The other day, JD.com, which has always offered free shipping across the entire site, announced an adjustment to its logistics strategy, no longer implementing free shipping for all orders. In the future, JD.com will charge a 5-yuan shipping fee for orders under 39 yuan. This has once again brought the issue of e-commerce companies facing cost-related winters and strictly controlling costs into focus.
Liu Qiangdong: "I'm about to get criticized by everyone."
"Not making a profit" has been a powerful weapon for Liu Qiangdong. His statement that "books and audio-visual products won't make a single cent for five years" is well-known in public discourse. Similarly, "not making a profit" has also been a point of criticism against JD.com. Despite repeatedly breaking sales records, JD.com itself expects to only start turning a profit in the second half of 2012.
On November 22nd in the afternoon, JD.com CEO Liu Qiangdong posted on Weibo saying, "Tonight I'm about to get criticized by everyone! Alas...". As everyone was speculating, at 7 PM that evening, JD.com announced its delivery policy adjustment notice stating that "starting from November 25th, 2011, a 5-yuan shipping fee will be charged for orders under 39 yuan."
JD.com stated that this adjustment was made by referring to industry practices to ensure delivery service quality. However, diamond-level and double-diamond level users can continue to enjoy the special benefit of free shipping across the entire site. In the past, JD.com adopted a "free shipping across the entire site" strategy.
Analyst Chen Shousong from Analysys International believed that changing the shipping fee strategy would have a significant impact on the company. "For JD.com, which has had controlling costs as its main task over the past year, this strategic adjustment is not surprising. The courier cost of 4-5 yuan per order is not light if borne by the e-commerce company itself."
Currently, JD.com has implemented self-operated delivery in 183 cities and launched the "211 express delivery" service in 22 cities, with its own logistics delivery volume accounting for 70%. This delivery strategy adjustment is seen within the industry as JD.com's move to cut costs, once again bringing the notion that e-commerce companies are encountering cost winters and strictly controlling costs into focus.
Recently, a draft prospectus regarding Vancl (VANCL) has been circulating in the industry. The data shows that Vancl's "average order value is over 100 yuan, where logistics costs account for 30%, each order incurs warehouse costs of 2.2 US dollars, and sales revenue for the fiscal year before submission was 2.8 billion yuan." Chen Shousong believes that for e-commerce companies with self-built logistics systems like Vancl, these data reflect the high costs of e-commerce logistics.
Logistics is the core competitive factor
Intense market competition has led e-commerce companies to continuously pursue improvements in user experience, causing logistics costs to remain persistently high. Chen Shousong believes that even though e-commerce leaders have proposed adjusting shipping fees, second and third-tier e-commerce websites may not follow suit.
"Currently, competition in the e-commerce industry is fierce. Second and third-tier e-commerce websites, in their pursuit of scale, will not relax on price, which remains a key factor. Therefore, 'free shipping' will still be a heavily promoted strategy in the coming period."
Just yesterday, Amazon China openly challenged JD.com, stating that it will continue to maintain a policy of free shipping for all self-sold goods, claiming that Amazon China is the only comprehensive online mall domestically that persists in offering free shipping across the board for self-sold items. Wang Hanhua, President of Amazon China, said, "Logistics and delivery are extremely important links in the consumer shopping experience."
Logistics experience has consistently been the core competitive method for e-commerce services. In recent years, investments in this area by large and small e-commerce companies have been almost unlimited. In November this year, Yougou Online Shoe City announced cooperation with Vancl's subsidiary RUFENGDA Express, with RUFENGDA providing delivery services for Yougou in Beijing and Shanghai, achieving the "Vancl speed" of 24-hour delivery. Its CMO Xu Lei believes that this can greatly enhance customer shopping experiences while saving on the enormous costs associated with building one's own logistics system.
In contrast to Yougou and others choosing third-party logistics cooperation, another group emphasizes ensuring service quality through self-built logistics, such as JD.com and Vancl. According to JD.com's plan, its Series C financing of $1.5 billion will be almost entirely invested in logistics and technology research and development projects. This year, construction began on seven first-tier logistics centers simultaneously, with plans to invest 5-6 billion yuan over the next three years in logistics construction. The expected results include JD.com expecting to achieve self-operated logistics delivery in more than 300 cities in 2012, increasing the number of cities with "211 express delivery" services to around 35, and achieving three daily deliveries in core areas.
"China's logistics levels vary widely. In terms of service requirements and order increases, they cannot meet the rapidly developing B2C industry, forcing e-commerce companies to build their own logistics systems. These huge costs will eventually be passed on to consumers, and JD.com has just taken this step," said an e-commerce insider to Southern Metropolis Daily. Over the past year, logistics costs have increased by 10%-15%, making survival for e-commerce companies even more difficult.
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