By John Foley
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Want a Big Mac delivered to your door in minutes? Or a refrigerator by the end of the day? While U.S. retailers puzzle over how to make that happen, Chinas e-commerce companies are already there. Servicing the countrys web-connected consumers at ever-faster speeds is driving some big businesses, not to mention stock market valuations. The secret weapon: the humble delivery guy.
Chinese e-commerce companies have taken two contrasting approaches to shipping. JD.com, the online marketplace that resembles Amazon, employs over 24,000 delivery workers, and is using the proceeds from a 1.8 billion initial public offering in May to take on more. Its closest rival Alibaba, likely to complete its own IPO in the next few months, doesnt have its own logistics network, but depends on a huge ecosystem of other distribution companies. Alibaba is leading a consortium that plans to invest 16 billion in logistics.
In the West, companies like Amazon have struggled to bridge the last mile between warehouse and consumer at a low price. The ghost of dot-com failure Kozmo.com, which offered fast but uneconomical delivery of small items, hangs over them. By contrast, JD.com customers can place orders before 3 p.m. in some cities and receive their goods with no shipping charge by midnight the same day.
One reason is that while American e-commerce arrived when the country was already rich, Chinas online shopping boom has come while the country is still relatively poor, with cheap labour. That makes the last mile easier to bridge. The median U.S. local delivery employee is paid around 29,000 a year, according to the Bureau of Labor Statistics. A busy Chinese courier can make around 8,000 a year.Yet the cost of goods often isnt that different. The same pair of Nike Hyperdunk 2014 basketball shoes costs 118.44 on Amazons U.S. site and 150 on Alibabas Tmall marketplace. The U.S. shopper forks out 8.95 for shipping, while the Chinese buyer pays just 1.62.
Internet companies increasing investment into the last mile is causing upheaval in Chinas express delivery industry, which has 9,000 licenced companies, and which Credit Suisse estimates employed 1 million people by the end of 2013. State-owned EMS is being challenged by local and private players now that 60 percent of express orders are generated by e-commerce.
That calls for a more sophisticated kind of courier. Companies like Sherpas, which delivers for restaurants in Beijing, Shanghai and Suzhou, have grown by upgrading the image of the ubiquitous bike guy. (Sherpas front-line employees, like those of most logistics companies, are overwhelmingly male.) Its 200 or so delivery workers must be tech-savvy, presentable and able to handle payment on the doorstep. Those are the same kind of staff that JD.com and peers are aiming for too.
Even for China, though, unfriendly demographics are in the post. The typical e-commerce delivery worker in big cities is male and between 20 and 30 years old. But that group could shrink 30 percent between 2010 and 2030 according to forecasts from the United Nations. Wages are growing faster for lower-income groups and economic migrants in other words, those who deliver goods than for the richer folk who buy them.
Productivity and scale will delay the effect. Even e-commerce companies that dont run their own delivery have an interest in helping make courier companies more efficient. Alibaba offered weather and traffic monitoring for couriers working during its Singles Day online shopping festival in November last year. It makes sense: when millions of packages are late, its Alibaba whose reputation suffers.
Getting creative is another option. Shippers can shift delivery to local pick-up points, such as grocery stores, lockers and carts that park outside subway stops and office buildings. But the further the delivery gets from the front door, the more the advantage over traditional retail is eroded. Delivery by drone may happen one day, but not soon.
As efficiency gains fade, who bears the burden of rising delivery wages? Thats the big battle facing Chinese e-commerce. Once consumers are used to getting things for free, it will be hard to change their mindset. Sherpas charges clients 15 yuan (2.40) for deliveries within 3 kilometres and that price hasnt changed in 15 years. If consumers wont bear the rising costs, retailers will have to absorb them.
How this tug-of-war is resolved matters a lot for investors in a company like Alibaba, whose 46 percent net profit margin reflects the lack of its own fulfilment infrastructure, and for shareholders in JD.com, which has incurred heavy losses by controlling its own delivery. Most likely, the two will converge. Alibaba investors may not love that result. But for the average online shopper and the delivery guy its a gift that will keep giving.
Submitted November 21, 2014 at 11:57PM by tropulnetra http://ift.tt/1BUVUi3 tropulnetra
No comments:
Post a Comment