Dive Brief:
- JD Logistics, JD.com's logistics arm, increased its revenue 91% year-over-year in the first quarter. That figure for revenue growth also includes unspecified "other services," executives said on the company's first-quarter earnings call.
- Executives said technological improvements have allowed the carrier to handle more orders. It also ended discounted pricing that was offered to entice new customers in 2017 when JD.com spun out the logistics service, which has boosted revenue and margins. Gross margin for JD.com on the whole was up 6.4% year-over-year.
- Executives said the intent was to build up logistics capacity far exceeding demand and wait for demand to follow. "We essentially built out very large capacity ahead of time to ensure the new customers can enjoy the best experience," CFO Sidney Huang said.
Dive Insight:
JD.com's 7.3 billion yuan ($1.1 billion) in profit for the first quarter more than made up for its 2.5 billion yuan ($363 million) in losses last year. The logistics unit posted a 2.8 billion yuan ($420 million) loss in 2018, leading JD CEO to change the payment structure for delivery staff.
"You all know that the last two years have been quite difficult for the company. We have been in the loss for more than ten years. If losses continue, JD Logistics only has two years of runway left with its capital raised," read a letter from Liu to JD logistics staff, according to Tech Crunch.
The company is moving away from fixed compensation to a more incentivized scheme where couriers' income is based on the number of deliveries they complete.
"The new changes are designed to better incentivize our delivery staff in light of our expanding business lines and industry best practices. In fact, the majority of our delivery staff affected by the new incentive scheme, so their monthly income increased in April while their productivity also improved," Huang said on the call.
The assessment that delivery staff are earning more income now than in the old scheme is contested by Tech Crunch, reporting monthly income for JD couriers has decreased by at least 25%.
Huang said the company does not expect to see any "meaningful cost savings" from the change.
