JD.com is making waves again. First, JD Retail underwent its largest organizational change in five years, fully integrating POP and self-operated businesses. Then, at the end of June, it established the Innovative Retail Department, which absorbed JD Pinpin and 7Fresh. Recently, there have been market rumors that JD.com is in talks to acquire Yonghui. On August 1, according to Snow Leopard Finance, JD.com has been in contact with Yonghui regarding an acquisition, with at least one round of preliminary communication, but no agreement has been reached yet. The divergence arises because JD.com is acting assertively, aiming to gain control of Yonghui and fully integrate its thousands of offline stores and fresh food supply chain into JD's system. However, Yonghui's founder and chairman, Zhang Xuansong, prefers to accept financial investment from JD.com to maintain the company's independent operation. A few days later, JD.com responded, "We currently have no such intention." Yonghui Superstores also stated that there is no such acquisition. Despite both parties denying it, this matter is not baseless. Yonghui Superstores was established in 2001 and was among the first circulation enterprises in China to introduce fresh agricultural products into modern supermarkets. Later, in 2015, JD.com acquired a 10% stake in Yonghui and strengthened cooperation in supply chain management, O2O, and other areas. The negotiation to acquire Yonghui Superstores may be a small ripple in JD.com's restart of its new retail strategy. Recently, JD.com has been active in its front warehouse, 7Fresh, and JD Pinpin businesses, involving layouts in fresh food e-commerce, community group buying, and offline supermarkets. JD.com's bet on offline channels is closely related to its strategy to accelerate growth in 2023. Over the past few years, JD.com has insufficiently explored incremental space, with user and performance growth slowing, and its influence in the e-commerce market weakening, while other giants continue to erode its market share. All of JD.com's tactics revolve around a familiar aspiration: to create another JD.com offline. JD.com Rushes Offline Again After Liu Qiangdong returned to the front line as the helm, he has been active. Under his guidance, the Innovative Retail Department was established, integrating front warehouses, fresh food supermarket 7Fresh, and community group buying business Jingxi Pinpin, managed by Yan Xiaobing, a JD veteran who returned two months ago. According to LatePost, the Innovative Retail Department is at the same level as JD Retail, both reporting to JD Group's new CEO Xu Ran. Since its establishment over a month ago, the Innovative Retail Department has undergone frequent adjustments. The earliest news was about the front warehouse project. JD.com set up two new self-operated front warehouses in Beijing and has started operations, with six more to be put into operation. JD's front warehouses adopt a self-operated model, relying on JD's main site and hourly delivery e-commerce traffic, located in residential areas with high foot traffic, covering a radius of 5 kilometers. Unlike front warehouse platforms like Dingdong Maicai and Meituan Maicai, JD's front warehouses aggregate some categories from the main site, requiring users to "group orders" and then deliver in waves, with a delivery time of two hours, more like improving the efficiency of main site e-commerce fulfillment. Besides front warehouses, JD's other major fresh food e-commerce business, 7Fresh, also has new developments. Previously, JD stated in its financial report that 7Fresh is conducting supply chain tests, and once verified, it can expand scale and even business scope. In the past two months, 7Fresh has resumed expanding its stores. On June 9, it entered Beijing You'anmen Wangfujing Shopping Center, which is also the 31st store in North China; in early August, it entered Tianjin Jinyu Jiaping Mall; by the end of this year, a store at Beijing CapitalMALL·Grand Canyon will officially open. Additionally, in early June, there were reports that JD.com was recruiting operational talent for 7Fresh to improve operational capabilities. 7Fresh benchmarks against Hema, launched in January 2018 with its first store, but has since expanded slowly, and even experienced strategic contraction at the end of 2022, retaining only key areas in Beijing-Tianjin-Hebei and the Greater Bay Area, reducing the total number of stores to 42. The Jingxi Pinpin business, which also experienced contraction and decline, has recently undergone adjustments, rebranding and renaming to "JD Pinpin," re-entering the community group buying track. At the end of last year, the Jingxi business was merged with JD Express Edition. Overall, the Innovative Business Department aims to revive new business formats, solve replication and expansion issues, and let new businesses break through. At the same time, the integration of online and offline and the expansion of sinking channels are also essential. All this is also an important point for JD.com to grab market share and make up for limited online incremental space. Can Heavy Investment in Offline Solve JD's Problems? Over the past year, JD.com has faced unprecedented growth pressure, with revenue and GMV growth slowing significantly, with year-on-year percentages dropping to single digits. Similarly, JD's stock price is at historically low levels. According to its latest financial report, Q1 2023 revenue was 243 billion RMB, a year-on-year increase of only 1.37%. By business segment, JD Retail's revenue decreased 2% year-on-year to 212.4 billion RMB; new business segments such as Jingxi, JD Property, and JD International saw revenue of 3.5 billion RMB, down 40% year-on-year. Establishing the Innovative Retail Department and frequently deploying offline are important pieces of JD's puzzle to find new growth points. JD is focusing on online-offline integration, supply chain integration, connecting online platforms and offline stores, and then data connectivity. The front warehouse is a typical example, improving fulfillment efficiency and user experience online while perfecting offline scenarios to gain more orders. Essentially, JD is a supply chain-driven company, and the best way to expand scale is to continue leveraging its strengths. The supply chain built with heavy investment over the years can be utilized in new business formats, attracting consumers while reducing operating costs. In March this year, JD Retail CEO Xin Lijun identified the four must-win battles for JD Retail in 2023: sinking markets, supply chain middle platform construction, open ecosystem construction, and same-city business. The sinking market, placed first, is also to be achieved through offline stores. The growth of JD's overall market is largely influenced by the growth of sinking market users, but platforms like Pinduoduo and Taobao have a greater influence on the low-price market, making it difficult for JD to acquire core users. To this end, JD has made several model innovations in the past few years, with Jingxi Pinpin being a representative. This product, focusing on high quality and low price, can meet the needs of 700 million sinking market users and carries JD's determination to reach a broader incremental user base in the sinking market. By integrating offline channels, JD can also expand into new categories, further achieving scale improvement and strengthening consumer stickiness. JD's user growth has long been bottlenecked. Since the 2022 financial report, it has stopped disclosing annual active user data, but according to QuestMobile data, in terms of daily and monthly active user ratios, Pinduoduo and Taobao rank top two, with ratios above 60% and 40% respectively, while JD is only around 26%, indicating low user stickiness. JD's traditionally advantageous 3C home appliance category is being eroded by Pinduoduo. Now, the boundary between e-commerce and local life services is blurring, and players like Meituan and Douyin are also eroding traditional e-commerce share, especially with next-day delivery, weakening the advantage brought by JD Logistics. Offline channels allow JD to broaden incremental space based on its basic market. In recent years, its business has gradually expanded from 3C home appliances to apparel, catering, FMCG, and other categories, and new business formats are meeting more diverse rigid demands in instant retail areas such as supermarkets, fresh food, and medicine. For example, in JD's home appliance and home furnishing business, the offline format JD Super Experience Store has 3C home appliances accounting for only one-fifth, with more space given to home furnishing, sports, and mother and baby products. Not only JD, but the entire e-commerce industry has seen competition around offline retail become the norm. Alibaba restarted acquisitions of offline retail businesses like Intime and RT-Mart, and recently restarted Hema's store expansion and capital investment; Pinduoduo's community group buying platform Kuaituantuan started merchant recruitment early this year; in March this year, Douyin quietly launched an online supermarket business, mainly selling fresh food and daily necessities. "Offline" will become a driving force for JD's growth, but it also means facing more direct competition with more players and breaking through constraints such as weak consumption and reduced purchase intention. New Business Expansion and Profit Pursuit in Parallel JD Faces Significant Pressure Whether it's building online-offline supply chains or expanding categories comprehensively, JD still needs to burn cash, but it also needs to consider how to spend money more efficiently to optimize performance. In the process of expanding categories in JD's home appliance and home furnishing business, the self-operated model's shorter chain can solve the problem of multiple layers of price increases in offline channels, but due to China's complex geographical and administrative levels, building a top-down self-operated channel is still quite costly. Currently, JD's home appliance specialty stores have reached 17,000, covering 25,000 towns and 600,000 administrative villages, with a significant proportion of self-operated models. As of the end of 2022, JD Logistics had 290,000 self-operated delivery personnel. In 2022, JD Logistics' operating costs reached 127.3 billion RMB, a year-on-year increase of 28.7%. Self-built supply chain still brings significant cost pressure to JD. The same applies to offline retail businesses, such as front warehouses, which mainly sell some products from JD's main site, but delivery speed needs to be faster. To achieve the same half-hour delivery as peers, cost increases would be quite significant. According to Huxiu, in an internal meeting, Liu Qiangdong gathered executives and severely criticized the overall organizational efficiency and the group's strategic focus. He believed that JD should focus on cost, efficiency, and experience, and re-adopt a low-price strategy to return to users. That is, JD must both compete with low prices and maintain a high-quality image. It must pursue maximum efficiency while considering costs and not sacrificing profits. JD's cost reduction and efficiency improvement have been ongoing, with marketing management expenses and R&D expenses continuing to decline, temporarily solving the long-standing problem of thin profits. According to financial data, JD's full-year revenue in 2022 was 1,046.2 billion RMB, an increase of 9.9% from 2021; operating profit was 19.7 billion RMB, compared to 4.1 billion in 2021. However, JD's increased focus on offline, with growth as the primary goal, will still conflict with profit improvement in the short term due to strategic investment and business growth. Looking back at 2021 when JD vigorously promoted new business formats like Jingxi Pinpin, the new business segment overall lost more than 10 billion RMB. At the same time, strategically, JD also needs to invest heavily in the 100 billion subsidy. Any link in "more, faster, better, and cheaper" will affect JD's growth trend. To solve this core contradiction, JD has made efforts in organizational structure, supply chain operations, and other areas. After JD Retail launched the procurement and sales unit organizational reform, in mid-April, JD Logistics also abolished the original seven regional divisions, making provinces specific operating units, requiring faster organizational efficiency. At the same time, JD is also improving supply chain intelligence and automation to improve inventory turnover and fulfillment expense ratio. JD's strategic focus on new retail and key investment in the Innovative Retail Department are also based on business contraction. Previously, trial projects in social e-commerce and live streaming e-commerce have not yet reached a rapid development stage and are no longer seen as ways to expand revenue. Of course, whether JD can finally eat the tempting cake of new retail still depends on its internal cultivation.