Growth path: Shift from cost center to profit center

(A) Unique competitive advantage: integration of business flow and logistics, to provide cash space for external traffic

We believe that in the process of opening up Jingdong Logistics, not only the pop merchants on Jingdong Mall, but also the traffic platforms including Kuaishou and micro stores have the possibility of cooperation. For example, on May 27, 2020, Kuaishou Technology and Jingdong Retail Group officially signed a strategic cooperation agreement. Jingdong provides supplies for Kuaishou live sales, and Kuaishou users will be able to directly purchase Jingdong self-owned products in the Kuaishou store, and enjoy Jingdong delivery, after-sales and other services. Consumer demand and consumption scenarios show a diversified trend. The cooperation between Kuaishou and Jingdong is also complementary to the advantages of products and users. Jingdong is responsible for supply, distribution and after-sales; Kuaishou is responsible for selection and sales.

With reference to Guangfa Media's research report "Kuaishou Technology: Growth prospects, ecological extension and Commercialization Vision", since 2016, the development of Kuaishou live e-commerce can be divided into four stages. The live broadcast function was launched in 2016 and the e-commerce business was launched in August 2018 as the first stage; The second stage is from August 2018 to March 2020, during which the label of Kuaishou e-commerce can be summarized as "source good goods"; Since March 2020, the development of e-commerce has entered the third stage, and the platform has gradually transformed from "goods" to "quality".

In the second stage (August 18 - March 20), Kuaishou e-commerce to small and medium-sized businesses as the core, to establish the "source good goods" basic plate. In August 2018, Kuaishou e-commerce business was officially launched. In the early days of the line, fast e-commerce mainly focuses on "good goods at the source", that is, removing the dealer link, providing wholesale prices for customers from the origin, industrial belt, factory direct supply, and master brand four sources, and improving the cost performance through direct product sales.

The third stage (March 20 to the present) : from "goods" to "quality", "good goods from the source" and "good quality". In March 2020, Kuaishou e-commerce launched Super Brand Day to provide a number of support rights and benefits for brands and e-commerce service providers; Since April, many entrepreneurs have carried out goods through Kuaishou, such as Dong Mingzhu, chairman of Gree Group, carried goods for 3 hours in the Kuaishou live broadcast, with a turnover of more than 300 million yuan. In May 2020, Kuaishou reached a strategic cooperation with Jingdong, and users can buy Jingdong products and enjoy Jingdong services in the Kuaishou store. Jingdong endorsement has enhanced users' confidence in the quality of Kuaishou products, and the efficiency of Kuaishou e-commerce supply chain has been significantly improved. Subsequently, in June and September, Kuaishou and Jingdong successively launched the "6.16 Quality Shopping Festival" and "9.9 double ten billion subsidy" activities.

Due to the relatively large number of small and medium-sized e-commerce gathered in Kuaishou, the strength of the host lies in content production and fan operation, and the selection and group of goods involved in the e-commerce process are not professional, which makes it possible for Jingdong to achieve scale expansion and improve the realization space of logistics with its strong supply chain performance ability.

In addition, Tencent, as the largest shareholder of Jingdong, traffic pool resources such as micro store and Tencent video are also the starting point for Jingdong to obtain traffic, providing a new growth point for Jingdong logistics.

In Tencent's ecosystem, invested enterprises can maintain a high degree of independence. Tencent can use resource leverage as much as possible to help ecological partners complete their mission in the vertical field and indirectly strengthen their control in various fields. Jingdong and Pinduoduoshi complete the e-commerce market layout in the high and low lines respectively, and Tencent provides a strong supply with the traffic deposited by the social relationship chain behind them. Explore further realization space through ecological partners. Ecological partners use Tencent's open capability interface and abundant traffic resources to seize the time window to do scale expansion and barrier construction, in order to lock the head competitive position in the vertical field as soon as possible, indirectly improve Tencent's traffic realization efficiency, and feed the ecology.

In May 2019, Jingdong and Tencent renewed their three-year first-level traffic entry cooperation on wechat, which reflects that Tencent, as the largest shareholder, still has high expectations for Jingdong's liquidity. In today's e-commerce industry dominated by ecological, traffic acquisition and technology-driven factors, Jingdong's advantage lies in the bottom precipitation of retail infrastructure capabilities, including logistics assets, which also brings new growth space for Jingdong logistics.

(2) Actively cut into the business outside the system to lay the foundation for Jingdong's retail infrastructure road

For Jingdong Logistics, the positive impact of increasing the proportion of customers outside the system is mainly reflected in the following three aspects.

First, in the early stage, when JD obtained relatively abundant cash flow through financing, it is understandable that R&D expenses and logistics-related capital expenditures were relatively aggressive. However, for a long time, the increase of logistics labor costs along with the expansion of scale and the rising of marketing expenses have a great impact on JD's net profit, and the emergence of scale effects of logistics is expected to bring about improvement of marginal benefits.

Second, the "storage and transportation" mode requires third-party merchants to ship goods to Jingdong warehouse in advance, which on the one hand can continuously strengthen consumers' logistics distribution experience of Jingdong, and on the other hand, Jingdong can carry out logistics timeliness for suppliers. Individualized packaging, supply chain finance and other diversified capacity output to further empower suppliers. In this regard, Amazon's 3P seller realization process is worth learning from: as of the first half of 2019, nearly 6 million merchants have settled on Amazon, and 41% of sellers are active (with active sales). In addition, the head trend is reflected in any e-commerce: about 3% of Amazon's three-party sellers have annual sales of more than $100,000, and 1% of merchants have annual sales of more than $1 million. The commission mode of Amazon 3P business determines that 3P business can earn more service fees, including but not limited to: platform usage fee (professional version seller), single product sale deduction fee of 0.99 US dollars (personal version seller), different categories of product sales deduction points, digital media product sales deduction points, FBA performance service fees (under the premise of using FBA; 83% of Amazon's global third-party sellers already use FBA. Since 2017, Amazon's tripartite service revenue has remained stable at about 18%. In 2019, Amazon achieved $53.762 billion in third-party merchant logistics-related revenue, contributing 19.2% of its operating income.

Third, dilute the cost of single piece logistics. In 2019, the cost of single piece storage of Jingdong Logistics was 5.45 yuan, and the cost of single piece delivery was 7.18 yuan. We believe that with the penetration of Jingdong's logistics network in the sinking market and the further opening of the outsourcing business, the order density will be further deepened, or bring about a further decline in the average cost per unit.

In addition, we believe that other factors affecting the cost of Jingdong Logistics downward include:

(1) The logistics timeliness has basically reached the relatively insensitive zone of users, and it is expected that there is little room for further capital expenditure to improve the timeliness. At present, the cities covered by Jingdong "211" service achieve 2-3 times a day (goods out of the warehouse), and 4-5 times or even more in the promotion node; In addition, the time requirement of "ultra-fast arrival" service is more stringent (delivery within 3 hours, users need to pay extra); We believe that the current improvement of Jingdong's logistics timeliness has entered the relatively insensitive area of users, and the marginal improvement space spent on continuing to improve the timeliness is not large.

(2) Other part-time capacity brings the balance of capacity cost. During the "Double 11" in 2020, Dada Express, the local instant delivery platform of Dada Group, delivered more than 1.1 million orders during 10-11 o 'clock, breaking the peak record of one-hour delivery orders in the same period. Since 2016, Dada Express has launched a comprehensive strategic cooperation with Jingdong Logistics, and during the annual promotion period, Dada will supplement the crowdsourcing capacity of Jingdong Logistics. With the further increase in order density, the adjustment of the ratio of part-time to full-time employees can cushion the increase in personnel costs.

(3) Technological automation brings long-term improvement in human efficiency. In 2019, Jingdong logistics delivery efficiency/year was about 21,000 orders, which changed little compared with the previous two years; Jingdong has begun to vigorously layout unmanned logistics facilities, warehouse automation facilities have been applied in most central warehouses in the country, the automation level of Shanghai Yayi warehouse has reached 90%, Shanghai Yayi warehouse can process more than 1.3 million orders per day in the peak season, Jingdong Logistics all Yayi single warehouse orders per day processing capacity of more than 100,000 orders. Guangzhou, Wuhan, Kunshan and other high automation warehouse daily processing capacity of millions of orders. With the landing of unmanned distribution facilities in the future and the development of personal express business, the reduction of distribution costs and the improvement of human efficiency will bring about a pull.