China Consumer

Crisis management

Why JD’s Richard Liu is working 98 hours a week

Richard-Liu-w

Richard Liu: fighting bad news on multiple fronts

Even by the nightmarish benchmark of his brief jailing in Minnesota last September, Liu Qiangdong has had a dreadful week.

First, the same University of Minnesota student again accused the billionaire founder of the Chinese e-commerce giant JD.com of rape, with a lawsuit filed in Minneapolis four months after prosecutors declined to pursue a criminal case citing “profound evidentiary problems”.

The action, which also names JD.com as a defendant, seeks more than $50,000 in damages. The student, Liu Jingyao, is identified in the complaint as an undergraduate. In the lawsuit, she accuses Liu of forcing himself on her in her apartment last year while he was taking courses at the university.

As the lawsuit came to light, there were also rumours that Liu’s wife has filed for divorce from the tycoon.

That same week, JD.com, which employs more than 160,000 people, announced it is looking to lay-off staff across the company. The downsizing plan actually started back in March, when the company’s chief technology officer, chief legal officer and chief public relation officers handed in their resignations in quick succession.

The headcount in some departments will now be cut by half while Liu has opted to slash at least 10% of his senior executive workforce. Department heads will then be forced to rank and then fire their least productive staff.

“There have been too many people barking orders and too few doing the real work,” Liu wrote in an internal letter to staffers, according to 36Kr, a news portal.

Delivery couriers, too, were told that they are getting a pay-cut. Last week, Jiemian revealed an internal letter from Liu stating that JD Logistics, a unit of JD.com, has eliminated the base salaries of its delivery drivers to cut costs, leaving them on performance-based pay.

According to 36Kr, Liu has gone into “crisis mode” and the 46 year-old has also returned to the same arduous working schedule he undertook during the early days of JD.com’s founding in 1998: 8am to 11pm for six days, and eight working hours on a Sunday too.

News of the downsizings has left many employees discontented and distressed. “If you want to ask which company has the lowest happiness index in China, I think the answer is JD.com,” a redundant former insider told Jiemian, a portal. “I have been working for 20 years and never have I experienced such tumultuous changes as I did recently. I even had insomnia that lasted for days.”

But the restructuring has been a long time in coming. Even though JD.com had vehemently denied earlier rumours of massive lay-offs, many analysts suspected all was not well. In November, the e-commerce firm reported its slowest quarterly revenue growth since 2014 and its first-ever decline in new users. LarRival Alibaba did better but even it lowered its full-year guidance.

Meanwhile, JD.com’s costs began to run amok, reckons Huxiu. One senior executive revealed that procurement of servers alone set the company back as much as Rmb8 billion in 2018. “JD.com has only four profitable businesses (JD Mall, logistics services, technological initiatives and overseas business), and the others are all losing money. However, the Rmb8 billion expense almost wiped out all the profits the four businesses have made for the company. This is why JD.com is not profitable: everyone is squandering money like it’s nothing,” says the same insider.

In 2018, its net loss from continuing operations attributable to ordinary shareholders reached Rmb2.5 billion, compared with a net profit of Rmb116.8 million a year before.

More worryingly, topline growth has slowed. All Weather TMT, a tech portal, reported that JD.com’s gross merchandise value growth rate has dropped from 27.5% in the fourth quarter of last year to 20% in the past few months. The number of active users is growing but much more slowly. As of the end of last year, active users of JD.com amounted to 305.3 million, a year-on-year increase of 20%.

Investors have suffered too: JD.com’s stock is down 33% since last June and its market value has been reduced to $43.3 billion from a peak of around $70 billion early last year.

JD.com could at least find some comfort from the knowledge that one of its rivals has bitten the dust. Amazon last week announced that it is shutting down its China operations, including its fulfillment centre. Nevertheless, the US e-commerce giant still plans to let Chinese customers shop at international versions of the site (Amazon.cn holds just a 0.6% share of the Chinese e-commerce market, according to data from Analysys).

“The problem with Amazon is that it doesn’t offer big discounts and does not localise to accommodate the shopping habits of domestic users,” one source told China Economic Net. “Without dedicating enough resources in the market, it’s no wonder that its market share has shrunk.”


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