The stock price fell 38%. Why is JD.com’s “10 billion subsidies” not favored by investors?

In August 2012, Liu Qiangdong made a tough statement on Weibo, promising that all large home appliances on JD.com would be more than 10% cheaper than those in Gome and Suning chain stores, and that "this is the last fierce battle for JD.com."

Unexpectedly, 11 years later, as soon as he returned, he once again led the team to launch a new round of "price war", and the "10 billion subsidies" channel will be officially launched on March 8.

The move was seen by the industry as a landmark move to mark a new era for JD.com, but the market did not seem to buy it. As of March 1, JD.com closed at HK$177.8 per share, down 38% from its highest point of HK$284.8 per share. When the news was announced, JD.com's stock price also opened lower that day, reflecting investors' concerns.

The reason is very simple. Liu Qiangdong really doesn’t have much time left. JD.com is almost the last e-commerce platform to join the “10 billion subsidy war”. Alibaba and Pinduoduo have already “won” the overseas market. However, the poor performance in terms of active users, GMV and revenue has “forced” JD.com to choose the “low-price strategy”.

Can JD.com catch up in the increasingly saturated "10 billion subsidy" market? Can JD.com still win back users' low-price mentality? We will have to wait until the next financial report is released to find out.

01 Billions of subsidies are launched, and the “price butcher” is back

Recently, there have been reports that JD.com plans to launch a first-level entrance with 10 billion yuan in subsidies on March 8.

Compared with JD.com’s previous “10 billion subsidies” which only appeared as a sub-channel during big promotions and was limited to JD.com’s strong categories such as 3C, this time the “10 billion subsidies” has been expanded from big promotions to daily operations, covering all categories. Both self-operated and POP merchants (third-party sellers) will participate, and the target is directly Pinduoduo and Juhuasuan.

The "10 billion subsidy" project was approved by JD Retail CEO Xin Lijun, and there is no upper limit on the budget. In short, JD wants to "spend money" to fight a price war.

Specifically, for merchants selected for the "10 billion subsidy", JD.com will automatically reduce the commission deduction, and some products can also receive official subsidies. In addition, JD.com provides merchants with traffic support of "in-site traffic entrance + global traffic matrix".

In order to fulfill the promise of "the lowest price on the entire network", the platform also adopts a new open bidding model for merchants. Only merchants with lower prices can win the bid and be selected for the "10 billion subsidies", and the bidding pool will be adjusted every week.

Back then, JD.com relied on its two killer weapons, “low price and logistics”, to beat Dangdang, Gome and Suning, and also established half of the e-commerce world for itself. But in the process of running blindly, JD.com underestimated Pinduoduo and missed the live broadcast e-commerce.

On November 11 last year, all JD.com management received an email from Liu Qiangdong, saying, "With the success of our 3C home appliance business, many of our brothers have become complacent and arrogant, thinking they have the pricing power and no longer pay attention to the low-price advantage. If this continues, they will sooner or later become the second Suning!"

This internal letter mentioning Suning showed the management Liu Qiangdong's "bottom line". Then at the middle and senior management meeting of JD.com at the end of last year, Liu Qiangdong once again reiterated the importance of "low price" and required all employees to promote "low price mentality" and "low price strategy". In his view, low price is the most important weapon for JD.com's success in the past and the only basic weapon in the future. If the low price advantage is lost, all other competitive advantages will be reduced to zero.

At this point, the "price butcher" JD.com has officially returned, and the first-level entrance of "10 billion subsidies" will be a declaration of war thrown by JD.com.

02 Why should we compete head-on with Pinduoduo and Taobao?

Previously, through the 10 billion yuan subsidy, Pinduoduo snatched a large number of user orders from Tmall and JD.com, triggering an explosive growth in GMV. Many industry insiders said that JD.com is preparing to launch the "10 billion yuan subsidy channel" with the fundamental purpose of competing for users and boosting performance.

As the competition landscape becomes increasingly fierce, the three major e-commerce platforms are facing the dual challenges of profits and traffic, and JD.com is in even greater danger.

After Pinduoduo's rise, JD.com also tried to enter the lower-tier markets, launching new businesses such as "Jingxi" to compete for lower-tier market users, but it failed to grow. Consumers in lower-tier markets are not buying, and JD.com's fundamentals are not optimistic.

Let's first look at the number of buyers. According to Alibaba's latest financial report, Alibaba's e-commerce retail consumers in the Chinese market have increased by 20 million to 882 million, mainly due to Taobao. Pinduoduo's active buyers are expected to reach 892 million in the third quarter of 2022. According to JD.com's third-quarter 2022 financial report, JD.com's number of active purchasing users is 588 million, with a growth rate of 6.5%, the lowest in three years, and user growth has stagnated.

Looking at the comparison of GMV growth rates, data show that Pinduoduo's GMV is expected to exceed 3 trillion yuan in 2022, a year-on-year increase of 22.95%; Alibaba's GMV is expected to reach 8 trillion yuan in 2022, a year-on-year decrease of 1.47%; JD.com's GMV is expected to reach 3 trillion yuan in 2022, a year-on-year decrease of 8.81%. Pinduoduo has become the only platform among the three e-commerce giants that still maintains rapid growth, leaving its competitors far behind.

Finally, looking at the revenue growth rate, according to the third quarter financial statements of each company in 2022, Pinduoduo recorded a revenue growth rate of 65%, JD.com only grew by 11%, and Taobao only recorded a dismal growth of 3.2%.

When the three data are compared together, it is not difficult to see that as a pioneer of the "10 billion subsidies", Pinduoduo has reaped a lot of dividends, and every penny spent on Pinduoduo's 10 billion subsidies is worth it.

It can be seen from this that it is logical for JD.com, which is basically at the bottom of the performance list, to break through the bottleneck by increasing its low-price strategy, but the vicious competition faced by JD.com is not limited to this.

In the second half of last year, Pinduoduo's Temu took the lead in going overseas, and the rapid expansion of Alibaba's Cainiao and international retail business also brought the company a 12% net profit growth. JD.com is facing increasing competitive pressure, and its fundamental advantages of "cost, efficiency and experience" over the past decade are gradually losing their advantages. JD.com has to join the competition.

03Is “10 billion subsidies” the best solution for JD.com?

To make a good 10 billion yuan subsidy, we need to first look at the internal resource investment, secondly, the cooperation of merchants, and thirdly, whether JD.com is determined to spend money. These three points need to be observed.

The efficient logistics and quality assurance brought by self-operation are important reasons why most consumers choose JD.com. Such high costs mean that if JD.com wants to compete with Pinduoduo and Alibaba, it will have to pay higher costs.

Ten years ago, when competing against Suning and Gome, Liu Qiangdong summarized two points on which JD.com would surely win: first, Gome and Suning had a gross profit margin of 25%, and their costs were too high, so they would surely fail if they did not reduce their costs; second, JD.com had 8.7 billion yuan in cash, and the price war would not end as long as the money was not burned out.

Today, JD.com is facing the same dilemma that its competitors once faced. Judging from the financial reports of the past two years, although JD.com's revenue is very stable, its substantial profit growth is mainly due to cost reduction and efficiency improvement. With meager profits for many years, most people within the company are skeptical about the fact that JD.com's "10 billion subsidy" budget has no upper limit, and there are also disagreements between departments.

The response from merchants also seemed to be not enthusiastic. According to media reports, on the eve of last year's Double 11, JD.com had already started to compare prices with manufacturers using the prices of big anchors such as Li Jiaqi and Luo Yonghao, demanding the lowest price. At that time, the attitude of merchants was generally cold. Because in order to avoid price cuts, JD.com's self-operated and POP merchants, which already had low profits, needed to reorganize the product mechanism, which was a considerable investment for merchants.

In order to mobilize the enthusiasm of merchants and coordinate the entire group, it is a great test of the determination, patience and confidence of JD.com's management. Industry insiders pointed out that because the determination of the top management has been wavering and the investment has not been strong enough, JD.com's layout has been late, and the cost will only be higher now.

In addition, Pinduoduo has also made some preliminary responses to JD.com's plan to launch a 10 billion subsidy. For example, Pinduoduo's 10 billion subsidy channel has blocked some JD.com employees' IP addresses, and for a period of time, many JD.com employees were unable to access Pinduoduo normally; for another example, Pinduoduo turned on the price anti-scraping mode, making it impossible for JD.com to find the real lowest price on the entire network.

An e-commerce "price war" is still going on, and the winner is yet to be determined.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.