This week, China Voices brings TechNode Squared members a detailed take on JD’s quest for profits, reprinted by courtesy of Huxiu. TechNode has not independently verified the claims made below. This article was co-authored by Jordan Schneider.

JD’s stock performance in 2019 has ticked up from its disastrous 2018, marred by a CEO rape accusation and the meteoric rise of rival Pinduoduo. The firm has since committed to prioritizing profit over scale as well as following its competitors down into third and fourth-tier cities. The following article by Huxiu’s Ran Liu reports on a recent JD-held conference where they laid out their plan to follow in Pinduoduo and Taobao’s footsteps of both emulating group buying, working directly with factories to develop new products, and increasing their reliance on retail warehouses for distribution. 

JD Retail: Where to next?

Ran Liu, Huxiu, 19 November, 2019

JD’s performance has ticked up in 2019, as reflected in the financial statements issued this year. From the most recent statements, it’s clear that “continuous profitability” has been set as target, as JD is transforming itself from pursuing scale to profit, and it will likely drive JD decision-making for a long time to come.

At present, JD is trying to increase its profitability mainly through reducing costs and increasing efficiency. This guideline was highlighted at JD’s Discovery Global Conference by three CEOs of JD Group (Lei Xu, CEO of JD Retail; Shengqiang Chen, CEO of JD Digital; and Zhenhui Wang, CEO of JD Logistics). 

Still lower-market penetration; still supply chain

In today’s retail world, everyone is talking about penetrating lower-tier cities, and JD’s strategy has become particularly obvious. It is now using its main site and Jingxi, JD’s online group-buying platform [akin to PinDuoDuo], to drive growth.

This August, JD’s main site upgraded its “Daily Specials” on its homepage while, outside the main site, group-buying platform Jingxi was officially launched on September 19 this year to compete with Pinduoduo and Juhuasuan, respectively owned by Tencent and Alibaba, to penetrate third-tier cities and even rural areas. Jingxi was officially integrated with WeChat in November, and is present on several other mobile channels. 

The integration of Jingxi to WeChat shows the increasing importance JD has been attaching to the lower-market penetration. 

There is no data yet about Jingxi in the most recent financial statements, but the data given by JD shows that the peak number of goods sold by the Jingxi platform in one hour has reached 16 million pieces, and within the week right after the launch, the average daily growth rate of items sold was 365% compared with the week before (Oct. 24 to Oct. 30); the number of new users after switching was 217% higher than the previous week (Oct. 24 to Oct. 30). In the meantime, Jingxi, with this spike in traffic, also gave the main site some rewards: nearly 40% of Jingdong’s new users came from Jingxi.

JD, however, has a different focus on Jingxi—reverse customization from customers to manufacturers (C2M). During the Nov. 11th Shopping Spree period this year, the daily average number of orders that required manufacturers to tailor-make products increased by 394% than September.

Lei Xu also introduced JD’s C2M results today: up till now, the proportion of games, books and home appliances developed based on the C2M model has reached 40%; compared with the traditional method, JD’s C2M model reduces product research time by 75%, the new product launch cycle has been shortened by 67%, greatly improving the chances a new product has of succeeding.

Given JD’s  hopes for Jingxi’s supply chain, it plans to release 100 million new products and C2M products in the next three years, of which more than 70% will be new.

Perhaps due to the nature of the JDD conference, all of the above figures about lower-market penetration and supply chains were attributed to technology. 

Without the support of our technology, it is impossible to achieve such a good sales performance within such a short period of time.

–Lei Xu

In Xu’s definition, JD Retail has completely become “technology-driven.”

‘People, goods, and fields restructured’ everywhere

Being part of the retail world, JD was no exception to one of the common phenomena: disruption. “New Retail,” once feverishly championed by Alibaba, has been replaced by “New Consumption” since the Nov 11 Shopping spree this year. The “new” here refers to new groups of people, new supply chains and new fields of consumption.

What JD talks about now is the “all-channel platform,” where key warehouses, warehouse-to-store, store-to-store, and store-to-person distributions, are all combined and optimized. The aim is to reduce cost, increase profits, and optimize experiences.  

In the second stage, they hope to do multi-field digital links and service capabilities, with online fields being the APPs of JD, mini programs and Jingxi targeting lower markets. 

Offline, there would be JD Home, home appliance stores, 7fresh, JD New Channel, Youjiapuzi online store, Natural Selection Project, JD Pharmacy, JD Carholders Club, and other offline stores and communities.

The third stage is to market to wider range of customers that, with the help of JD, Jingxi has contributed to bringing in more downmarket who were previously ignored. 

But the all-channel platform is still quite broad. For JD, a firm used to target customers directly, connecting warehouses to stores is still a big challenge.  

In Chen Lin’s eyes, what JD has been doing and accumulating over the past decade is to provide a solution based on a single B2C logic. Today, faced with more challenges and opportunities in the complex Chinese Internet environment, JD needs to crack these issues. “To connect warehouses to stores, and to integrate business-end with the customer end, well, that’s harder,” said Lin. 

An all-channel platform is the next big thing for JD. But whether it can yield good financial results depends on how JD is capable of “restructuring people, goods, and fields.”

Anna Chen

Anna Chen is a Masters candidate in Finance and Accounting from the University of Auckland, New Zealand.

Jordan Schneider

Jordan Schneider is a freelancer based in Beijing and the host of the ChinaEconTalk podcast.

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