JD.com's leadership change faces obstacles amid the "billion yuan subsidy" plan.

Since returning to the front line of JD.com by the end of 2022, what complex situation is Liu Qiangdong facing?

Revenue growth has slowed down and tended to stagnate. JD.com's revenue in 2022 was 1.0462 trillion yuan, an increase of only 9.9% year-on-year. Meanwhile, ByteDance e-commerce and PDD and other competitors are still growing rapidly. In terms of company management, the PPT reporting culture is prevalent. After three years of the pandemic, JD.com's after-sales service and reputation have been under constant pressure. The progress of Liu Qiangdong's billion-yuan subsidies and the goal of developing the sinking market is also unsatisfactory.

"Liu Qiangdong has always been a hands-on entrepreneur. Returning at this moment shows that he is not satisfied with the current JD.com business." Li Chengdong, the founder of Longbridge Dolphin, analyzed to "Deep Web".

How to break the deadlock? As the true helmsman behind JD.com, Liu Qiangdong urgently needs to unify his thoughts and carry out a thorough business and management innovation.

On the evening of May 11th, JD.com disclosed important information: Xu Lei, the former CEO of JD.com, applied for retirement due to personal reasons. After retirement, he will serve as the first chairman of the JD.com Advisory Committee. Xu Rang, the CFO of JD.com, was promoted to CEO and will report to the JD.com Board of Directors and Chairman Liu Qiangdong.

"Xu Lei's phased tasks have been completed. Announcing his retirement at this moment can also be regarded as a success. Xu Lei's mission is to hold JD.com's basic disk during Liu Qiangdong's retreat and the three years of the pandemic. With the changes in the current internal and external environment, Liu Qiangdong obviously needs pioneers rather than maintainers."

Xu Lei's formal departure marks JD.com's complete farewell to the comfort zone and return to the wolf nature. The extreme financial efficiency brought by the new CEO Xu Rang is largely to raise more food and grass for JD.com's expansion.

In fact, JD.com's net profit in the first quarter of 2023 reached 6.3 billion yuan, a significant increase from a net loss of 3 billion yuan in the same period last year.

Of course, under the background of JD.com's promotion of more sub-businesses to split and independently list, Xu Rang, who comes from a CFO background, also has his own advantages in financial management experience.

The Dilemma of Billion-yuan Subsidies: Huge Expenditures and Limited Cash

JD.com's just-released first-quarter 2023 financial report shows that the prospects of this veteran e-commerce giant are not optimistic.

In 2022, the annual revenue was 1.0462 trillion yuan, an increase of 9.9% year-on-year; GMV was 3.482 trillion yuan, an increase of 5.6% year-on-year. In the previous four years, these two indicators of JD.com have almost maintained a high-speed growth of more than 25% year-on-year.

"In addition, the revenue of home appliances and 3C electronic products, which account for nearly 50% of retail, only increased by 4.7% in 2022, while the growth rate in the previous year was 23%. The situation in the first quarter of 2023 is even more serious, with a slight decline in revenue for 3C electronics and daily necessities." As we all know, 3C products are the foundation of JD.com's retail business. The fact that growth is slowing down in JD.com's main 3C market is undeniable.

In addition to weak revenue growth, JD.com's moat is also constantly being shaken. For old users of e-commerce platforms, it is easy to think of three labels: next-day delivery, JD.com after-sales service, and low prices.

JD.com's once proud next-day delivery logistics has also ushered in the era of next-day delivery group buying and hour delivery, with the core player being Meituan, which has both group buying and supermarket businesses, brand fresh food e-commerce, and ByteDance, which has the advantage of live streaming and is also ambitious about entering the supermarket business.

The problem facing JD.com's next-day delivery is not only the rise of new competitors, but also the decline in reputation. Some old JD.com users complain that they used to buy JD.com's own products, place orders before 11 o'clock, and start processing orders and picking goods in the early morning. Now it's not until 8 o'clock in the morning that they start processing. Can it still be called "next-day delivery"?

JD.com's after-sales service is also facing a decline in reputation. The after-sales service of self-operated stores has become the responsibility of merchants. After many users submit a return application, they often have to appeal to JD.com customer service before the process begins. All of these are changing users' perception of JD.com's after-sales service.

Liu Qiangdong once regarded the sinking market as the breakthrough point for JD.com's future growth.

A person close to JD.com once told Deep Web, "In the past few years when he retreated behind the scenes, Liu Qiangdong has always attached great importance to the sinking market. The sinking market is to the new version of Liu Qiangdong what JD.com logistics has been to Liu Qiangdong for the past decade."

36Kr once reported that Xu Lei and Liu Qiangdong disagreed on the sinking market. Xu Lei and JD.com Retail CEO Xin Lijun advocated giving up the sinking market and focusing on serving users of same-city retail in first- and second-tier cities, but Liu Qiangdong did not agree.

In September 2019, JD.com renamed its previously launched group buying as Jingxi and entered the sinking market. On December 11, 2020, JD.com established the "Jingxi Business Group". It is understood that the head of this business group, Han Rui, will report to Liu Qiangdong, and previously reported to Xu Lei. Jingxi's attempt in the sinking market ended in failure, and JD.com disbanded the Jingxi Business Group in June 2022.

After Liu Qiangdong's return, the first card he played was "low prices." "This time, the billion-yuan subsidy has a first-level entrance for a channel, covering all categories of products, and both self-operated and POP (Platform Open Plan, specifically referring to third-party merchants) merchants can participate." A JD.com insider told Deep Web. In addition, in January, JD.com lowered the threshold for merchants to join.

On March 8th, JD.com's billion-yuan subsidy went online. It is understood that JD.com's "billion-yuan subsidy" project is led by Xin Lijun and has no budget limit. However, at the time, CFO Xu Ran said, "There is no plan to significantly increase this year's marketing budget within JD.com."

Obviously, this project is directly targeting PDD. Not only PDD, but also these newcomers such as Douyin and fast e-commerce are creating a "low-price mentality" and are also sharing the cake of old e-commerce companies. Since 2018, PDD's Apple and other digital devices have gained a foothold in the hearts of consumers with billions of subsidies, which is the main battlefield of JD.com, which is known for 3C digital products. Although JD.com has followed suit, the effect is not obvious.

For JD.com, the biggest challenge of billions of subsidies is funding.

The financial report shows that JD.com had a cash balance of 80.7 billion yuan as of the first quarter of this year, while the operating cash flow in the first quarter was negative 21.6 billion yuan.

As of the end of 2022, the total number of employees in the JD.com system exceeded 550,000, an increase of 290,000 employees in the past three years. Liu Qiangdong, who regards employees as brothers, has long invested heavily in employee benefits. In addition, JD.com needs to leave enough funds to ensure supplier procurement and various business investments.

In addition to funding problems, JD.com's model is mainly self-operated. If subsidies are given to self-operated channels, it is equivalent to left-handedness. The major brand partners that JD.com cooperates with want to control prices and pricing power, and prices are also difficult to break through. These are the challenges that JD.com needs to solve in the future to implement the billions of subsidies plan.

Why did Xu Ran take over Xu Lei?

Xu Lei, the "big courtyard child, tattooed man" recommended by JD.com's early investor Xu Xin, entered the public eye when he served as the interim CEO of JD.com Mall in July 2018. The media labeled Xu Lei as the "second in command" of JD.com.

Xu Lei joined JD.com in 2009; from 2011 to 2013, Xu Lei left JD.com; in February 2013, Xu Lei returned to JD.com Mall as senior vice president; at the end of 2014, Xu Lei also served as the head of the wireless business department. In April 2017, Xu Lei was appointed as the CMO (Chief Marketing Officer) of JD.com Group, and he created 618 and led JD.com to complete the migration to the mobile end.

At the end of 2018, JD.com carried out a new round of organizational structure adjustments. This adjustment is called the largest organizational structure change in JD.com's history: JD.com Mall is divided into front, middle, and back offices; a new platform operation business department and a group buying business department are established, and the fresh business department is integrated into 7 Fresh. The three major business groups within JD.com report to Xu Lei instead of Liu Qiangdong.

For Xu Lei, this is not the best time to take over JD.com. In January 2019, Temasek cleared its holdings of JD.com stocks. In the past year, JD.com's stock price has fallen from over $50 to less than $20, a drop of more than 60%; revenue growth has continued to decline for six consecutive quarters, and cash flow data and user reputation have also declined.

Xu Lei led JD.com to turn the tide. At the end of 2019, the secondary market gave a positive answer, and JD.com's stock price returned to $35.23; in 2020, Xu Lei faced more severe challenges, with the dual pressure of domestic and foreign epidemics, 618, Double Eleven sales, and the start of the listing process of JD Digits. Logistics maintains a profitable balance; JD Health has been bullish since its listing.

In September 2021, Xu Lei took over as the president of JD.com, which was not surprising in the industry. In April 2022, Xu Lei took over as the CEO of JD.com, responsible for daily operations management, which means that he has successfully completed the role transformation as the leader of JD.com's daily management. However, even after Xu Lei became the CEO of JD.com, he still reported to Liu Qiangdong.

In the early years of JD.com's founding, Liu Qiangdong would generally cross the desert once every two months. Throughout the entire process of crossing the desert, Liu Qiangdong convinced himself not to give up. "If you don't drive and hand the steering wheel to someone else, you've actually given up," Liu Qiangdong once told the author of "Deep Web". "If I can't control this company, I'd rather sell it."

Whether Xu Lei retires or Xu Ran takes over, the steering wheel of JD.com has always been in Liu Qiangdong's control. According to documents submitted by JD.com to the Hong Kong Stock Exchange last year, Liu Qiangdong holds 434.5 million ordinary shares, accounting for 13.9% of the shares and 76.9% of the total voting rights.

In recent years, JD.com has formed a collective decision-making mechanism of SEC+SDC: SEC is a strategic execution committee composed of responsible persons of various business sectors and functional systems; SDC is a strategic decision-making committee composed of responsible persons of the group's front-line business departments. "After stepping down as CEO, Liu Qiangdong will still participate in JD.com's monthly SEC and SDC meetings," said a person close to JD.com's senior management.

Liu Qiangdong has been behind the scenes for the past few years, while Xu Lei has held onto JD.com's basic business. From 2019 to 2021, JD.com's net revenue growth rate has continued to maintain above 26% year-on-year. For Liu Qiangdong, perhaps it is not enough. In 2022, JD.com's active user growth rate dropped to 9.2% year-on-year-after more than two years of high-speed growth, it fell back to the growth rate range of less than 10%.

Xu Lei's retirement was not entirely unexpected. Clues can be seen in Liu Qiangdong's three-hour internal training speech on November 20, 2022. Liu Qiangdong first criticized the JD.com management team for being arrogant and complacent in an email, and JD.com retail lost its business culture. Then he angrily rebuked the management team's bureaucratic style at the management conference.

"Liu Qiangdong has his own ideas about the business, and Xu Lei must have his own ideas too. The two people's ideas may not be consistent, which also indirectly confirms Liu Qiangdong's strong return," Li Chengdong told "Deep Web".

In JD.com's financial report conference call in November last year, Xu Lei pointed out that the four major retail strategies, including supply chain platform capability improvement, sinking market, open ecology, and same-city retail, will not change in the future. And at the JD.com Retail Commendation Conference on March 7, Xin Lijun proposed the four must-win battles of JD.com Retail 2023-sinking market, supply chain platform construction, open ecology construction, and same-city business.

Obviously, the position of the sinking market in JD.com's strategy has been elevated.

In order to win the sinking market battle, CFO Xu Ran is a good choice. Her expertise can help JD.com improve its financial efficiency and raise funds.

Xu Ran graduated from Peking University with dual degrees in science and economics. She has worked at PwC for nearly 20 years and became a reviewing partner of PwC Zhongtian Accounting Firm (special general partnership).

Public information shows that Xu Ran joined JD.com in July 2018 as the Vice President of Finance and was promoted to Senior Vice President in January 2020, while also serving as the CFO of JD.com Retail. In June 2020, former CFO of JD Group, Huang Xuande, announced his retirement on September 16 of the same year, and Xu Ran took over as JD's CFO.

During his tenure as CFO of JD Group, Xu Ran and his team completed the mergers and acquisitions of listed companies such as Dada, Deppon, and China Logistics Real Estate, the business restructuring of JD Technology, further improved the strategic layout of JD Group's business, and promoted the secondary listing of JD Group in Hong Kong. JD Health, JD Logistics, and JD Warehousing Facilities were also spun off and listed.

Huawei's Ren Zhengfei once said that a competent CFO should be able to take over as CEO at any time. Xu Ran, who rose from CFO to CEO, is not the first. Jack Ma has promoted and trained several CEOs who were former CFOs, such as Wei Zhe, Zhang Yong, and Jing Xian Dong. Sina's current chairman and CEO, Cao Guowei, is also a former Sina CFO.

"Changing personnel in large companies is normal. Those who don't change are definitely lacking in vitality. We need people who can fight and dare to take action," said Li Chengdong. Xu Ran's first public appearance was at the listing of JD Group on the Hong Kong Stock Exchange in 2020. The core management team of JD Group appeared collectively, and Xu Ran stood next to Xu Lei in the C position.

According to a late report, Liu Qiangdong has positioned "low-price strategy" as the most important strategy for JD Retail in the next three years. Implementing the low-price strategy, Liu Qiangdong is pushing for billions of subsidies.

"The current news is that subsidies have been given for more than a month, and the corresponding GMV target has not been determined internally." said an insider at JD. As for the effectiveness of the billions of subsidies, it still depends on JD's determination to invest.

"'Low price' is a defensive measure for Liu Qiangdong's return. In the past, 'low price' was Liu Qiangdong's offensive weapon." said an e-commerce insider to Deep Web. Relying on "low price," JD first defeated Dangdang, and then defeated SUNING.COM. Liu Qiangdong emphasized low prices in response to the fact that JD's growth rate has declined in the past two years, while PDD and ByteDance's e-commerce have achieved huge growth in the past two years by relying on low prices.

PDD's revenue from 2020 to 2022 increased from 59.492 billion yuan to 1305.58 billion yuan, with growth rates of 97.37%, 57.92%, and 38.97%, respectively. ByteDance's GMV increased from 5000 billion yuan in 2020 to over 1.5 trillion yuan in 2022, which is three times that of 2020.

JD Group's revenue from 2020 to 2022 increased from 745.802 billion yuan to 1046.236 billion yuan, with growth rates of 29.28%, 27.59%, and 9.95% (only 1.4% in the first quarter of this year), far lower than PDD and ByteDance's e-commerce.

Liu Qiangdong feels the danger. During last year's Double 11, Liu Qiangdong pointed out in an internal letter, "Low price is the most important weapon for past success, and it is also a basic weapon... With the success of our 3C home appliance business, many brothers have become arrogant and complacent, thinking that they have mastered pricing power and no longer pay attention to our low-price advantage. If this continues, we will sooner or later become the second SUNING.COM!" In addition, JD.com has the same traffic anxiety as Alibaba. At the end of last year's meeting, Liu Qiangdong was dissatisfied with the executives "constantly complaining to me about traffic." JD.com not only has an entrance in WeChat, but also reached a cooperation with ByteDance in the middle of 2019 and with Kuaishou in May 2020. These actions can increase traffic, but cannot solve the growth problem.

Xu Ran, who was suddenly pushed to the CEO position, faces the first challenge of how to win this year's 618 campaign and how to implement Liu Qiangdong's ultimate cost-effective strategy to bring JD.com's main business back to the growth track.