Richard Liu, the founder and CEO of JD.com, sent a note to JD Logistics employees early Monday, calling for unity and cooperation from delivery drivers at a crucial time for the company.
According to an internal letter obtained by Chinese media, the e-commerce firm’s logistics arm recorded net losses exceeding RMB 2.3 billion ($343 million) in 2018. If costs from internal platform, JD mall, are included, that widens to RMB 2.8 billion.
“We have lost money for 12 years in a row… if this continues, the money we raised will only last for two years. I believe none of our brothers is willing to see us go out of business,” (our translation) Liu said in the letter, which said that the fate of the company hangs in the balance.
Liu’s remarks to employees comes just days after JD.com confirmed it would replace its couriers’ fixed base salaries with commission-based compensation, as it aims to increase income from external orders. It will also lower contributions to employee housing funds to 7% from 12%, which Liu stated remains within market averages and exceeds the government requirement of 5%.
JD.com spun off its logistics arm into a standalone business in April 2017, pivoting from an internal department into an express delivery company servicing both consumers and enterprises. It raised $2.5 billion in February 2018 from a range of backers including investment firm Hillhouse Capital, China Development Bank Capital, as well as Tencent. The transaction, which was JD Logistics’ first outside funding event, valued the company at around $13.5 billion.
It posted solid results after the spin-off, recording revenues of RMB 12.3 billion in 2018, a 142.0% surge compared with the year prior. However, cost of revenues rose 27.1% year on year to RMB 396.1 billion in the same period, primarily due to services provided to merchants and other partners, according to the company.
JD.com started building its own logistics network as early as 2007, including 500 large-scale warehouses and fleets of 100,000 delivery drivers to service customers across the country. The company announced it has more than 200,000 enterprise clients at the beginning of this year, according to Chinese media. However, the volume of external orders turned out to be “too small,” which resulted in “huge costs” for the company, according to Liu.