Consumer Staples Author: Contributor, Sally Shi, Fuller Wang Jun 17, 2022 09:01 PM (GMT+8)

As created by JD.com, the 618 discount season has attracted the public's huge attention. Medical beauty, home appliances, and food have the highest potential for larger order volume in this discount season. JD.com might be the one who will win the game of 618.

618

Stepping closer to June 18, 2022, the 618 discount season – referred to as 618 for later use - has begun through multiple e-commerce platforms. This year’s 618 has been commented on as the hardest discount season ever. 618 was created to celebrate the anniversary of JD.com (JD: NASDAQ). 618 has been the largest promotion event of JD.com for many years. We believe that JD.com will continue to be the winner of the game this year. 

Why this year’s 618 is the hardest ever?

From our perspective, this year’s 618 became the hardest one mainly due to COVID-19. Broadly speaking, COVID-19 has caused the depression in the macro economy and aggregated inflation globally, and further increased the unemployment rate. In order to maintain the “Dynamic Zero Patient” Policy, China has published several regulations, such as lockdown of high-risk regions, restrictions on outside eating and going out, closure of recreational facilities, permission to work from home, and others. Starting from early 2022, due to the impact of Omicron, China has begun lockdown in several regions, potentially influencing the macro economy of e-commerce and retail market. Especially during the lockdown of Shanghai, most people experienced a decrease in wages or unemployment. Therefore, they have tended to buy less, because they want to save money or reallocate the limited cash for other purposes. As lockdown restricts people’s travel plans, the need for certain products, especially cosmetics, has decreased. Because people no longer have the need to buy them. We believe, rather than spending money on things with less occasion to use, spending on the necessity or something that improves the quality of life has become the trend. In April 2022, the total retail sales of social consumer goods in China were CNY 2948 billion, down 11.1% year-over-year. 

A vast number of similar discount seasons and customers’ self-awareness towards impulsively shopping are also the causes of the most challenging 618 this year. As various similar discount seasons have existed all over the year, such as the Double eleven shopping carnival, and Western and Chinese festivals, people seem to have less passion for placing orders in 618. They could also wait a few more weeks or months for another discount season. The decrease in customers’ needs directly decreases the transactions of 618. In addition, people used to buy too many useless products because of the impulse brought by discounts. We analyze that people have realized the problem of impulsively shopping and learned from the past. As people have become increasingly restrained in buying, the decrease in sales has become apparent. 

Since JD.com’s transformation into an e-commerce business in 2004, with more and more companies participating in this carnival, today’s 618 has become a national discount event, creating enormous economic benefit to the country. Expanding the one-day celebration to a range of days also marks 618’s status in the e-commerce market. Talking about 618’s origin, from June 1 to June 18 in 2021, JD.com’s cumulative order amount reached CNY 344 billion. You can view more detailed past results through the following graph. Even though every year’s 618 has marked a new record, as indicated by the graph, whether JD.com could survive from the hardest 618 and enjoy its 19th anniversary has become a hot topic. We conclude the reasons for causing the hardest 618 are influences of COVID-19, widespread discount seasons, and the self-restraint of customers.  

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Which segments might survive in this game?

We believe that the following three segments might gain more revenue relatively: Home appliances, medical beauty (including skin care and cosmetics), and food. Talking about home appliances, we think there has a higher tendency that people would choose to allocate their limited money to improving their living standards. The upgrade of home appliances has become the top several. Also, people wait until this discount season to change their major home appliances to save more money. From our perspective, Midea Group might be the most successful one in this category. Because Midea Group has varieties of products that cover most of the field of home appliances. Its 7 sections were ranked as the top one among 25 major appliances sections in 2021. Its vertical management is flatter compared with other companies in this field, creating higher efficiency and faster response towards the market change. It also provides a more standardized operation towards the related brand, helping Midea stand out. Midea’s market value was much higher than its competitors, such as Gree. 

Looking into medical beauty, we believe this is a new potential to succeed in 618. Because this is a new rising industry, with a huge number of potential customers. The market is also reacting to this field. Several medical beauty brands have seen significant rises in the A-share market over the past few days, implying that sales and transactions are going on. Medical beauty is working on developing a combination of online and offline services. For offline services, they can also sell coupons to use in stores through the promotion of 618. For online services, they can sell daily chemical products, and related cosmetics and skin care products. These daily chemical products could be a necessity for majorities of people. We predicted the following beauty brands might be a potential in 618: Imeik Technology Dev, Bloomage BioTechnology Corporation Limited, Shanghai Lily & Beauty, and Proya Cosmetics. Take Bloomage BioTechnology Corporation Limited as an example. Bloomage is an expert in exporting raw materials. Its specialization in hyaluronic acid set Bloomage’s status in the supplier market. A huge number of cosmetics and skin care companies have cooperated with Bloomage. We think that in this year’s 618, cosmetics might not be a huge trend, because the discounts are relatively small. And the lockdown of regions in China and lessons learned from impulse shopping also reduce people’s demand in cosmetics. From our perspective, even though cosmetics and skin care might face a reduction in transactions, they still could be the major transaction parts in 618, due to an increasing number of anchors. Therefore, as both the providers and the suppliers, medical beauty undoubtedly could be a major segment of 618. 

 We also believe that food could be a potential flourishing category in 618. We break the food into three categories: Frozen food, pre-prepared food, and snacks. Frozen food has a higher demand due to COVID-19. Because of the lockdown, fresh food becomes harder to access. The stock of frozen food at home could at least eliminate the fear of hunger. Frozen food can also be meals for those without access or time to eat outside or cook. The examples in this category could be Anjoy Foods Group, and Anjii Foodstuff Co. Regarding pre-prepared food, we predict that COVID-19 could raise people’s quality of life in food. For those who might not have access to leave home, pre-prepared food might be their lifesaver. The examples in this category are Shangdong Delisi Food, Guangzhou Restaurants, and Tongqinglou. In addition, from our perspective, snacks has been a huge trend in 618 sales for many years. This phenomenon might also last this year. The transactions in this category have gradually increased over the years. The examples in this category are Three Squirrels, Bestore Co (良品铺子), Hangzhou Haomusi Food Co (百草味), Chacha Food, and Want Want. Typically speaking, these snacks company always have huge discounts on these discount seasons and keep their prices high on usual days. Customers are more likely to catch the chance of deals to save money.

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To sum up, from our point of view, due to the intentions of increasing the standard of living and saving money, home appliance, medical beauty, and food could be the top three hottest segments in this year’s 618. We will talk about whether JD.com could take advantage of its detailed business plan and win this game or not in the next article.

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