Behind the profit counterattack of home appliance industry: a "two-way trip" with new entity enterprises
In the past year, the industrial industry was once under the pressure of increasing income but not increasing profit, which was squeezed by the increase in cost and the contraction in demand. According to the data of the National Bureau of Statistics, in 2022, the national industrial added value increased by 3.6% year-on-year, the operating income increased by 5.9% year-on-year, but the profit decreased by 4% year-on-year. However, the home appliance industry is like a dark horse. Under the joint action of a series of measures such as accelerating the layout of online channels and accelerating the pace of mid-to high-end transformation, the total profit of China's home appliance industry in 2022 was 141.8 billion yuan, a year-on-year increase of 19.9%.
Academics and people in the industry generally believe that in the past decade, the home appliance industry has moved from an incremental market with "new demand" to a stock market with "upgrading", while the new entity enterprises represented by JD.COM have continuously promoted the profitability of home appliance enterprises through flat hierarchy and extremely high operational efficiency, and activated the sinking market potential through infrastructure sinking and experience innovation, and promoted the development of trend categories and new products, which has opened up growth points for the home appliance industry in the stock market and contributed to the high-quality growth of the industry.
Channel online
Reducing cost and improving efficiency, making profits for entity manufacturing
Looking back ten years ago, the main channel of home appliance industry was dominated by offline chain enterprises, relying on the traditional offline business model. The application of digital technology was in the primary stage, and the game relationship between channels and manufacturers was maintained. The contradiction between retail and supply was prominent, and the channel efficiency was not high, which also increased the cost of enterprises.
Looking at the historical data, the inventory turnover days of offline home appliance industry reached 87 days in 2006, and the upstream account period was as high as 180 days. This means that in the offline home appliance industry, the whole inventory can only be turned over at most 4.4 times a year. In contrast, at that time, the channel net profit rate was as high as 6% or more, while the enterprise was less than 1%.
"In fact, in the past decade or so, most of the energy of China home appliance enterprises has not been doing the things of manufacturers, but doing the things of distributors." Zhang Shaoyong, vice president of TCL Industry and CEO of TCL Electronics, pointed out that during the period from 2003 to 2015, which can be called the era of "channel is king", the competition focus of enterprises was how to build more efficient sales channels, but the ability to optimize product structure was also limited. It was not until 2015 that the rise of online channels, represented by JD.COM, liberated manufacturers' energy in channels, and the industry finally returned to the era of "products are king".
A few days ago, the "White Paper on Helping the High-quality Development of Home Appliances Industry in JD.COM" (hereinafter referred to as "White Paper") issued by China Household Electrical Appliances Association also showed that the home appliance market was dominated by offline channels ten years ago, and the expense ratio of channels was above 15%; Since then, the proportion of online sales has gradually increased, and the flat level and high operational efficiency of e-commerce have made its price increase rate significantly lower than that of traditional channels under the same ROE (return on net assets), which has brought down the cost of the industrial chain.
Among them, JD.COM has built a digital and intelligent social supply chain through solid infrastructure and technological innovation. While continuously reducing channel costs and improving channel efficiency, it insists on leaving more profits to upstream home appliance enterprises.
This is also the realistic projection of JD.COM's "35%" concept, that is, if there is a chance to earn a dollar, JD.COM only takes 70% of it and leaves it to his partners. Of the 70 cents, 35 cents is reserved for employee benefits and year-end awards, and the remaining 35 cents is reserved for the future development of the enterprise.
As early as 2013, on the basis that the overall channel cost is lower than that of physical stores, JD.COM Household Appliances made a commitment not to increase the cooperation point for three years, which fully demonstrated the reasonable profit distribution of the industrial chain and the concept of symbiosis and common development between JD.COM and the industry. It is also from 2013 that the profit margins of major home appliance manufacturers have obviously increased, with the highest gross profit margin exceeding 35% and the net profit margin rising from 7% to around 15%.
According to industry estimates, the comprehensive fees charged by JD.COM from suppliers for ice washing, kitchen and bathroom, air conditioning, black electricity and other household appliances are about 50% of those of offline chain channels, and the overall costs of JD.COM are greatly reduced compared with offline channels, including comprehensive contract points, promotion costs, personnel costs and logistics costs.
"A reasonable industrial chain should not occupy a great part of the profits in this industrial chain by any link, but let the profits be distributed more reasonably in every link." The person in charge of JD.COM Institute of Consumption and Industrial Development emphasized that the value of "helping the real with the real" of new entity enterprises lies in their efforts to optimize the distribution of industrial profits, so that the upstream manufacturing enterprises can keep enough profits and achieve high-quality development, and at the same time, consumers can enjoy real benefits, thus helping the healthy development of industrial ecology.
Deep subsidence
Optimizing Services and Mining Incremental New Space
In fact, the role of mature and efficient supply chain in JD.COM is not only to help home appliance enterprises reduce costs, but also to promote the further sinking of home appliance products.
Under the background of promoting sustainable development and helping to expand domestic demand, a new round of home appliances going to the countryside is being promoted in an orderly manner. This year's No.1 Document of the Central Committee not only calls for comprehensively promoting the construction of county-level commercial system, accelerating the improvement of county-level rural e-commerce and express logistics distribution system, but also once again mentions encouraging green smart home appliances to go to the countryside.
The industry has also predicted that the third golden decade in China's home appliance industry may be opened. Xiao Yi, president of Midea Group's washing machine division, pointed out that at present, the number of households in China is about 490 million, but the mainstream customers in the city are less than 200 million. There are still nearly 300 million potential needs of household users in the vast sinking market, which is also the incremental space that Midea will further break through.
According to the White Paper, in the past five years, despite the pressure on the growth of the overall home appliance market, JD.COM's home appliance consumption (transaction amount) in the 3-6 line market has increased by 250%, which is much higher than the overall increase. In 2022, the proportion of home appliance buyers from the 3-6 line market in JD.COM has reached as high as 65%, so manufacturers should be helped to reach the bottom and expand the market as soon as possible.
At present, through efficient infrastructure layout, JD.COM is making every effort to narrow the service difference enjoyed by consumers in remote areas and developed areas. Among them, the large-scale logistics network built since 2010 aims to provide consumers with the best integrated service of distribution, installation and after-sales of large-scale goods. By December 31, 2022, the number of warehouses operated by Jingdong Logistics exceeded 1,500, and more of the purchased goods were delivered to the sinking market, which was convenient for consumers and expanded the market increment.
"We have opened 16,000 home appliance stores in Wanxiang and Wanzhen, China. By the end of this year, there will be 20,000 home appliance stores all over the sinking market of the fourth to sixth lines." The person in charge of JD.COM Household Appliances Division said that in 2022, JD.COM Household Appliances Store will cross the border to build JD.COM Household Appliances County Experience Store, JD.COM Household Appliances All-category Store, Smart Kitchen Store and other business stores, and open up a new track to provide new choices of quality consumption with better quality, better price, better experience and better service for the vast county and town markets.
It is worth noting that the small household appliances that were once popular because of the "home economy" have also begun to accelerate the layout of the sinking market. Compared with three years ago, the turnover of household appliances in JD.COM's low-and medium-level market increased by 44% as a whole, and the demand of consumers in the low-and medium-level market gradually shifted from the "old three" to the subdivision of kitchen and bathroom and small appliances with improved demand.
Li Yifeng, founder and chairman of Bear Electric, said that while steadily promoting the development of the primary and secondary markets, he also actively expanded the sinking market, and gradually increased the market exposure of his products in the township-level market by participating in the cooperation of channel sinking projects in JD.COM.
Users are king.
Subdivision of demand gives birth to new categories "blooming everywhere"
Under the stock market, the overall layout of channels has only laid a good foundation. If the household appliance industry wants to seek further incremental space, it must further explore and practice various new technologies, new models and new trends.
Zhang Shaoyong pointed out that the home appliance industry has entered a new era of "users are king" since 2020, and the competitive elements are user stickiness, leading products and efficient operation. This requires brands to truly understand the needs of users and provide products or services that truly meet their needs.
This also coincides with the "first five sections" in JD.COM's "Ten Sugarcane Sections" theory, that is, to create products that better understand consumers in the creative, design, research and development, manufacturing and pricing links of the value chain. Through accurate insight into consumer demand, JD.COM will join hands with home appliance enterprises to improve the research and development efficiency of new products and realize "new products are explosive products".
"Although the consumer market has undergone tremendous changes, the core logic of providing users with products that are most suitable for them has not changed." The person in charge of JD.COM Household Appliances Division pointed out that JD.COM joins hands with major brands to create tens of thousands of C2M products to be listed every year. Based on JD.COM's high-quality resources, we will help brand manufacturers to create new and explosive products efficiently under the new situation, and help partners to meet challenges and make sustained efforts.
From low-sugar rice cookers to fresh air conditioners, from air fryers to game TVs, a seemingly niche product has repeatedly become popular in JD.COM. Li Yifeng has a deep understanding of this. In the last year or two, the new bright spots in the small household appliances market frequently come from the deep excavation of subdivided demand in the new scene, thus creating a good quality-price ratio that abandons gaudiness and waste and accurately meets the needs of consumers. "In the past, the factory developed a product and then let consumers buy it. Now, before the development, I know who I want to sell it to, what price, function and color I want to develop, and even when the product needs to be delivered and how to promote it."
According to the data of household appliances in JD.COM, in the past five years, the number of such "new categories" has increased from 147 to 211, precisely because these C2M products are empowered through the end-to-end full link, which has created the characteristics of lower research and development costs and higher production efficiency, greatly shortened the incubation period of new products, and at the same time, contributed more profits to single products.
According to Xu Dongsheng, vice-chairman of China Household Electrical Appliances Association, the upgrading trend of household appliances consumption before the epidemic has not changed because of the epidemic. High-end products, emerging categories and new technology products have become the main engines to drive market growth. In the post-epidemic era, China's consumer market presents new trends such as paying attention to health, paying attention to safety, intelligent life, being green and sustainable, and being willing to try new things, which will promote the continuous upgrading of household appliances consumption and services.
The person in charge of JD.COM Household Appliances Division believes that with the improvement of the quality of life, consumers' demand for "home scenes" is more diversified and personalized, and the hard and soft clothes, the purchase of household appliances and home furnishing, which were originally cut out, have been unified. The "home scene consumption" brought by the integration of home appliances and household appliances has become a new trend and challenge that the home appliance industry must face.
Since 2023, JD.COM has been constantly moving around the "home scene", focusing on the four home scenes of living room, bedroom, kitchen and bathroom, opening up the commodity categories of home appliances and homes, and launching seven sets of ultra-low-cost package purchases for smart homes, healthy homes, individualists, healers and caring homes, which not only meet the personalized consumption needs of consumers, but also realize the cross-category scene shopping experience of home appliances. Moreover, we have in-depth communication with dozens of home appliance brands in products, markets, sales, services and other aspects, so that consumers can buy home appliance goods and services with lower prices, higher distribution efficiency and better service.
With the continuous upgrading of domestic consumer demand, the value of JD.COM's new entity enterprises will continue to show. Through the comprehensive optimization of cost, efficiency, products, prices and services, we will work hand in hand with brand manufacturers to activate the sinking market potential, promote the development of trend categories and new products, and open up new growth points for the home appliance industry in the stock market.