framework similar to Amazon's. However, the proportion of this business, which is collectively referred to as "service income", is still relatively low, and it is affected by the economic environment and the willingness of merchants, and the monetization contribution is not enough. JD.com is now focusing on supporting small and medium-sized merchants to expand their sales scale and improve user experience, which should be a more timely direction than price wars.