There have been a groundswell of reports indicating that China based online retail provider JD.com is cutting back on operations and resources in order to meet profitability goals sooner than originally intended. It serves as a sign that China’s online sector is feeling the realities of a muting of domestic and foreign online sales growth and building expectations from investors. China's JD.com

The Wall Street Journal and some other global based media outlets, each citing informed sources, are reporting that China’s online retailer JD.com is in the process of retrenching, in the form of wide-scale involuntary headcount reductions and the closing of foreign outlets. The situation is attributed with a slowing China economy and rising online competition.

The publications indicate high level executive departures, including the provider’s Chief Technology and Human Resources executives, and that employee departures have become a daily event, while management’s perspective is now focused on identification of underperformers. A spokesperson indicated to the WSJ that the online provider was “making organizational adjustments” there were no plans for large scale cutbacks and that the company is taking a strategic view of each office abroad.

On Friday, CEO Richard Liu took to WeChat to indicate that JD.com has not implemented layoffs in four or five years, and that the ranks of employees who do not work hard have grown rapidly.

TechCrunch reported that on a social-media posting on Sunday, the online retailer indicated that it would eliminate existing guaranteed minimum compensation for some of its delivery couriers on a trial basis, in favor of a system that ranks performance. In an internal letter sent to the staff on Monday, JD founder and chief executive Richard Liu  indicated the company will scrap basic salary for couriers as net losses amounted to 2.8 billion yuan ($420 million) in 2018 at JD’s logistics unit. The logistics arm became a standalone business in 2017 and subsequently raised billions of dollars from investors. JD.com still owns an 81.4 percent stake in the logistics arm. The TechCrunch report observes that JD is namechecked as one of China’s Internet companies working 9 am to 9 pm, six days a week, or “996”, a demanding schedule that has prompted an online protest.

A leaked internal email to certain media outlets indicated the workers who “cannot struggle hard” could be ousted.

Perspectives

All of this is attributed to an online environment across China that had previously stressed aggressive growth and associated investments in technology and people to gain domestic and foreign market share at the sake of profitability. With signs that China’s tech sector is slowing in terms of growth, investors are now more concerned of continuing red ink. The online retailer’s stock, listed on the U.S. Nasdaq exchange, reported a net loss of 4.8 billion yuan in the company’s most recent quarter.

Our research arm had included a 2019 prediction indicating that positioning for online global retail presence would meet the realities for garnering shorter-term revenue and profits. Our belief was that ongoing geo-political forces would mute aggressive expansion plans to other regions, and evidence of that is now appearing.

China’s dominant online providers such as Alibaba and JD are publicly-held companies predominantly on U.S. exchanges. The scale of China’s online providers is far more expansive, and with that, built-out recurring costs.

It would seem that JD is addressing its cost challenges with behind the scenes actions to identify most productive people and assets.

From our lens, Alibaba is not immune to the current looking glass, and global audiences may well read more about added cutbacks in China’s online tech sector.

 

Bob Ferrari

© Copyright 2019, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.