Jingdong
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The retail industry in 2020 can be described as shocking, with the nominal growth rate of total retail sales of consumer goods in the first three quarters of only 3.3% , CPI (Consumer Price Index) and PPI (Ex-factory Price Index of Industrial Producers) also showed a downward trend. In October 2020, CPI rose only 0.5% year-on-year, and PPI fell 2.1% year-on-year.


The total social demand is obviously insufficient, and the society is facing severe deflation. This is hardly good news for both retail practitioners and the manufacturing industry. The growth rate of the total retail sales of consumer goods was only recovered in September this year. How many practitioners are facing survival dilemmas behind this.


In the past, when we analyzed the financial reports of e-commerce companies, we always stood from the perspective of e-commerce companies, starting from the perspective of profitability, and exploring For the future prospects of the company, in a prosperous time, the platform uses traffic and operating capabilities to improve efficiency, and the market holds profits on it. There is nothing wrong with it. However, in the reality stated in the opening paragraph, the profit of the platform is no longer the most important under the status quo of the industry. Regarding the matter, we hope that we can analyze the gains and losses of business operations from another perspective: Under the severe industry prospects, whether companies will "close mountains for forest cultivation" or "water storage for fish farming", which will promote consumption while reducing the burden on businesses and contribute to the rapid economic growth. What about rebounding to accumulate power?


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Let’s take Jingdong as an example.


JD’s total revenue in Q3 of 2020 reached 174.3 billion yuan, a year-on-year increase of 34.8%, and it has remained vigorous under the epidemic Growth is hard to come by. This is also the best sample for us to measure the "burden reduction" of enterprises. Whether the growth of JD.com is the result of improving efficiency or demanding profits from businesses?


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We first compiled the growth of Jingdong platform and advertising revenue and self-operated business in the past two years, as shown in the figure below.



In the past five years, most of the time the growth rate of platform revenue has been greater than that of self-operated revenue. This is also a few years when Jingdong’s open platform has grown rapidly, but it will start in 2020. , The growth of self-operated revenue has begun to lead platform revenue.


This has caught our attention. What is the reason for this? Has the development trend of JD changed?


It is true that self-operated businesses affected by the epidemic have become the main force for JD to hedge external risks with stability, especially in Q1, the most severe epidemic. JD Logistics has become one of the courier companies that have been delivering on the front line from start to finish. In addition, the fresh food business has been greatly released during the epidemic. These are good for self-operated business, but the growth rate of open platform revenue is weaker than self-operated. It should just be that the latter is too fast, and there should be other reasons.


In the past two years, JD Logistics has accelerated its development and achieved outstanding results in the integration of warehousing and distribution and supply chain logistics Logistics is also becoming the “third pole" of JD’s growth. That is to say, We can roughly infer the growth trend of open platform transaction volume from changes in logistics income, see the figure below.

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< p style="margin: 0px 0px 0px;">In 2018, logistics became independent and started to make progress towards the 2C end. The business has shown a spurt of growth, which is also The main reason for the annualized growth of business over 100% in the three years from 2017 to 2019. After entering 2020, affected by the epidemic, Q1 has experienced a significant decline, but in Q3, the business rebounded significantly, and the macroeconomic consumption rebounded Echoing, it shows that the growth rate of Jingdong platform transaction volume in the post-epidemic cycle has begun to enter a normal state.


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In sharp contrast, in 2020 Q3 platform revenue is The slowing trend means that when the total transaction volume rebounds rapidly, the growth rate of commissions and advertising costs is declining. We have reason to believe that JD.com has “reduced the burden" of open platform merchants to varying degrees in Q3. Work, such as on traffic and commissions.


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After the release of Jingxi, the outside world will focus on sinking market competition Wait, but we see that Jingdong has adopted a zero-cost settlement for Jingxi, the fastest 6-hour review, the deduction point is as low as 0.6% and other preferential policies, combined with the above picture, the Jingdong open platform merchants are indeed in the "burden reduction". That is to say, after the release of Jingxi, it can be seen that JD.com intends to "reduce the burden" on the merchants to win the hearts of the merchants. In the sinking market competition, JD.com has taken the road of "heart attacking".


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From the 2C side, traffic subsidies and commission reductions may be easily interpreted as The ambition to compete in the market, but if you start from the B-side, when the external environment is complicated and complicated, subsidizing merchants is like giving away charcoal in the snow, which is tantamount to rebounding and accumulating power afterwards.


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Will this affect the quality of JD’s operations? This is also a topic of concern to investors.


The profit margin is certainly the criterion for improving operational efficiency, but for JD.com, we believe that the focus should be on cash flow. The reasons are: 1. The domestic retail industry has always used "account period" as cash flow, and JD's self-operated business has always been in a state of "low profit margin and high cash flow". Jingdong may not increase or decrease the account period of self-operated business. Affect the profit margin, but it will directly feed back to the cash flow; 2. The open platform has always been characterized by the coexistence of high profit margins and strong cash flow. Combining the two characteristics, the performance of cash flow is related to the quality of JD.com's operation.


We have compiled the net inflow of operating cash flow from JD.com in recent quarters, as shown in the figure below< /p>



In the past two years, Jingdong’s operating cash flow has always been positive. In Q4 of 2019, due to the aggressive market expenses and Jingxi promotion during Double Eleven, the current market value was close to negative. , But after entering 2020, except for Q1 that was deteriorating to an outflow by the external environment, cash flows continued to flow in in the remaining quarters.


Why? Why did JD.com's ability to absorb cash have strengthened instead of reducing the burden on businesses?


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In order to ensure objectivity, we have compared the accounting period between JD.com and merchants. As mentioned in the previous article, retailers often use the accounting period to realize cash Flow turnover, what about Jingdong's "burden reduction" of the supply chain? See below.



In the past year or so, JD.com has been reducing the account period of merchants. In 2020, the Q3 accounts payable period has fallen below 50 days, which is already an extremely low number in the industry. After the epidemic, JD.com improved the cash flow of suppliers by lowering the business account period, and the effect was still obvious.


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On the one hand, operating cash flow accelerates inflow, while on the other hand accounts payable The billing period has dropped rapidly again. How can JD.com improve its cash position?


In a comprehensive analysis, we believe that the main reason is: Ensure growth and "burden reduction" in addition to taking into account efficiency.


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How to balance the relationship between speed and efficiency has always been a difficult issue in the retail industry. If the growth rate is too fast, the inventory turnover cycle is a very fragile data. It is very likely that inventory has been neglected in the rapid development. If the growth rate is too slow, the company's asset turnover rate will drop abruptly, ultimately pulling down key ROE indicators. (Rate of return on equity) In addition, the balance and stability of marketing expenses and fulfillment costs are testing retail practitioners.

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This problem did exist in the early days of JD. The fluctuation of inventory has always been the main concern of the outside world, and we have been paying attention to inventory. Efficiency has improved, but after 2019, the number has shown a steady decline. In 2019, the inventory turnover cycle is still 36.5 days, and in Q3 of 2020, the number will drop to 34.3 days.


From the balance sheet, it can be seen that only inventory is compressed, and Q3 2020 will release 2 billion in cash from the beginning of the year.


Under the epidemic, the self-operated business has not only grown steadily, but inventory efficiency has also improved, and both speed and efficiency have been taken into account.




In addition, market expenses The proportion continues to shrink, and the gross profit from fulfilling orders has increased, which reflects the continuous improvement of operating efficiency. In Q4 of 2019, under the promotion of Jingxi and Double Eleven, market expenses have expanded, but in 2020, market expenses will be compressed. In Q4 of 2019, market expenses accounted for 4.8% of revenue, but in Q3 of 2020, this figure was compressed to 3.2%.

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So far, I have found the main thread that JD can continue to "lighten the burden" on merchants and the supply chain:

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First, the continuous improvement of business efficiency has enabled the company to reduce the burden on businesses;


Secondly, enterprises compress the necessary costs and expenses for self-development, and provide ammunition to reduce the burden on businesses and supply chains;


Third, due to the continuous improvement and improvement of operating conditions, JD.com should have the conditions and capabilities to continue to support businesses.


The above three elements are indispensable. If the company is up and down, how can you support the business? If the company has no growth inertia, what Ability to reduce costs, And if the company has no support to make a fortune, there is no article.

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Finally, let’s talk about the retail industry after the rebound in the external environment.


As stated at the beginning, affected by the adverse external environment, China is facing severe deflationary pressures. Although the consumer market has recovered, However, the situation is still not optimistic. The retail industry should not be overly optimistic here, and leading companies should not suspend support for the ecology at this time.


Reducing business costs and stimulating terminal consumption should be the consensus of the retail industry, and only Only in this way can we get rid of the disadvantaged situation of the industry and regain prosperity.


In the previous analysis, JD.com actively compressed the monetization rate in 2020 and sacrificed some corporate interests. In Q3 of 2020, The subsidy has not stopped, and the monetization rate is still intentionally compressed in Q3 2020. According to our analysis, the overall monetization rate of JD’s open platform is still weaker than that of Tmall (Tmall’s current GMV excluding unpaid orders increased by 21%, and platform revenue Revenue increased by 20%. Considering Tmall’s low monetization rate, Tmall’s platform revenue is obviously greater than the GMV growth rate), which is not easy.


For JD.com, this epidemic is like a big test: Whether it can maintain growth stability after compressing various expenses After supporting merchants, can they be favored by merchants in the post-epidemic era? Will there be a blowout in investment promotion next, and will it break the monopoly of some categories?

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This is what we will focus on next.


As of Q3 of 2020, the annual purchase users increased by 32.1% year-on-year to 440 million, and the support for the B-side also feedbacks the effect of the C-side , Does this mean that after reducing the burden, businesses will focus on "sales" and improve product competitiveness?


Although the above is only hypothetical, we hope that the platform that supports businesses during the epidemic can go further in the post-epidemic era. The society should also give positive feedback on this.


With the success of vaccine research and development, the epidemic will eventually be brought under control and the macro economy will rebound. If there are no major surprises It is highly probable that consumption will return to a strong momentum in 2021, and it will be harvest time for the platform for water storage and fish breeding in 2020.

Tags: Internet e-commerce JD

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