Internet & Tech

Failing to deliver

Is YTO Express keeping pace with China’s e-commerce boom?

YTO-w

Is a franchisee-base growth model sustainable for couriers?

On February 11, a netizen posted a photo to a Baidu discussion forum showing one of YTO Express’ Beijing sorting centres strewn with boxes, piled chest-high. The angry customer had arrived at the collection site to investigate why eight of his packages, which he had been told were at the express firm’s distribution centre in Huayuanqiao (an area of Beijing) six months ago, had yet to be delivered.

“Is Huayuanqiao’s YTO Express centre a Bermuda triangle or a black hole? How do packages come in and then never come back out?” he ridiculed.

More salaciously, the same netizen claimed that several former YTO employees had told him they were owed eight or nine months in unpaid wages and that the site was closed. All of this sparked fears that YTO was in dire straits.

Four days later, Sina Tech, a news site, reached out to a YTO representative. He explained that the photo showcasing the chaos was taken shortly after the Chinese New Year, when there was a sudden influx of packages due to e-commerce sites halting dispatches over the holiday period. He also denied the site had been closed down.

However, when Sina Tech went to the site to investigate they found that they had been misled. The Huayuanqiao service centre had indeed closed down. It had been operated by a franchisee, but the owner had suddenly absconded, leaving parcels undelivered and staff unpaid.

The franchised site has since been bought by another company, Sina Tech reported, and deliveries were due to resume after a couple of days. But YTO was refusing to compensate the workers who had lost wages due to the previous curtailment.

One worker told Sina that he felt YTO’s franchising system was “unreasonable”: YTO doesn’t support its franchisee’s employees, but it does fine its franchise partners for poor service.

Many franchisees don’t seem to feel any better about the system. Recently 10 of YTO’s franchised service centres in Hefei, the provincial capital of Anhui, went on strike because YTO’s fines were eating away too much of their profits.

But for YTO, the franchise and fine system is a good earner. According to CRNTT, a portal, in 2015, the firm reported a net profit of Rmb717 million. Ahead of its backdoor listing last year (see WiC344) YTO promised its 2016 earnings would exceed Rmb1.1 billion. In late January YTO told shareholders in a circular that it was set to meet its pre-listing pledge, saying that its bottom line for last year would deliver Rmb1.35-1.45 billion in profit, almost double that of the year before. Preliminary reports from other leading courier services including STO Express and Yunda Express have demonstrated healthy profit growth of over 60% and 20% respectively.

 

Sina Finance writes that the courier delivery industry expanded 30% last year in terms of parcels delivered, no doubt spurred on by another bumper year for sales on Singles’ Day (particularly beneficial for YTO, which was the first of the major couriers to start a relationship with Alibaba, see WiC327).

So perhaps the inquisitive netizen was premature in predicting the demise of one of China’s leading courier services.

However, since fellow members of the Tonglu Gang (STO Express, HTO Express and Yunda Express: so called because their bosses all come from Tonglu, see WiC344) favour the franchise model as well, they might want to take heed of the discontent it is creating at YTO.


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