JD: Also doing platforms and live streaming.

1. Management Remarks

In our Double 11 promotion, we saw strong performance with double-digit growth in orders. In the third quarter, we improved logistics and expanded free delivery coverage for users. We lowered the minimum order value for free delivery from 99 yuan to 59 yuan for all users, and provided unlimited free delivery of 1P products for JD Plus members. At the same time, JD customers will continue to enjoy our premium 211 express delivery service.

During the Double 11 promotion, the JD Live programs hosted by our own procurement managers were well-received by users and brand merchants. The uniqueness of JD Live lies in the fact that the procurement managers are experts in the products and do not charge any additional commission fees.

The live programs hosted by our procurement managers attracted over 380 million viewers during the promotion period. We expanded the coverage of our industry-leading "Lightning Refund" and "One-click Price Protection" services to strengthen after-sales customer service.

We have seen an accelerated growth in the frequency of user orders in the third quarter compared to the past six quarters. In addition to recent efforts to improve user experience, this year we have been highly focused on investing in long-term key capabilities to drive sustainable growth, namely building a differentiated platform ecosystem and implementing the EDLP strategy.

Our platform ecosystem enables our 1P and 3P businesses to grow in a complementary and sustainable manner, and better serve customers together.

In terms of 1P, JD's leading supply chain capabilities and scale advantage provide users with high-quality, competitive products and a superior customer experience. Our 3P marketplace gives us the opportunity to expand into new product categories where it is difficult to achieve the same level of efficiency under the 1P model. Facing rapidly changing consumer demands and increased price sensitivity, the 3P marketplace allows us to efficiently provide customers with diversified choices.

Users can choose to use either 1P or 3P. We will not promote the development of 3P at the expense of harming the 1P business. We are encouraged by the continued rapid growth of active 3P merchants, 3P orders, and active users purchasing from our 3P merchants in the third quarter. Although monetization of 3P is not our focus in the short term, we are pleased to see continued double-digit growth in 3P advertising revenue.

EDLP: Everyday Low Price refers to improving our price competitiveness in different product categories, especially branded products, and expanding the range of private label products to cover a wider price range, thus making up for past shortcomings.

The need to improve price competitiveness is one of the most important value propositions of our retail business and a key pillar of the JD customer-centric philosophy. Our focus on price competitiveness drives us to continuously strengthen our 1P supply chain capabilities and improve efficiency. The key part of the low-price strategy is focused on the 1P retail business, especially brand products. In order to supplement this, in the 3P aspect, our goal is to attract merchants who provide a diverse range of product choices, covering a wider price range. Based on the positive traffic feedback mechanism we are building, merchants will be rewarded for offering low-priced, high-quality choices, and good service to our customers.

In addition, we continue to enrich the value of the 3P product selection in our billion subsidy program. In Q3, we saw the contribution of 3P GMV to this program increase to over 50%. Finally, how do we track and measure our progress in low-price or EDLP construction? We examine the trends of key customer indicators, including customer NPS and engagement, although structural changes in NPS may take longer to form.

Q&A

Q: 1) Regarding the 3P strategy, what is the strategic plan for the number of merchants and categories in 2024? What is the future outlook for 3P GMV? 2) What is the reason behind Sandy's appointment as CEO of JD Retail?

A: 1) The platform ecosystem has always been a key investment direction and we continue to improve the distinctive platform construction of JD. We are also continuously improving the platform ecosystem of JD, enabling JD's value proposition to be realized and becoming a unified business concept that both 1P and 3P merchants can follow. At the same time, we are also continuously improving the infrastructure and tools of the platform, ensuring that 1P and 3P merchants can obtain sufficient resources, fair competition, and common development on the platform, ultimately providing a better experience for JD's users.

Since the beginning of this year, we have focused on simplifying the process of merchant onboarding and increasing support for new merchants, especially small and medium-sized merchants. We have established clearer rules and provided more operational tools, which have led to the highest number of merchants joining the JD platform and the highest number of active merchants in the third quarter in history. The number of merchants in the categories of supermarkets, fashion, and home products has accelerated.

Although we are still in the investment stage in terms of merchant support, monetization of 3P merchants is not our top priority in the short term. However, we have seen continued double-digit growth in advertising revenue from 3P, thanks to the participation of a large number of new merchants and their increasing enthusiasm. From the perspective of users, we have also observed positive feedback, with the penetration rate of users transacting with 3P merchants continuing to increase YoY, and the corresponding order volume achieving healthy YoY growth.

The platform ecosystem has been our long-term investment direction in the past two to three years, and we will continue to deepen in this direction and build JD's unique platform ecosystem. Currently, I believe there is still a lot of room for improvement in our data analysis tools and governance rules. In the upcoming work, we will continue to strive in this direction, creating clear growth paths and a fair business ecosystem for merchants, and promoting the common prosperity and development of the self-operated and POP ecosystems. In the long run, I expect the proportion of 3P orders and GMV to exceed that of self-operated businesses, but of course, this will take time. Our core goal is to meet the diverse needs of different users through a rich supply of products and continuously improve the user experience. This will also be one of the important drivers for long-term revenue and profit growth.

Today we announced that Mr. Xin will step down from his position as CEO of the retail business and there will be other appointments within the group. The retail business is JD.com's core business with the highest revenue contribution, and it also serves as the foundation for JD.com's other diversified businesses. Going forward, I will continue to work towards the implementation of a cost-efficient and experiential retail strategy, and promote synergy between the retail business and other business segments within the group. The overall retail strategy has been jointly formulated at the group level, and I am also involved in the promotion and implementation of important strategic projects on a regular basis, so there will not be major changes in the direction of the overall retail strategy.

Q: What has been the growth of B2C GMV since the strategic business KPIs and team adjustments? How is the sales performance of 3P? What are the basic assumptions for macro consumption in 2024? What is the strategy for maintaining market share in the coming year? How to balance growth and profit?

A: The growth rate of core GMV in the past four quarters has been higher than that of the social retail sector, and in 4Q, it exceeded both the social retail sector and online retail sales, achieving high single-digit growth. In the previous quarter, we shared the rapid growth of registered merchants for 3P, and this quarter also saw rapid growth. At the same time, the growth rate of active merchants in Q2 and Q3 accelerated, and the number of users purchasing POP in the past two quarters has also been higher than the overall transactional user base. We believe that the progress of the open platform is in line with expectations, and we are seeing more active merchants and POP transactional users. However, it takes time to translate this into high growth in 3P orders and GMV. We reiterate our commitment to providing users with more choices and cheaper prices through POP, and pursuing the sustainable and healthy development of the ecosystem. Both 1P and 3P work together to provide users with a better user experience.

In terms of specific categories, in categories with relatively good market positions in the electronics sector, thanks to the supply chain advantages we have accumulated over the years, the continuous strengthening of user mindshare, and the increasing penetration of online e-commerce, we have maintained faster growth than the industry in the first three quarters, continuously gaining market share and stabilizing our foundation. This year, we have focused on investing in core capabilities, and we are confident that we can continue to gain market share next year.

The FMCG category has undergone relatively large business adjustments, including category planning, warehouse and network transformation, and fine-tuned operations for channel adjustments. The strategy is gradually being implemented, and we have seen an improvement in the growth rate of the FMCG category compared to the first half of the year. Next year, it will return to a healthier growth trajectory, and we believe that FMCG will remain JD.com's most important growth driver. Additionally, it is worth emphasizing that FMCG was a beneficiary category under the pandemic control measures last year, so the base is relatively high.

Looking ahead to 2024, the impact of this year's proactive business adjustments will weaken. With the recovery of the economy and consumption, as well as a series of strategy adjustments, algorithm and system optimizations, and the continuous leveraging of our core advantages based on the supply chain, the positive impact of these adjustments will become increasingly evident. With a focus on low prices and platform strategies, we expect to achieve high-quality growth next year. In the process of implementing our strategy, we will balance growth and profitability. The improvement in profitability is based on the enhancement of supply chain efficiency and the optimization of our platform ecosystem. Our long-term goal of increasing profitability remains unchanged.

Q: Regarding competition and profitability, with intensified competition in 2023, how will the competitive landscape change in 2024 and what impact will it have on JD's strategy? Will the focus be on growth or profitability? Considering that structural adjustments will be completed by the end of this year, how much growth can we expect in retail and supermarkets on top of the clean base in 2024? What factors can drive growth to be better or worse than expected?

A: The Chinese e-commerce market has different business models, each with its own characteristics and advantages. JD has always adhered to a model that is based on the supply chain and centered around user experience, building core capabilities around this.

Regarding competition, many peers this year have been focusing on improving user experience, emphasizing low prices, refined operations, and sustainable development strategies, which makes the market appear highly competitive. However, for retailers, competition is always intense; otherwise, there would be a need for anti-monopoly measures. However, we have not seen a significant impact on our profitability due to competition. This is also related to the way each company's strategy is implemented and its own business model. We do not pay too much attention to what our competitors are doing. We believe that the core of retail lies in cost efficiency and user experience. Our goal is to continuously improve supply chain efficiency and reduce costs through technology and scale, and share the profit space generated by efficiency improvements with our partners and users. Any excess profit is used to enhance the user experience.

In our view, this is a positive cycle. When the user experience is good, it attracts more users and natural traffic, resulting in more sales, gross profit, and profit. We can take a portion of the additional profit and continue to improve the user experience. We will continue to adhere to our long-term strategy and have confidence in creating a virtuous cycle and gaining market share. From our own KPI perspective, we will seek a balance, with differences in pursuit of growth, profitability, and cash flow for different categories and businesses. We aim for sustainable and healthy growth in the long term.

The major structural adjustments have been made this year, including strengthening user experience, low prices, and platform ecosystem. The improvement in health will be reflected in this year's data. Our growth targets for next year and the medium to long term have not changed. We expect retail to return to normal growth in 2024 and have confidence in achieving a growth rate higher than that of the social retail industry. Due to JD's large scale, our growth is also highly correlated with the macro environment and the retail industry. Our goal is to achieve higher growth than the industry and continue to gain market share.

Overall, although supermarkets face challenges such as business adjustments, the recovery of offline consumption after the pandemic, and the high base from last year, we believe that the effects of business adjustments will gradually manifest. We still believe that supermarkets are one of the most important growth drivers for JD.

Q: In an uncertain overall environment, how have user behaviors and category performance changed? Has there been any change in our operational strategy? JD's strategy emphasizes low prices, but with the slowdown in consumption and intensified competition in the overall environment, our profitability remains stable. Can you share the performance of Double 11 and our future investment efforts? How do we balance revenue and profitability going forward? Has there been any change in the medium-term profitability target?

A: We have observed that consumer decision-making has become more rational, with a higher focus on price and quality. On one hand, we are reducing procurement and operational costs by improving supply chain efficiency, and on the other hand, we are enhancing the richness of our platform ecosystem to improve our price competitiveness and meet user demands, thereby enhancing the user experience. From our own data, we can see that the frequency of retail user shopping continues to grow, with a growth rate faster than that of ARPU. With more and more third-party merchants being introduced and self-operated businesses lowering the free shipping threshold, we have seen a rapid increase in the volume of low-value orders, surpassing the overall order growth rate. At the same time, the purchasing power of core users in first and second-tier cities remains strong, with plus members maintaining double-digit growth and annual consumption amount remaining robust.

Although users are price-sensitive, their expectations for service have not decreased. They still require quality and service support. This year, we have optimized internal operational efficiency, procurement costs, and enriched product selection to ensure competitive pricing. We have also focused on providing excellent user experiences in areas such as installation and after-sales service. Our long-term commitment is to pursue the ultimate user experience and maintain JD.com's core competitive advantage.

Regarding the balance between revenue growth and profit, first of all, in the long run, there is no need for a balance. With revenue growth, there will naturally be an increase in gross profit and profit, forming a positive cycle. However, in the short term, a balance is needed. It is a tactical choice whether to invest more in marketing and user acquisition. The long-term goal of pursuing higher profit amount and profit margin remains unchanged. JD.com does not pursue excessively high monetization or profit margins, but rather aims for a reasonable profit margin as a retailer.