JD.com takes heavy losses in first quarter after strict Covid-19 lockdowns disrupt e-commerce

JD.com reported a US$444 million loss in the three months ended March, which does not account for the Shanghai lockdown that started the following month
Sales increased 18 per cent for the period, but it marked the e-commerce giant’s slowest growth since going public in 2014

JD.com

Jiaxing Li

Published: 5:00pm, 18 May, 2022

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China’s Covid-19 lockdowns, which have severely disrupted logistics and dampened consumer spending, have dealt a heavy blow to the country’s e-commerce giant JD.com, which is known for its efficient national distribution and delivery system.

The company reported 3 billion yuan (US$444 million) in losses for the first quarter because of logistics disruptions and weak consumer spending, in sharp contrast to the 3.6 billion yuan in profit it posted in the same period last year. Costs in warehousing and transport surged when local Chinese governments rushed to impose travel restrictions and quarantine requirements amid the country’s worst outbreak since the beginning of the pandemic.

The heavy losses in the first quarter do not factor in the rigid citywide Shanghai lockdown, which started in April. Xu Lei, JD.com’s newly appointed CEO, said in a conference call Tuesday evening that the start of 2022 proved much harder for the e-commerce industry compared with the past two years, when restrictions were put in place for a limited time and affected a smaller portion of the country.

How Covid lockdowns have created a nightmare for China’s logistics industry

Both online and offline businesses have taken a heavy hit while economic powerhouses like Beijing, Shanghai and Shenzhen were paralysed by strict lockdown measures to various extents this year, Xu said. “The pandemic has affected consumers’ income and confidence and overall consumption is sluggish,” he added.

Sales for JD.com in the first three months of the year increased 18 per cent to 239.7 billion yuan, a record-low growth rate for the company since going public in 2014.

In addition to weakening consumption, draconian Covid-19 control measures have clogged up supply chains, with warehouses and delivery stations locked down for weeks to prevent Covid transmission. Truck drivers have also been forced to undergo repeated coronavirus testing and quarantines while travelling between different cities, prolonging delivery times.

“In April, the order cancellation rate was significantly higher than last year due to logistics disruptions,” Xu said. “The situation improved this month, but was still higher than a year earlier.”

The underwhelming performance of China’s second largest e-commerce operator reflects the downward pressure on the country’s economy. Last month, retail sales fell 11.1 per cent, marking the biggest contraction in economic activity since the first Covid-19 outbreak in 2020. The unemployment rate also rose by 0.3 percentage points in April to 6.1 per cent, the highest in two years, and the job market is unlikely to see a swift recovery.

Employees wearing masks move goods on a conveyor belt at JD.com’s smart logistics centre on April 28, 2022, following a Covid-19 outbreak in Beijing. Photo: Reuters

Amid flagging economic growth, China has signalled that it will ease up on months of crackdowns that have sent the technology sector into turmoil. After 18 months of regulatory upheaval for Big Tech firms, China’s leadership is now encouraging them to take a bigger role in bolstering economic development.

China’s vice-premier Liu He told the country’s tech leaders on Tuesday that the government will help boost the development of the platform economy and private firms, and support digital enterprises in going public on domestic and overseas capital markets.

While the lockdowns still loom large, e-commerce growth could see an uptick in the second quarter with easing Covid measures in Shanghai and upcoming midyear shopping festivals, according to Zhang Yi, chief analyst at iiMedia research.

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