- Cost per delivery for Chinese e-commerce giant JD.com reached an "all-time low" in the first quarter of 2020, due to the increased order volume caused by the pandemic and cost controls, according to CFO Sidney Huang on a Friday earnings call.
- The increased costs to operate during a pandemic, personal protective equipment (PPE) accounting for just one, was covered by the uptick in volume. Fulfillment costs — defined by the company as procurement, warehousing, delivery, customer service and payment processing expenses — were up 28% year over year, but logistics and other services revenue was up 54% compared to Q1 2019.
- Third-party shippers represent 40% of JD Logistics' revenue as of the first quarter, doubling their share of shipment volume since Q3 2019. The CFO said external volume is now contributing to the company's margin rather than depleting it. "Another positive contribution to the fulfilled gross margin was from JD Logistics, where the productivity gains from higher-than-expected orders more than offset the additional cost from the operational disruption, higher wages and staff protective measures," said Huang.
E-commerce's share of total retail sales in China jumped from 20.7% in 2019 to 23.6% in Q1 2020, according to JD.com, which cited the National Bureau of Statistics of China. Revenue for the company in Q1 was up 21% year over year and it expects another 20-30% year-over-year increase in Q2.
In Q1, JD.com launched a fresh produce delivery service sourcing directly from farms and expanded the product range within its medical delivery business — growth categories amid shifting consumer spending in the pandemic.
But for several U.S. firms, including e-commerce natives, a flood of volume driven by stay-at-home orders and social distancing haven't led to the economies of scale JD executives described. Keeping a lid on costs while handling holiday levels of volume without much warning has been challenging. Chinese retailers may have had an advantage however as they were already preparing for the Lunar New Year, which occurred in late January.
For JD.com, Q1 2020 represented the company's second quarter facing the coronavirus outbreak, and restrictions in China have been slowly relaxing.
Huang said logistics is a business built on scale. "So, as we continue to grow in scale, our margin will naturally trend better."
In the U.S., Amazon saw a slightly larger 26% sales bump in Q1, but the company has been less successful at reigning in costs. Amazon.com generally posts larger profit margins than JD.com, however the Chinese e-tailer grew operating margins year over year in Q1 while Amazon's operating margin contracted in the same period.
CEO Jeff Bezos said in a statement accompanying Amazon's earnings release last month that he expects Amazon's entire operating profit in Q2 to go toward COVID-19 operating expenses. Amazon's fulfillment costs (which it doesn't explicitly define as JD does) increased 34% year over year in Q1. And the company announced last month it will pause its third-party logistics service beginning June 5.