Darkest moment: Jingdong's dilemma and broken game

Detail Jingdong order performance costs: order fulfillment costs, logistics costs, distribution costs are true relationships. According to the company's annual report, Jingdong's performance costs include labor costs, payment fees, warehousing rental fees, third-party freight and others, of which payment fees account for about 5.1% (assuming half of the self-operated and third-party transactions), and after-sales costs (estimated by the proportion of customer service employees and labor costs) account for about 6.5%. After excluding, Jingdong's actual logistics-related expenses are about 88.4% of the fulfillment cost. Among them, distribution costs (separately disclosed in the annual report) accounted for 51.6%, which is a more appropriate caliber compared with express companies; Warehousing related expenses (including warehousing staff wages and equipment depreciation) accounted for about 36.8%.

The expense rate standard ignores the change of distribution cost caused by the change of Jingdong's category structure and customer unit price, and the per-unit distribution cost is a better consideration indicator than the rate. It is estimated that the total order volume of Jingdong in 2017 is about 2.42 billion, and after excluding virtual orders, the physical order volume is about 2.17 billion, of which the order volume of Jingdong logistics is about 1.52 billion (3P sellers only partially use Jingdong logistics). According to our calculation, Jingdong Logistics has shown scale effect from November to 13th, but 13 years later, the per unit cost has remained stable. From November to 2013, Jingdong's per unit performance cost decreased from 31.7 yuan to 20 yuan; Per unit delivery cost decreased from 17.4 yuan to 10.1 yuan. 17 Jingdong's average performance/delivery cost is 20.8/10.2 yuan, which has basically remained stable in the past four years. We believe that the main reasons include: (1) the change of distribution structure; ② Remote area coverage; (3) The marginal cost of time improvement is high.

We judge that Jingdong's future per-unit delivery cost still has room to decline in the future, mainly because: ① Jingdong has basically achieved full coverage of districts and counties, and the main trend in the next stage is to increase the diluted cost of order density in each district. ② The overall delivery time requirement is not expected to increase significantly; ③ There is room for improvement in the last kilometer; ④ New Dada provides capacity supplement for Jingdong Logistics during peak delivery hours; In the longer time dimension, technological progress is the next breakthrough in logistics cost reform.

Fourth, return to the source of business, deep cultivation of quality economy

Whether it is e-commerce or physical retail, the essence of business is still the pursuit of efficient matching of "people" and "goods". Under the trend of continuous improvement of industry efficiency and more detailed division of labor, different combinations of people and freight yards require different intensive farming methods. Clear user and demand positioning is the premise of correct strategy. Jingdong Logistics and Jingdong Finance (now renamed Jingdong Digital) are the two strategic businesses of Jingdong's transformation from retailer to service provider in the future, but at this point in time, their growth is still mainly rooted in the continuous expansion of Jingdong's retail system.

Jingdong's 300 million medium and high-end quality users gathered by supply chain efficiency and quality experience in the past are the company's core resources. Compared with sacrificing experience, or significantly increasing coverage costs to pursue unlimited channel sinking, we believe that more focus on the quality and consumption upgrading needs of existing users, improve the consumption frequency of stock users, and deepen the quality economy may be a more feasible and long-term strategic value attempt for Jingdong in the future.

From the perspective of flow, supply chain and goods:

1) Traffic: The membership system improves the re-purchase rate and cultivates quality users.

In October 2015, JD.com launched PLUS membership, which was the first paid e-commerce member in China. In August 2018, JD.com announced that PLUS members exceeded 10 million; According to EOU data, the user penetration rate of members is about 3.2%, and the renewal rate is nearly 80%.

From Amazon's experience, paying members can effectively increase the frequency and amount of consumption of members. Membership fee is a sunk cost for users, and "buy more and save more" is the basic motivation for users to increase consumption. In 2018, Amazon had more than 100 million Prime members worldwide, with renewal rates as high as 91%; According to Statista, the membership penetration rate in the United States reached 59% in June 2018. 46% of members shop once a week or more, compared with 13% of non-members. Members consume about $1,300 / year, about double the $700 level of non-members.

The core role of JD PLUS members is to break through the bottleneck of category expansion and achieve differentiated service provision. PLUS member benefits, shopping discounts (rebates + vouchers) and shipping waivers are the core features. The membership system selects consumers with the strongest willingness to pay and the highest recognition of platform services through the payment threshold, most of whom are expected to have relatively frequent shopping behavior on the Jingdong platform (make full use of 100 yuan/month shopping vouchers), and the consumption preference is convenient (5 shipping vouchers are exempted from the trouble of collecting bills). Whether it is product category or service expansion, upgrading around paying members may make it easier to get promoted and complete effective sales.