JD.com Inc. reported a sharp drop in revenue growth as Chinese shoppers rein in spending.

China’s second-largest online retailer said March 9 that revenue rose 7% from October to December. That’s down from 23% growth a year earlier. It and larger rival Alibaba Group Holding Ltd. have grappled with weak consumption sentiment since the world’s No. 2 economy buckled under the weight of China’s rigid COVID control measures.

China’s exports and imports continued to decline in the first two months of 2023, clouding the outlook for an economy gradually recovering from the COVID years and waves of infection. Economists expect consumption to be the main GDP driver this year. However, the data showed a slowdown in urbanization and a rise in inequality in 2022, two trends that could slow private spending. Alibaba had reported a mere 2.1% rise in quarterly revenue in 2022’s final three months, underscoring the economic uncertainty that’s prevailed even after China abolished COVID restrictions in December.

JD.com is No. 1 is in the Asia Database, Digital Commerce 360’s rankings of the largest online retailers in Asia by web sales. Alibaba also owns Lazada Group, which is No. 2.

Alibaba owns Taobao, No. 1 in the Digital Commerce 360 database of Global Online Marketplaces. It also owns Tmall (No. 2). JD.com is No. 4.

JD Q4 sales

JD reported sales of 295.4 billion yuan in the period, slightly below the 295.5 billion yuan average of analysts’ projections. It posted net income of 3 billion yuan, versus a 2.9 billion yuan estimate.

Executives on March 9 affirmed that the company was pulling out of Southeast Asian ecommerce for now, because building a regional operation would require too much investment over a long period. JD is closing its Indonesia and Thailand shopping sites. It remains a leading domestic player, along with Alibaba, in logistics. JD said March 9 it sold Class B preferred shares in its supply chain services unit JD Industrials to a group of unidentified investors.

It will stay focused on lowering costs, increasing efficiency and improving user experience, CEO Xu Lei said.

JD set for $1.4 billion discount spree

The online retailer is offering discounts across its shopping platforms in a 10 billion yuan ($1.4 billion) campaign to capture new users ahead of an anticipated Chinese economic recovery this year.

The campaign has spurred concerns that larger rival Alibaba or upstart PDD Holdings Inc. may retaliate with cuts of their own, igniting a margin-eroding price war. JD announced March 4 the launch of the subsidy plan in a statement on its official WeChat account.

China’s internet firms are revving up efforts to outdo each other since Beijing began to wind back its bruising crackdown on the tech sector, spurring an abrupt surge in competition that’s spooking investors. Meituan is said to be expanding into Hong Kong and has embarked on a campaign to hire 10,000 people on the mainland — an effort to beat back heightened competition from new entrants such as ByteDance Ltd. in the $145 billion Chinese food-delivery arena.

Competition could be closing in

Like Alibaba and Tencent Holdings Ltd., JD faces intensified competition from up-and-comers such as PDD Holdings Inc. and ByteDance Ltd. It has balanced tightened cost controls with targeted measures to shore up its market share.

The company expects to control its overall marketing costs. Part of that comes from its plan to rope in merchants to help control the expense from discounts.

“What we hope to do is to transform our marketing strategy from focusing on big sales to creating an environment of everyday low prices, gradually shifting people’s shopping behavior,” Lei told analysts on a conference call. “These programs will have a limited impact on our margins.”

Alibaba executives have since dismissed speculation it would directly engage its longtime rival. They warned that a return to the price wars of years past was in nobody’s best interest.

In 2020, Beijing launched a crackdown campaign to rein in what it called the “reckless expansion of capital,” affecting sectors from ecommerce to online education and the sharing economy. The government has begun rolling back restrictions since late 2022, intent on reviving a Covid-struck economy.

What Bloomberg says

JD.com’s total retail earnings gain in Q4 would have surpassed revenue growth as COVID-led weakness in consumer and business sentiment across mainland China prompted the firm to tighten cost controls from a year earlier. It likely also cut overseas expenses. The firm took steps to cease operations in Indonesia and Thailand by March this year.

JD.com’s plan to offer 10 billion-yuan worth of subsidies to shoppers on its platforms could lift average spending per active user and attract new customers this year. This might help the firm meet consensus expectations for an acceleration in revenue growth to 15% in 2023 vs. about 10% the prior year.

— Catherine Lim and Trini Tan, analysts

Founded by billionaire Richard Liu, JD largely avoided a direct hit from Beijing’s 2020 and 2021 crackdown on the country’s biggest internet companies. That regulatory assault left Alibaba — the target of a months-long antitrust investigation — reeling and struggling to revive growth. Its annual revenue surpassed 1 trillion yuan for the first time, in 2022.

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