Hello, and thank you for standing by for JD.com's third quarter 2019 earnings conference call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd like to turn the meeting over to your host for today's conference, Jia Dong.
Thank you, and welcome to our third quarter 2019 earnings conference call. Joining me on the call today are Mr. Richard Liu, JD.com Group CEO, Mr. Lei Xu, CEO of JD Retail, Mr. Zhenhui Wang, CEO of JD Logistics, Sidney Huang, CFO, and Jon Liao, our Chief Strategy Officer. For today's agenda, our CFO, Sidney Huang, will discuss highlights for the third quarter 2019, followed by Richard Liu, our CEO. Other managements will join the Q&A session. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call, as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in CNY. I would now like to turn the call over to our CFO, Sidney Huang.
Thank you, Jia. Hello, everyone. Thank you for joining us today. We are very pleased to report another strong set of results for the third quarter 2019. Our net revenue growth continued to re-accelerate, reaching 28.7%, the highest growth rate in the past five quarters, driven by our lower tier city allocation strategies. In particular, the growth rate for electronics and home appliance categories in lower tier cities was more than double that of tier 1 and tier 2 cities. Most other top 25 categories saw higher and accelerated growth rates in lower tier cities as well. Overall, over 70% of new customers in Q3 came from lower tier cities, which is a new record. The growth rates for both purchase orders and GMV in lower tier cities reached the highest levels in the past six quarters.
In terms of traffic, due to innovative marketing activities and better user engagement through our upgraded mobile interface, the JD Mobile MAU grew 36% in September, the highest growth rate in the past eight months, while our mobile DAU 35% in Q3, fastest in five quarters. This may surprise some people who are not familiar with China's lower-tier city consumers and think they are only interested in low price, good quality products, which have seemingly flourished on other platforms. The reality is that consumption upgrade has been quietly occurring in these regions, where average consumers may have relatively lower absolute income but have somewhat similar or even higher disposable income than tier 1 city residents due to significantly lower housing costs. As these consumers learned to shop online, they gradually discovered the different value propositions unique to different e-commerce platforms.
For JD.com, our obsession with customer experience since day one continued to help us win over the better half of middle-class consumers, even in those lower-tier cities. It is a universal truth that middle-class customers value quality assurance, everyday low prices, and first-class services, especially for high-value products such as 3C and home appliances, or products where consumers pay particular attention to the quality, such as food, baby products, home furnishings, cosmetics, and healthcare products. For that, we thank our competitors for not only introducing e-commerce to many first-time users but also providing easy benchmarks for us to readily differentiate and secure the most valuable customers. This can be validated by our average ticket size of over CNY 200 in lower-tier cities, very important indicator for the quality and sustainability of our customer base.
Thanks to lower-tier city consumers, our market-leading position in the electronics and home appliance categories has been further strengthened with the revenue growth rate accelerating to 22% in the third quarter, the fastest in the past five quarters, amid everlasting competition and a slowing industry, which grew in low single digits in Q3 according to China's National Bureau of Statistics. In other words, we have been taking tremendous market share during the quarter. Some of you may wonder what happened to all the subsidies that people have been raving about from our competitors. Well, this time our archrival itself confirmed publicly that subsidies cannot bring sustainable business. It has learned the hard way from its own costly experience over the years. Hundreds of millions of people may happily spend CNY 0.99 on an impulse, and they may spend CNY 0.99 every day on petty items just for fun.
For serious purchases, most consumers don't just look at the price alone. They will evaluate at least two other elements before any large purchase decisions. The first is trust. Can I trust the sellers on the platform? Are you selling authentic products? Will I get what I see, or will I end up on a wait list for months before getting that discounted item? The answers are mixed at best on the overcrowded marketplace platforms. The second is service. Do you have professional install service for large appliances? Can I return it easily if I don't like the product? People may not care about a service when they buy a CNY 0.99 item because they can just throw it away. When they are buying large ticket products, they definitely care. Here comes the hard truth.
It takes years of heavy lifting to build the supply chain expertise, service capabilities, and fulfillment infrastructure needed to perfect the customer experience in those categories. In that process, to optimize operating efficiency while solidifying our competitive mode. The best example is three years ago, when the largest marketplace platform listed the largest offline home appliance and electronics retailer in China to jointly attack us with massive subsidies throughout the past three years. They have failed rather miserably, as we predicted three years ago, now widely reported in the Chinese press. Anyone still worrying about subsidies hurting our core categories should refresh their memory and think again. It's driven by the same retail fundamentals that we have reiterated all these years. There's no shortcut in this business. By the same token, our general merchandise categories enjoyed accelerated growth of 36% in Q3, led by FMCG products.
Another extremely difficult category for a pure marketplace operator to reach meaningful scale, with or without significant subsidies. We are also pleased to see that net service revenue grew 14% year-over-year, the fastest in the past four quarters, and contributed 11.9% of our overall revenues, driven by strong momentum from third-party logistics and advertising revenues. External revenue has now contributed 40% to JD Logistics' total revenues, a stand-alone basis, up from less than 20% just two years ago. It has grown more than 300% from the same quarter of 2017, when we decided to expand logistics into a self-sustained business supported by its consistently top-ranked customer satisfaction scores in the industry. In the third quarter, our growth margin was 14.9% compared to 15.4% in the same quarter last year. This reflects the reinvestment of the first half one-time gains that I mentioned on our last earnings call.
Yes, we have reinvested roughly 40% of the $1.8 billion non-recurring gains from the first half through the gross margin in Q3 to drive our lower-tier city strategies. It works very well, and you have to admit it's a much more effective strategy than the massive subsidies by some of our peers. The higher sales we achieve will give us further economies of scale in both procurement and operating efficiency, which will afford our customers even more pricing benefits, setting an even higher bar for competitors while driving our further growth and margin expansion next year. This is the beauty of our 1P business model, a self-reinforcing virtuous cycle that has worked extremely well for all the number 1 third-party retailers, either by country or by category around the world.
You have to be number one to enjoy this virtuous cycle, and you have to have a lower cost structure than everyone else. JD.com is number one in China and in multiple categories. The snowball is just beginning to roll. Another aspect of the snowball effect is operating leverage. During the third quarter, our fulfillment expense ratio improved by 91 basis points, 6.5% compared to 7.4% in the same quarter last year. The improvement was driven by economies of scale as JD Logistics expanded its external order volume rapidly, benefiting both its 3P operating margin and JD's 1P fulfillment expense ratio. Our marketing on the G&A expense ratios also improved meaningfully in the same quarter, driven by highly effective management and operating leverage from higher sales. As a result, non-GAAP operating margin reached 2.2% in the third quarter, setting a new record.
JD Retail in particular achieved a record segment operating margin of 3.3%. It was achieved in a quarter of heavy reinvestment. I hope this solid performance can begin to shed light on our path to our committed high single-digit long-term profit margin for the JD Retail business. Our free cash flow also increased significantly year-over-year during the quarter, driven by lower CapEx and the proceeds from the phase one closing of the JD Logistics Properties Core Fund. In our free cash flow table, as I mentioned in recent quarters, with JD Logistics, JD Property Management Group was formed to pursue financial returns as a separately managed business. We have broken out related CapEx into a separate line specifying the available-for-sale nature, which has been reported net of related proceeds on the sales.
This is the second time when we recorded a net cash inflow on this line following the first time in Q1 this year. We hope to see more cash inflows from this business in the future. For the trailing 12 months, our free cash flow was $15.8 billion, 50% higher than our non-GAAP net income in the same period, which was another bright spot in our business. Now let's discuss our fourth quarter financial outlook. We expect net revenues to grow between 21% and 25% on a year-over-year basis in light of a highly successful Singles Day promotion season, while taking into account the potentially slowing national retail sales growth based on the NBS report published yesterday. On the bright side, our October growth remained resilient, and we are clearly gaining market share.
Finally, with better-than-expected earnings in the third quarter, we are raising the full-year non-GAAP net income guidance to be between CNY 9.8 billion and CNY 10.5 billion, reflecting Q4 seasonality and the continued reinvestment of the first half one-time gains discussed earlier. At the midpoint of this guidance, we would grow our 2019 non-GAAP net income by over 200% from the 2018 level and grow a CAGR of 43% from the 2017 level. More importantly, this robust earnings growth is on top of our ongoing reinvestment in our core business, which positions JD.com to enter 2020 with tremendous growth momentum. This concludes my prepared remarks, I will now turn the call to Richard for a few quick remarks.
Yes. Okay. Thank you, Sidney. Hello, everyone. I would like to take this opportunity to give you a brief introduction on our strategy plan in 2020. For this year, as you have seen that we have achieved promising results in terms of our revenues and net margin, as well as cash flow. For the next year, based on the achievement of the previous three factors, we'll continue to work on increasing our GMV and consumption-
Customers
customers, customer base, as well as technology services. We believe that only by improving every aspect of the four elements will achieve true quality growth of the whole company. In the past six years, we have been investing heavily on the investment of our technology services, and this has been quite larger than the growth of our revenues. For this year, you have seen significant growth on the revenues of our technology services, has actually achieved three-digit growth this year. In the future, for the next five years, We'll continue to gain the benefit and the improvement on the revenues of our technology services, and this will be even bigger than our overall revenue growth. We believe the technology services revenue will be the key engine for the increase of our revenues and Net income. Net income. Yes.
因为我们有两个坚信。我们第一个坚信，未来不管是我们零售的业务，还是我们物流的业务，包括我们数科的业务，都必须建立在技术的基础上。只有技术才能够给我们带来真正的、持续不断的核心竞争力。
We have two strong beliefs. No matter it's our JD Retail, Logistics, and JD Digits, the technology is our key driving forces. Only through technology will bring us a long-term core competitiveness.
我们的技术会帮助我们不断地提升我们的用户体验，不断地降低我们的成本，不断地提升我们整个业务的运营效率。
Technology will always help us to bring up our users' experience, lower the cost, and improve our operating efficiency.
第二个信仰就是我们坚信技术服务收入能够为我们股东带来更好的利润，创造更大的回报。
The second belief is that we strongly believe the income from technology services will bring even further benefits, returns, and profits for our stakeholders.
总体来说，我相信明年不管我们的收入还有我们的利润都会保持比较好的表现。谢谢大家。
Overall, we believe for the next year, no matter it's under revenues and other profits, we will achieve even better results. Thank you, everyone. We can now move to the Q&A session.
The question-and-answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Ronald Keung from Goldman Sachs. Please ask your question.
Thank you. Thank you, Richard, Xu Lei, Zhenhui Wang, Sidney Huang, Liao Zhong, and Jia Dong. Very strong results and a further accelerating of revenue, particularly for the 1P retail and profitably. I would love to hear your thoughts, particularly as Richard talked about the 2020 strategy. Just what do we see as the positive and maybe less positive drivers into the 2020 1P growth? I could think of a larger base, I could think of 5G. Anything that you see are the drivers for next year's 1P growth, particularly for electronics, appliances, and FMCG. My sense is mostly whether we are targeting a similar growth as last year, sort of above 20%. Any color on that would be great. Thank you, management.
你好，我是徐磊。我先回答一下关于我们自营快速发展的原因。总体来说主要是两点。一是京东的供应链为基础的供给能力。无论是以前，还是现在，包括未来，我们会持续不断地优化我们的供应链的能力。我们与我们的重要的合作伙伴会在供应链的成本效率上面持续不断地去打造我们独特的优势。另外一点是我们比较强化的就是用户的体验，这也是作为一个零售企业必须具备的。尤其在我们的今年全年在用户体验方面做了大量的工作。通过我们NPS的监控可以看到，去年年底到现在，我们在用户体验方面得到了大量的改善。在这方面我们的投入会继续加大，让我们的新老用户对我们产生独特的并且持续的放大他们的消费能力，再配合我们的供应链的能力。我觉得这两个是我们能够保持自营业务在目前情况下能够两个动力之一。
Xu Lei of JD Retail. Let me just give you two reasons for the faster development of our 1P business. First, JD is a retail and company based on the capacities of our very strong supply chain. No matter in the past, now or in the future, we will continue to improve our ability on the supply chain and working together with our partners to increase our efficiencies and lower the cost on the supply chain side to provide unique advantages to this market. Secondly, we attach great importance to users' experience. We believe as a retailer, ensuring experience is a must. For this year, we have done a lot of work overall across the company to ensure the enhancement of user experience. Through our NPS monitoring, we have seen user experience has very tangible progress.
We are continuing our investment on improving the user experience, not only on the new customers and also our existing customers. We are working on every front to ensure they have unique experience shopping on our platform. In all, supply chain and our commitment to our user experience has ensured our 1P business fast development.
Thank you.
Your next question comes from the line of Eddie Leung from Bank of America. Please ask your question.
Hi. Good evening, guys. Thank you for taking my questions. Two quick questions about the lower tier city competitions. Number one, about the users. Just wondering, are we seeing similar users using different apps but buying different products, or are we seeing a more unique user segment that comes to JD? Secondly, how our collaboration with Weixin and the offline retail partner network can help us in the competition in the lower tier cities. Thank you.
Since our Jingxi platform, which is mainly the new channel we target to the lower tier city customers, has been introduced online by the end of October. It has been less than two weeks live online. Based on the current results, I will just share a few observations. For the Jingxi platform, it includes two access points. One is the first-tier access point on WeChat, and another is the standalone app we introduced a month ago. The characteristics of the users on Jingxi, the majority of them are coming from the lower tier cities, and their shopping behavior, it's more social, impulse, and have a very high conversion rate. In terms of their ARPU and stickiness, it's relatively low compared to the main site. In terms of the product, Jingxi platform product is quite different from our main site.
On JD's main site, the product is mainly brand products. On Jingxi platform, we are developing products based on China's manufacturer potential. Now we are working with over 100 industrial belts, and in the future it's going to develop into 1,000 industrial belts to identify the high-quality manufacturers and help them to bring the products on the Jingxi platform to meet the needs of the customers from the low. Also we realized the Jingxi users, their shopping preferences is rather complicated. They like to be more interactive and having more entertainment and game factors in their shopping behaviors. It's not rather very simple buying habits. By using this feature, we will work on our own products as well as WeChat module functions to stimulate their buying behaviors on our platform. We also want to share with the development and expansion of JD platform.
We will also identify those quality products and customers who have very premier service ability to give them more presence on our main site. We believe there's a group of lower-tier city customers that also have the willingness and need to shop on the site in the long run. Just want to respond a little bit more our relationship with Tencent. Tencent is our shareholder and a very important partner. Some of you have realized that at the end of October, WeChat has made certain rules to prevent some over-promotional activities to impact the social interaction behaviors of WeChat. These rules, I think for the long term, it's a good sign, because for us, we always emphasize on the user's experience, and this will help us to guarantee these aspects. Thank you.
I just add one more point on Eddie's first question. Whether lower-tier city users are buying from different apps for different categories or just stick to one app. Before we got more data from Jingxi, our survey in the lower-tier cities suggests that majority of the lower-tier city users do use multiple apps. Basically use multiple platforms, and they will pick the platform based on the categories they are buying. That's the current observation. In the tier 1, tier 2 cities, you may see relatively more users stick to one app for majority of their purchases. Now with our Jingxi application, basically we are creating a dual-brand strategy where our main app, JD app, will continue to target the higher income consumers in the lower-tier cities, while the Jingxi app will target the relatively low-income consumers in those regions.
we can also then gain more insight on the lower-tier city consumers so that we can better target them for promoting our JD main app, our core category product.
That's very helpful. Thank you, guys.
You're welcome.
Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.
Hi. Good evening, management. Thanks for taking my questions, and congratulations on the strong set of results. My questions is related to your C2M initiative on the appliance brands. What are some of your differentiator on attracting the brands to partner with JD? Given the C2M model is also getting more competitive, if competitors going after the same brands, will that have any negative impact to JD margins? On related questions is that, for the same appliance brands, is the C2M SKU has a higher or lower margin than the standardized SKU? If you could share also roughly the percentage of GMV coming from C2M category this quarter and how much you expect that to grow into. Thank you.
Let me share with you some views and achievements that we have made on C2M so far. Two to three years ago, we have started our C2M model, and this started in the categories of IT products and have achieved amazing success. On these IT categories, actually our platform, over 70% of products are C2M to JD. This has not only impacted our platform, but actually have a quite deep influence to China's IT industry, online and offline. For this year, we have also made our strategic proposals to further our categories, especially on the 2 categories of home appliances and FMCG products.
我想京东这个平台跟其他的零售商相比，我们在C2M上具备的优势主要是两点。第一个是我们是互联网技术驱动的，我们平台上面有海量的用户的评论和他的搜索浏览的数据。通过这些数据以及相信我们提供的C2M的技术产品，是可以与品牌商一起携手，更快速地推出针对性的产品，以及更高成功率的商品。
Compared with other online platforms, I believe there are two advantages to produce C2M products on JD platform. First of all, we are a company driven by technologies. We have vast data in returns of our users comments and the searching data and viewing data. Combining all this data and working together with our partners will help us to generate more tailor-made products in a timely manner.
而另一个我们的优势是京东是一个零售商，尤其是我们的1P。实际上，我们是以品牌商一起的开发，并且我们中间是有供应链的，我们不仅是一个平台。所以说我们承担的责任和我们的能力要求很高。我相信随着时间能够看出来，京东做C2M与其他的纯平台的C2M本质上的巨大区别，也是品牌商愿意持续不断跟京东加强合作的原因之一。
Secondly, per se, JD is a retail platform and especially our 1P business. This gives us advantage to work closely together with our brand partners together on producing those C2M products. In between, we have our capacities on the supply chain. These give us a better responsibility and the capacity to produce the most effective products together with the partners. The partners will become more and more willing to work with us to reach the best.
而不同行业的品牌商做C2M实际上是有不同的利益点。例如有的品牌商是希望避免价格的直接冲突，那么通过C2M的方式，定制化的商品是可以降低这方面的价格的冲突。另外，有些品牌商是特别希望往低线市场走的，但是因为中国传统的流通方式导致他们的成本很高。而京东的商业模式和我们的供应链能力是可以协助品牌商向低线市场进军，我们一起去获得新客户，这也是我们为什么在低线市场上，我们有独特的获取用户的能力和魅力。
We have realized that for different categories and industries, their purpose to produce C2M products are different, and some of them are doing C2M products to avoid price conflicts. By doing C2M, more tailormade products will help them to reduce the conflict opportunities. For some other brand partners, they want to go deeper into China's market to the lower tier cities. We know that based on our traditional supply chain, this is not an easy way. For JD, we would like to be the company on this process with our partners to together reach new users in the lower tier cities together. That's why based on our powerful supply chains, it will be very unique opportunity for our brand partners to work with us to be more attractive to reach our customers in the lower tier cities.
关于C2M的利润，因为不同的牌、不同的行业以及不同的C2M的目的并不一样，所以说不能非常简单地统一。但整体来说，C2M上我们的价格是有竞争力，同时我们也保证了自己的合理的盈利能力。刚开始我讲到的IT这个品类，其实恰恰是C2M我们走得最成功的，也可以看到我们的市场占有率和整个品类的经营情况，我相信我们其他的新的品类的C2M应该也是类似的。
In terms of the margin, because different brands have different goals and different formats, it's very difficult to give a unified measurement. Generally speaking, the C2M price is very competitive and there's always ways we can also make reasonable interest and profit out of that. In overall, you have already seen the success we made on the IT categories, and it has occupied a strong market share, and we believe this will be copied in other categories as well.
未来我们会持续加大C2M，并且会进一步提高所售商品的比例。谢谢。
In the future, we'll continue our efforts on C2M and increase the proportion of products on our platform. Thank you.
Just to put in layman's terms, just to give you example on C2M margin, it's a triple win situation. For example, because a lot of the brands will try to protect their offline retail network, so they will monitor the sales price, which limit our ability to give more value to consumers. For select, only very large brands can do that. At the same time, they would also resist giving us even lower procurement price just to prevent us from selling lower price to consumers. By C2M, we can really break through both. One is that because it's a customized product, so we wouldn't disrupt the brand's offline retail channels, so we can price the products lower to give consumers more benefit.
Two is that, because of that same reason, we tend to buy a very large volume for these C2M products, so we can get an even lower procurement price. We can also maintain very healthy margins. While we can also support the brands to sell a much larger volume through our powerful channel. It's a triple-win situation for the C2M.
Thank you.
Your next question comes from the line of Thomas Chong from Jefferies. Please ask question.
Hi. Good evening. Thanks management for taking my question. I have a question about JD Logistics. Can management comment about the strategy in 2020, and how should we think about the top line and the margin as we go through this year? Any color would be great. Thank you.
Wang Zhenhui of JD Logistics. Next year, our JD Logistics strategy will continue to focus on the efficiency increase and user's experience enhancement. We'll also step up efforts on reaching the lower-tier markets by expanding our logistic network. We'll also work further on improving our products and our capacity to further open the external market. We'll also step up efforts on our technology deployment, and the revenues from technology will continue to grow next year. For our external orders, revenue from external orders has accounted for over 40% of the overall revenues of JD Logistics. For the next year, the ratio grow in terms of the fulfillment of the profits, we will seek further improvement in stability. In the results from this quarter, our fulfillment fee ratio has been dropped thanks to our increasing scale.
Since we are continuing to going down into the lower-tier cities, we'll have some short-term impact on our cost. In the long run, we believe the fulfillment fee are still having the space to improve. Thank you.
Thank you.
Your next question comes from the line of John Choi from Daiwa. Please ask your question.
Good evening, thank you for taking my question and congratulations on a great set of results. I have a question on the user growth. Obviously, as we are going on lower-tier cities, we started to see user growth acceleration. Could management give some color on what kind of user growth momentum we'll further see throughout 2020 and onwards? How much opportunity do you see if you compare to yourself and your peers? Secondly, just quickly on Richard, I think, mention about the technology, given that industrial internet is one of the key themes that a lot of the other internet companies are talking about. Can you provide us how this will change our business strategy for JD and what are the areas that we are looking into? Thank you.
我回答关于用户增长的问题。我徐雷。
On the question about users growth.
就如上个季度当时报道，我跟大家分享和强调的，我们的用户增长是把新用户跟老用户放在一起去看。我们上半年的时候，通过组织结构的优化，产品上面做了很多的创新的。
As I mentioned in last quarter's call, we are targeting our efforts for the users growth on both new customers acquisition and old customers maintenance. On the first half of the year, we have done a series internal optimization.
另外一方面，我们也做了大量的老用户的运营，去促进我们用户的活跃度，老用户的留存、ARPU、满意度等得到了明显的提升。
On the existing customers, we are setting up efforts on their operations to increase their activity on our platform and their maintenance on our platform, their ARC value and satisfaction rate keeps going up.
在这里我想再强调一下，就是关于用户增长，我们希望的用户增长是通过良性的方式，而不是通过阶段性的不可持续的方式。同时，用户的质量是可以在未来得到体现的。
Also I want to emphasize that we focus on benevolent growth of our users. We don't really want to supply users through a fragmented way and unsustainable way. We believe that eventually the quality of users will be manifested through our care for healthy fostering process.
我们追求的是整体相关性指标都得到同步的增长，或者叫改善，并不追求单一指标的突飞猛进。
On the maintenance of our users, what we pursue is the indicators improving all aspects, not only a mere number improvement to see how many users we have acquired in a short period of time.
Yes.
Thank you.
Ricky was traveling, so I don't know if he has heard the question, but I can quickly share that the technology services we have in mind is more about the retail that we have accumulated over the years. The core we had retail as a service concept, so much of the technology know-how and it's already been transformed into solutions, and we have seen demand from the industry for these solutions. Those could be clearly the starting point. There will be more in the pipeline that we will discuss more when we have products available.
Your next question comes from the line of Tina Long from Credit Suisse. Please ask your question.
Hi, thank you management for taking my questions, and congratulations again on the results. I have one quick follow-up on Jingxi first. I know that we recently launched it. I want to know in 2020, have we earmarked a meaningful amount of sales and marketing expense to promote it? Will that have any impact on the overall sales and marketing ratio? My main question is actually on the GP margin. I understand that third quarter GP margin was impacted because of reinvestment of first half one-off gain. I want to know, after we reinvest all the gains for the remainder of the year, in 2020, are we going to see an uptrend of GP margin from a year-on-year perspective? Yes, thank you.
京喜只是我们的业务之一。那么未来京喜我们会采用多种方式去发展业务。京喜的业务本身并不会给我们带来市场地位上面的大幅增长。而且刚才我强调了，我们追求的是各方面数字的全面改善，或者叫提升，并不会去通过某一个手段去追求某一方面的数字。
Lei Xu, CEO, JD Retail. On the question about Jingxi. The Jingxi platform is one of our business models to reach further market. As I mentioned that we will take different ways and different models to grow our market. The Jingxi platform will not makeOn marketing next year. As I just said in our last question, we are seeking a comprehensive improvement on the indicators. We won't just pursue one indicator growth for ourselves.
On the second question. Generally, obviously we haven't done our 2020 budget process, so I can't give you a definitive answer. In general, all else being equal, gross margin should expand for the same categories because of the economies of scale as we mentioned in the past. I just wanted to also point out that the gross margin and expense line, sometimes you should look at them holistically. I give you one example, and more often than not, lower price, if used effectively, can be the best marketing spending. In other words, you can save marketing costs by promotion. Sometimes lower gross margin could mean lower marketing expense as well. Clearly, that's what happened in Q3. Our marketing expense ratio actually decreased by 0.6% more than compensate the gross margin shortfall.
You really have to look at these growth margin and expense lines in a holistic fashion.
Thank you. Just add a few things from Xu Lei. Xu Lei, I just want to add that since the end of last year, we have made our strategies to grow our business based on quality development and sustainability. You have seen from all the members of the past three quarters this year, these are all the demonstrations of our commitment on the quality growth. In the future, we will stick to this principle to achieve quality and sustainable growth. Thank you.
Your next question comes from the line of Natalie Wu from CICC. Please ask your question.
Hi, good evening. Thanks for taking my question and congratulations on the solid result. Just curious, can you share something with us about the incremental margin profile from your lower tier city orders? Also about the take rate on Jingxi. I wonder is it different versus your 3P platform? Thank you.
Let me quickly answer the first question. We have the same price in lower-tier city and higher-tier cities, and cost structure is also similar. In general, the cost structure and the margin profile should be a lot similar. There are differences in, for example, category consumption pattern that might be different. We have not analyzed this in more detail, but they should be more or less similar.
What about the fulfillment expenses?
Fulfillment expenses, in terms of order density, clearly, tier 1 city will enjoy most benefit. We have covered 99% of the counties and districts, and we don't necessarily have the same fulfillment promise in the very remote areas. We do cover 90%, roughly 90% of the orders within 24 hours. They tend to be in tier 1, tier 2 cities and in major town areas in the most populated lower tier cities. It's actually well-designed to optimize the cost structure in the lower tier city as well.
更多的是来自于低线，因为他们的房屋面积会更大。比如说我们的奢侈品，在低线市场会卖得更好，因为他们的传统购买渠道并不支持。但是这个也并不能直接得出低线的消费者就全都是买高客单价，因为确实不同的品类有不同的表现。
Xu Lei of JD Logistics add on this question. It is true that different categories will have different performance in the lower-tier cities. For example, for iPhone and Huawei smartphone, the growth mainly come from the lower-tier cities. For the big-size refrigerators, lower city customers like them very much because they have a larger house. Also for the luxury products, lower-tier city customers buying more and more our platform because the traditional channels do not support their purchase needs. All these examples cannot get the conclusion that the lower-tier cities like the big-ticket products. We have to really analysis it with different categories. Thank you.
Understood. What about the take rate on Jingxi?
Right now, it's 0.6% covering the payment cost.
它是最低的品类，我们大部分会在0.6，少数品类可能会在一点几。对不起。但是整体我们会采用低扣点的方式，鼓励更多的商家去入驻经营。
For the take rate in the Jingxi platform, in general, we will have a very low take rate to encourage merchants on our platform. Most of the products will have 0.6, and for some of the products will be above 1 point.
Very helpful. Thank you.
Thank you.
We are now approaching the end of the conference call. I will now turn the call over to JD.com's Jia Dong for closing remarks.
Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continued support and we look forward to talking with you in the coming months.